Good afternoon and good morning. I'm very honored to welcome you to this Legrand Capital Market Day that is webcasted live from our premises in Image. As you will see, this is really 360 degrees exercise, during which we will go through the Legrand Equity story, Legrand strategy as well as how the group is accelerating value creation. The World Executive Committee is there to provide you insights on all those aspects. The event will last 3 hours and a half, including 1 hour of Q and A session at the end.
For the attendees who are registered, You can already start asking your questions in the chat box that you have on your screen. Otherwise, if you wish to ask your question live, You can do it on the phone from the beginning of the Q and A session. And one last comment, Of course, this event is organized strictly respecting all applicable sanitary measures. And now I hand over the mic to Benoit Cokar, Chief Executive Officer of Legrand.
Thank you very much, Ronan. Hello, everybody. I'm happy and pleased to be with you today live from Limoges from our headquarters. We will try to make this Capital Market Day as insightful and energetic as possible. And hopefully, you'll have plenty of Questions to ask us at the end of this presentation.
So we'll try to show you how we are improving lives of our customers, warehouses spaces. And we'll of course try to demonstrate how we will accelerate value creation. A couple of words looking backward. I believe that this COVID-nineteen crisis evidenced the strength of the Legrand model. If we look at the main Legrand KPI, Financial KPI, they are either equaling or better than the pre COVID-nineteen crisis.
You have on the screen, for example, total sales, Organic sales trend, adjusted EBIT, they're all at the same level or higher than 2019. I have to say that we are not updating our numbers. And those numbers are based on what we said the end of July when we released our Q2 numbers. Same comment as for the CSR. Despite the crisis, we've been able to deliver above targets on 2019, 2020, and that's what we are shooting for in 2021.
So I think it's pretty different from what happened during the last financial crisis, and I think it demonstrates the strength of the Legrand model. Now it is a bit looking backward. If we look forward now, What will we tell you today? Number 1, we will explain you that we are on the right place to be. We are in an industry which is going to be boosted by a number of very exciting mega trends that you have on the screen.
We are in a low risk industry. We are an industry which will be boosted by secular trends that you know well, demography, electrification and number of others, as well as new trends. Well, I don't know if we should qualify them as new trends, but trends that are now on top of the agenda, on top of mind of people, policymakers and industry players. And we are now considered, I think, as a strategic industry. Not only we are low energy intensive, but on top of that, we are pretty high today on the agenda of policymakers and our market should be supported and helped by a number of plants.
So again, we are in the right industry, in the right place to be. Number 2, we'll try to show you that we have somehow sorry to be a bit proud of ourselves, but we have a unique profile with proven strategy, assets and end results. For example, we are the only building pure player. We have a number of players that are bigger than us, but they are a lot more diversified than we are. And we have a number of players focusing on the building sectors, but a lot smaller.
We are the only building pure play of a certain size. We have a crystal clear growth strategy, organic, inorganic. We have a strong ESG policy and a strong value creation policy. As you know, we have predictable results and our profitability and free cash flow are higher than any benchmark you could find. And last, we have an accountable and responsive organization, dedicated teams and strong ability and focus on execution.
So we are in the right place to be in the right sector. We have a number of assets which are pretty unique. And last piece. We have a plan, which is a good news. We have a clear roadmap to enhance our model and to make the most of the next cycle.
We'll spend a lot of time today explaining how we intend to boost top line growth with a number of levers that we're going to discuss. We will also show you how we want to foster our assets and processes. And we will, of course, push your leading ESE journey. We are at the end of our 4th ESG roadmap, and we release beginning of next year our 5th ESG, ESG roadmap. All that will translate into Results or achievements or targets that will enhance the value and that will create significant value creation.
And we'll have the opportunity with Frank Lemery, our CFO, to give you a bit more color on those targets. We intend to grow our top line between 5% to 10% per year, excluding exchange rate. And of course, we will not internally target the low end of this bracket. We intend to deliver approximately 20% adjusted EBIT on sales throughout the cycle, And we intend to generate keep generating significant cash flow, normalized free cash flow to sales ratio between 13% and 15%. So again, we'll elaborate a little bit more on those targets at the end of the presentation, but I believe those targets are very value accretive.
This is a team who will make the presentation today. So the Legrand full executive team, some of them being with me in the most in the headquarters, some others being remote from the U. S. Or from Dubai. You will discover them.
It's a good mix of experienced people. Some of them have close to 30 years experience in electrical products, And some of them are newcomers, and they will provide us with fresh blood and fresh ideas. This is a detailed plan of what we're going to discuss today. We'll start with Frank Lemery giving you a sort of a snapshot of who is Legrand today. So sort of ID card of Legrand.
Then with Gloria, we'll try to explain you how we will boost or our growth model and add to organic and inorganic growth capabilities. Then we'll give you with the zone leaders practical examples of this strategy with Frederic for Europe, John for North and Central America and Jean Luc for the rest of the world. We then focus on back office and HR with Antoine Burel, Deputy CEO and Head of Operations Carine Alke for purchasing and Belize Bahia for HR. And then with Frank, we'll come back to the midterm targets, and we will conclude this presentation and let the floor for the Q and A. Now let's go straight into part 1, a unique model focused on value creation.
And for that, I'm joining Frank Lamory, our CFO. So we will first go through the Legrand business model, then we'll focus on the growth oriented strategy, talk organization processes and then value creation. Well, it all starts with the products. And amongst all the assets that Legrand have the strongest asset, the one with the most value, the one which is at the same time the strongest barrier to entry and the strongest leverage we could have is definitely the product offering. We have a very large set of products, more than 300,000 SKUs.
And of course, it's a barrier to entry because any competitor that would like to compete against Legrand would have to build this product offering, which took years years, if the decades for Legrand to build. But it's also a strong leverage that we can use to grow because amongst the 300,000 SKUs, You for every single customer, you have one product that can make the difference. And once you have started a dialogue with 1 customer, where it's a lot easier to start selling and proposing the whole Legrand catalog. So really, we have the largest product offering in this industry. And again, I think it's the strongest said that we have at Legrand.
We are not comment on the slides. For those of you who have 20 or 30 minutes to spare As well as good glasses, I would suggest you to go through those 5 slides, which are interesting because those are examples of the products that Can be fitted into different type of buildings. So in this page, it's homes. Next page, offices. Then you have hospitality.
Then you have nursing homes for the elderly and then you have data centers. So a good example of number of products that we can put in all those spaces. Well, amongst the strength that we have, as I said, we are Unique pure plain buildings, you have here the breakdown of our sales, 40% residential, 40% non residential, 10% data centers. And the building industry will be driven by very exciting major trends. Again, we'll say a word about that a bit later.
Well, in total, we have about 100 product families, not easy to classify. We've tried to classify them into 2 categories. You have what we have called faster spending segments. Those are product categories or verticals that's going to grow faster than GDP, faster than the rest of our product offering. It's namely data centers, connected products and energy efficiency.
They provide us above market growth as well as access to complementary market and customers, and they represent 31% of our sales in 2020. And then we have the rest of our product offering representing 69% of our sales, made of Tens and tens and tens of different product families, wiring devices, AV, lighting features, circuit breakers and a number of installation components and so on. Well, the key message on this slide is, yes, we're going to discuss a lot about the 31% of faster expanding segments, but Let's not forget what we have called core infrastructure products. They are extremely interesting products. They are growing nicely.
They are nicely profitable provided you enjoy good market share in the market segments. They provide us with a lot of awareness amongst customers, Stickiness with customers, loyalty with customers. So again, let's not oppose core infra and faster expanding. Those are 2 highly complementary set of products, if I may say. And actually, you cannot build the 31% if you don't have the 69%.
You cannot be a hidden player In connected wiring devices, connected door entry, you shouldn't have a position in traditional door entry. That you'll see, of course, we'll insist a lot on those 31%. Well, we are in a highly competitive market. We have more than 3,000 competitors, a lot of competitors. We have classified them into 4 different categories.
We believe at Legrand that in front of each of those competitors, we do have a number of Strong competitive advantages, I'll name a few. We are facing a number of specialists, small to 1,000,000 size companies specialized in 1 or product categories in a couple of countries. Well, of course, those are interesting acquisition targets. But in front of them, we can really leverage our size, especially when it comes to investing into connectivity, cloud, API, size can make a difference. So being bigger than those guys is, I believe, a strong competitive advantage.
Then you have a number of category leaders, award specialists in VDI, electrical cabinet, lighting fixtures and a few others, big players, big names. We believe that the fact that we are sort of multi category player, active Many different product families, many different geographies makes a difference. If on the product category on which they are active, there is a technological change, for example, or if there is a very negative impact of the economy, well, they cannot rely and rebound using other product families. We can, because we are again active on 100 product facilities and not 1 or 2. Then you have the electrical giants that you know well, coming from the industrial world of from the big building, which are, of course, a tough competitor.
We believe that one of the competitive advantage we have in front of those guys is the fact that we specialized on small to medium sized buildings, so network of millions and millions of buildings, which represent actually 80% of the number of buildings worldwide. And for those buildings, the expectations of the customers on those specific buildings are pretty different from the ones of big buildings or industrial facilities. So we benefit from this connection with industry players, with industry with the installed part as well as with this specific positioning. And then last player, high-tech players or start up that are trying to make inroads into connected product category X or connected category Z. Well, the competitive advantage we have in front of those guys is that Most of the time, they specialize on CE consumer electronic type of products.
We are not CE players and we don't intend to be. We are an infrastructure player. We like when our products are installed into the wall. We like when there are wires, red and the blue, tubes, walls, secret breaker somewhere. And being an infrastructure player makes it different vehicle for those players to enter because you have To have a great expertise of construction techniques, you need to have a large installed park that they don't have.
You need to have a number of connections with industry players, as I said, you didn't have. So you see that we are quite a strange animal, if I may say, in front of all of those competitors, we do have a number of assets
to leverage.
Well, this slide is extremely important because you are here at the heart of the Legrand Business Model. You may ask, well, you have many competitors, what is your market share? Well, we are a 6 point €5,000,000,000 or €7,000,000,000 company out of market, which we define as being €100,000,000,000 But if you ask Other industry players, they could tell you that the market is worth €200,000,000 €300,000,000 €400,000,000,000 So you may end up saying, well, Legrand has a very small market share. At best, it has a 6% or 7% market share. At worst, it has a 1% or 2% market share.
This is not at all the way we look at our market. We don't want to be the one stop shop, selling all products for all buildings everywhere. We want to focus on a number of product categories that makes a difference. I'll take a very simple example, data centers. If you ask a data center specialist, the data center market is maybe worth €250,000,000,000 €300,000,000,000 At Legrand, we are focusing on what we call an addressable market of €10,000,000,000 not €250,000,000 or €300,000,000 but €10,000,000,000 because we are selecting categories which matter for customers, where we can make a difference and help them Solving a problem when it comes to power continuity, reliability, energy savings and other.
We are focusing on categories where technology and product can make a difference. We are focusing on categories where we have a clear path toward being a leader, local or regional leader and so on and so forth. And we don't pretend to be again selling to everybody, but we really want to focus on those product categories. So what matters for Legrand is not the total market share that we would have in a total market, but really Are we a leader in the category of products in which we play? And as you can see in this slide, we can proudly claim that we have 2 third of our sales as number 1 or number 2, Well, it's different from one region to another, but it's a KPI which we are tracking very, very carefully.
Last slide. We are seen for years now as being the best friend of many industry players. So we have a number of Benefits we are providing to all distributors. And our world is a complex world. You have distributors, electrical, specialist, DIY, retail, Internet and You have contractors from the 1 screwdriver guy to big contracting companion panel builders.
You have many specifiers. You have many end users. And of course, we do have to serve all those guys and ladies and that's what we are doing actively. You have to know that we have, For example, more salespeople that R and D people at Legrand. So we are actively trying to serve and to be the best company to make business with and to have products that are the easiest to distribute, the easiest to enter and the easiest to operate.
Now before turning to Frank, I propose you to Watch for a couple of our customers saying a few words about Legrand.
We are associated Legrand, since last almost 20 years, we are based in Pune, one of the most growing metros in the country. And we have counters in Pune where we service various types of customers like developers, industries and end users. Frankly speaking, Legrand products are a perfect combo of design and technology. The products are positioned in such a way that it fulfills a wide range of You see, Legrand products are well positioned in the market to deliver innovative design Legrand helps us provide these values to the customers. Legrand's power and protection has made us a very strong player in this electrical sector.
Legrand is respected in the market mainly due to the transparent and professional sales policies. The consistent business processes, new product approach, The ethical transaction methods has not only helped us build trust between Legrand and us, but also with our customers.
Hello, everyone. I hope that you are doing well. After the presentation of the Legrand Business Model, Let's focus now about our growth oriented strategy. Our growth is powered by 2 engines, organic growth and M and A. Innovation is the first and the very first key success factor for innovation.
What brings innovation It's value added for the full channel. It's value creation for the end user, of course, thanks to nice design, thanks to enriched Functionality, it's value creation for the installer, reliability of the product, easiness to install. It's also value creation, for example, for our distributors, thanks to our deep offering. Innovation, as you can see on the right part of the slide, applies to the faster expanding segment, but also in our core product offering. It can be quite technological, but also very practical, very pragmatical, pragmatic obvious.
So as innovation is an important success factor for our growth, We dedicate quite meaningful resources to innovation with R and D to sell in average close to 5%. Meaningful means, of course, significant. Meaningful means also efficient. And we are optimizing our R and D as Antoine will show you later. The second lever for organic growth is our pricing power.
And this pricing is driven by many items. Obviously, the first enabler for pricing is the innovation. There is no commoditization of our product. And thanks to the quality At the core quality of our product, price is not the main criteria for the decision maker. So the second category, I would say, of levers of our pricing power, it's about our brands, the loyalty of our customers, our leadership position.
But on top of all those inherent pricing power, We are organized to leverage to unlock the pricing. Thanks to a strong methodology, We have a comprehensive toolbox in order to manage the price. Thanks also to processes, we challenge and update regularly our sales price and also thanks to the skills of our organization, we have roughly 50 pricing manager within the organization. So now let's speak with numbers. As you know, Sales price has never decreased within Legrand since we are able to track these metrics.
Of course, it may have decreased on a dedicated product category on a specific country. But as a whole, for the group, it has always been positive. And in average, since 2010, the growth of the pricing effect is positive 1.5%. The 3rd lever for value creation and organic growth is upgrading the mix of what we call trading up. Trading up, it's increasing the value per unit with the same functionality for the end user.
And let's take the example on the right part of the slide once again with a switch. It's possible to turn on or off the light with a simple switch. It's possible to do it with a smartphone, thanks to a connected switch, But it's also possible to do it with a wireless and battery less switch, of course, connected. And then it's very cost effective because it avoids cutting the walls for the cable. And That example, what is interesting to see is that even if the price per unit is 4 times the simple switch, It's bringing value for Legrand, for Legrand P and L, of course, but it's also bringing value for the end user and for the installer.
Let's now turn to the 2nd driver of our growth, which is M and A. The strategy for the group of M and A is very clear. And by reading the slide from left to right, first, We are operating on a very large, very vast market. 2nd, we are selecting only the very best company, but only choosing the top 10%, it is still 300 opportunities that we are constantly monitoring. We have regular contact companies with those targets, which enables us to close roughly 5 deals per year.
All of them, of course, respecting our strategic and financial criteria. And last but not least, our docking process It's very industrialized. We have a lot of experience. We are quite a CIO docker. And accordingly, we have strong process to totally secure the success of the operations.
2nd slide about M and A is I suggest Looking back to the M and A recent M and A track record of the group to share a little bit more about our strategy. From 2010 to 2020, we have acquired 15 company, invested €5,000,000,000 and it brings to the group €2,400,000,000 of additional sales. 10% of the acquired sales were in the secular segment, so our core infrastructure product. Here, the purpose, the stake of the acquisition was about unlocking channel or geographical synergies. 45% of acquired sales were made in adjacent segment.
An adjacent segment, it's within It is a core infrastructure product, but for product family, which we are not part of our portfolio 10 years ago. And here the purpose, of course, is to expand our accessible market. And the last 45% of Aqua sales are in the faster expanding segment. And the stake here was obviously to improve, to enhance the growth profile of the group. Now it's interesting to see what are the results of the M and A strategy by looking a few example.
On the slide, we wrap up 3 very different example. They are different because they are rationales. We are different. It's different geographies, it's different segments, but all of them have provided new leadership position to Legrand. And all of them have met their financial expectations.
So those examples are quite illustrative of the quality of the M and A strategy of Legrand. And one could also have a look at the track record of Legrand, the constant certainty of our M and A strategy. There have been no material impairment, no material divestment, which means also that our M and A strategy was quite successful. After strategy execution, The group organization is twofold. Front office are local because it is the way the market is organized.
Back offices are global because this is the right way to optimize the resources. As far as front offices are concerned, Their mission is to design and deploy the best business model to grow profitably on their dedicated territory. They are accountable for what we call a financial performance contract. It's a combination of top line, EBIT margin and cost of capital employed. And accordingly, it includes all the major stakes all the major financial stakes of the group, market share, profitability, cash flow generation.
As far as the back offices are concerned, For the operation, their mission is to fuel the group portfolio with innovative, competitive, sustainable solutions. And as far as the corporate function are concerned, their mission, of course, is to provide good support to the whole group. Of course, the way The incentive, our design matters a lot to deliver our performance. We have within the group LTI, which is involving a broad base of our managers. Roughly 15% of our managers are benefiting from the LTI.
Obviously, the higher in the hierarchy, the higher is the ratio. And second, this KPI has been designed to fit very well with our integrated performance. So to sum up the 2 slide on organization and processes, roles and responsibility are very clear. We have solid management process and a smart LTI in order to beat the drum and to deliver our performance. I will now pause a little bit to share with you a video of Ravi, GM of 1 of our business unit, which will give you some insight about the item we just shared.
My name is Ravi Ramanathan and I'm the Vice President and General Manager of the Starline Business at Legrand. My primary responsibility as a general manager for the Starline business is really the profitable growth of the business in the United States and Geographies across the world. Apart from that, I'm also responsible for the successful docking of the Starline business into Legrand and helping maximize the value that the business delivers to Legrand Group, identifying opportunities for expansion through innovation Organically, as well as through acquisition. First is, we've had significant growth in the business in the 1st 2 years after the acquisition And are on track for more this year. Our end markets, especially data centers where a lot of our revenue is derived, Have really benefited in some ways from the pandemic with the acceleration of digital trends across companies, Acceleration of the adoption of cloud computing, bringing increased value from Legrand to further enhance our position across all of the different geographies We plan.
We've done this really with the docking process that has allowed us to maintain our customer focus, that has allowed us to really take advantage of synergies back office and front office And also ensure that our talent base and our brand are well taken care of and cared for. It is very selective in its process when it comes to M and A. As a company, we look for profitable, well run companies that have leadership positions in spaces that have potential for long term growth. I also think that we do a good job of considering the cultural fit of the companies that we acquire when making our acquisition decisions And that helps us well in the long term. We really make every effort to preserve the strengths of the companies that we acquire And improve their commercial capabilities, brand and other offerings, while also providing the kind of support that's needed With our strong global operational footprint and process footprint.
Okay. After strategy, organization, obviously, now the results. To show the value creation of the group, I will go through sales, EBIT, free cash flow, ESG and of course, the share performance. For sales, EBIT, Free cash flow, we compare Legrand with the benchmark of peers. The period is 2015 to 2020.
The methodology is to retain only not adjusted number, only GAAP or audited metrics. And what the number says in a nutshell is that our growth, our profitability and our free cash flow generation are better than the benchmark. Let's start with the top line. Total sales growth over the period for Legrand was plus 27% when the benchmark is a decline of minus 6% and organically, we grew plus 3% when the benchmark is flattish. And as you see in our 2 main region accounting for 80% of group total sales, we are overpassing or equaling the benchmark.
Moving to EBIT And free cash flow, the picture also is quite clear. Legrand EBIT and free cash flow are first above the benchmark, 2nd, at quite high level. And 3rd, very regular level. So to wrap up the comparison with the benchmark. Over the last 5 years, we grew more than the benchmark.
And for each point of growth, we deliver more value creation, thanks to better margins. Looking now to ESG, Gee, I know it's quite a busy slide, but the takeaways are very clear and there are 3 messages I would like to share with you. First one is the historical engagement of the group. CSR is really in our DNS since We started engaging this path more than 15 years ago. 2nd message, 2nd takeaway is that the CSR approach, the ENG approach of the group is quite solid.
It's based on Well structured roadmap is based on our commitment. It is based on audited KPIs. And the 3rd takeaway is that our approach is taking care also on the longer term. And just naming a few major stakes for all of us, We have ambitions, long term ambition for diversity, gender diversity for sustainable sales and for carbon neutrality. Let's conclude now the chapter on value creation with the shares price evolution.
If we look at the shares price since IPO of Legrand, which is really the t0 of for Legrand. Our share grew close to 400% over the period, which is twice the benchmark and 15 times the KEG-forty. On a more recent period, starting end of December 2015. We are above KEG-forty and below the benchmark. And as a whole, on the 2 period.
It's a quite nice TSR that we have delivered at 14%, including of course dividend reinvested. So that's it for the growth strategy, the supporting organization, the processes and the solid track record as far as value creation is concerned. Thanks.
Thank you. Thank you, Frank. So we are now at the end of this Part 1, which was dedicated, as you could see, to the sort of profile of the company. You have on this slide what we are used to call the building blocks of Legrand and what makes us different from many other companies. Now I'm proposing to switch to Part 2, which will be dedicated to the numerous things that we are doing to enhance our growth profile.
And for that, I'm joining Gloria, our EVP for So hello again. Couple of things that we're going to discuss during this part 2 with Gloria. Number 1, we'll go through a number of mega trends that will shape our market and shape the years to come. Number 2, we will spend a bit of time talking about what we are doing to enhance the traditional Legrand growth average. And number 3, we'll spend a lot more time digging into or deeper diving, if I may say, into the 3 faster spending segments, which are Data Center, Connected Products and Energy Efficiency.
Let's start with Megatrends.
Thank you, Benoit, and good afternoon and good morning, everyone. So looking into our relevant market environment And underlying drivers of growth, we do really see 3 major, for us, favorable underlying set of trends. So 1, secular trends 2, top of the agenda trends and 3, COVID accelerated ones. If we start with one really on this slide, the secular trends, they do show a growing world population with more people living in cities And a growing number rising up to the middle class. So if we just go for a second on the rising middle class, just to comment on 1, This is driving demand in household equipment as well as in connectivity and digital services, which all supports our growth path.
So if we get into the second and come into the second slide, Top what we call top of the agenda trends, we do see the development that buildings of tomorrow Not only have to be smart, connected, simple and safe, but also really have to be green And support the well-being and health of people living, working and meeting in it. So just to comment on environmental urgency here. As you all know, several governments enforcing climate friendly actions, setting up laws and boost programs really to reduce CO2 and also driving down energy consumption, we do see in that an important growth field for us in our connected And energy efficient products, also for data center. So coming to the 3rd and going into the next one, What we call COVID accelerated trends. So of course, we all know and we see that digitization has reached really every aspect of our life, be it the way we work, the way we live.
So really hybrid workplaces and working from anywhere becoming the new standard, leading to office layouts Being adjusted, which will require an increased connectivity, but also secure the deployment of digital collaborative tools. So this all will really continue to create opportunities not only for our legacy IoT but also Elliott products and for our data center offers. Benoit will now speak about our growth levers.
Thank you. Thank you, Gloria. So before digging into the Faster expanding segments. I'd like to spend a few minutes explaining that we are not inactive on our traditional gross leverage. You know that Legrand has been doing R and D forever.
Legrand has been expanding geographically forever. Legrand has been taking care of its customers forever, even though there are a number of things we are doing. Let's take them 1 by 1. R and D. Well, we don't believe that our road map will require Legrand to spend neither less nor more money on R and D.
So we can foresee that mid term we should be able to deliver a roadmap with a ratio of R and D to sales, which would approximately be 5%. Does it mean that we are not active at all in R and D? Of course not. As you can see in this slide, we have a number of KPIs that we are tracking extremely carefully, namely 2, the sustainable offering as a percentage of sales. And we have as a target, Gloria will say a word about that, to move from 70% to 80%.
And of course, the firmware and software content of our R and D. And we have today 15% of our teams dedicated to software. And it will be 25 mid term. 2nd item, expanding geographical presence. We are achieving 2 third of our sales as leaders.
This 2 thirds will not change because it's a sort of holding target. The more product you launch in a number of additional geographies, Well, the more it tends to dilute these ratios. So maintaining a 2 third of sales as a target is a good target, but we will increase the number of positions themselves. We have today 200 leadership positions and we'll move this number from 200 to 220, 40, 50, 60. And last item, we will, of course, continue to increase the number of countries where we have Legrand offices because we know that it's a super starting point for the whole Legrand story, to start with the rep office, then the assembly, then acquiring a company and then really deploying the full Legrand catalog.
Last item, We'll continue a number of actions to improve customer experience and intimacy with customers. And digital is going to be a super booster, if I may say. And as you can see on this slide, we have a target to increase our e commerce sales from 10% to 15%, as well as to increase the number of apps used by our end user. So very, very briefly and quickly, One slide for each of those three items. So R and D, as I said, in 10 years, we moved from 5% of R and D resources dedicated to firmware and Tuftsware to 15% or more than 15%.
And now we are shooting to move this 15% to 25% with 2 kind of priorities. Number 1, products. So we want to keep increasing the digital content of our products. This is the Elliott program that I will comment a little bit later. 2nd priority, what we have called software for building cycle.
Let's make it clear, we don't intend to sell Software and to become a software player for design and planning, of operating and maintaining. This is not our trade. This is not what we are good at. And we believe that it's going to be a very difficult place to be in a couple of years. So we are really focusing on software and firmware provided They help us to develop.
With 2 sort of positioning for small and medium sized building, we are providing our own developed platform. Very simple example, to operate a small office or a house, you can use M plus Control or M plus Security, for which is an undeveloped platform that we are not selling, but that will help us to sell a number of products. As far as medium and large building are concerned, the strategy is slightly different. We want to be easily interoperable with all protocols and all platforms. So we are protocol and platform agnostic, whatever the building.
So those 2 sort of priorities, Product and building cycle will progressively lead us to increase the software and firmware capabilities of our R and D team. 2nd example, geographies. Well, very traditional Legrand example. We can improve our geographies presence by opening new offices. And this is what you have on the right hand of the slide.
We have doubled the number of offices in Africa in 10 years and we intend again to double them and to move from 11 to 20. Or we can do that by acquiring good leaders locally. Best example I could find is the acquisition of NSTO. NSTO, which is a Finnish company, has a very traditional product offering. In the trade, it has Wire Mesh, wiring devices, a bit of recharging station.
And clearly, it's a very interesting play because it will triple our size in Scandinavia. So it will make us a relevant player in Scandinavia and it will help us to deploy the rest of our product offering. And last, the traditional leverage in which we are playing, improving the customer experience and the relationship with customer. As you can see here, we moved from less than 2% of our sales made in e commerce to 10% today, and we intend to move that to 15% midterm. Well, let's not misunderstand what it means.
Most of our e commerce sales are made through our traditional partners. 75% of our e commerce sales are Sales to our traditional partners, which in turn are sold online. And we are supporting them a lot to increase their online sales. So we are providing them with digital assets, configurators, rich content, dedicated marketing and number of other topics. And we want this piece of the sales to grow fast.
2nd type of customers, 19% 16% of our online sales, online per player, an interesting category, growing fast, focusing on a limited part of our product offering, mostly connected products and flow products, But again, an interesting category too. And then 9% of our online sales are made directly from Legrand to end user, notably on connected products and on the high end finishes. This is another piece we intend to develop. We don't believe that it will be a huge business going forward. It's more for us The marketing tool, we are giving a lot of customer insights with those direct sales to customer, but it will not develop fast.
So as you can see, R and D geographical expansion, Customer intimacy, even those leverage are traditional Legrand leverage, we are working a lot on them and we are trying to improve then again so that they can contribute to boosting our growth. Now let's come to we've discussed The fact that we will support it by will be supported by mega trends. We also said that we will work on the traditional gross leverage. Now let's focus on what we have called the faster expanding segments, which represent 31% of our sales. Just sort of mythological You can see on this slide that when you sum up data center connectivity, energy efficiency, it is more than 31% and that we have a line overlap.
Well, the answer is obvious. There are a number of products that fit into 2 or 3 of those categories. Best example would be PDU, power distribution unit, which are the sort of smart strips to which you connect servers, where those are Connected products used in data center to save energy. So they fit into the 3 categories. So this is basically why we have this overlap line.
So 31% and we intend to move the 31% to 50% midterm. Well, you may wonder why we haven't put a precise date. The answer is that many things can happen. It depends on our ability to fund the right acquisitions. It depends on the cycles and many, many things.
We have our plans internally. This is clearly directional, but this is our strategic intent. We think that mid term having Half of our sales in faster expanding segments and half of our sales in core infrastructure product is the right balance for Legrand to have the best of both worlds, growth, stickiness with customer profitability and so on and so forth. So Couple of case study for the 3 categories, data center, Elliott and Energy Efficiency, I'll not comment any of those Before deeper diving into the first one, I propose you to look at a small video.
World leaders in the connected home, Le Grand offers you the power to connect your home easily Respond instantly to alerts and notifications and control security, comfort and energy saving devices in your home by phone, Tablet or voice command, heating, video door entry, doorbells, cameras, blinds, And open the gate when leaving your home. Through its With Netatmo program, working with partners Such as Alders, Muller or Bubendorf, Legrand is creating a coherent and scalable ecosystem. And the confidence in knowing your investment and installation will benefit from the latest technological updates.
Let's start with data centers. Well, it has been a fantastic story for Legrand. In 3 years' time, we moved the share of data centers in our sales from 6% in 2017 to 12% in 2020 with a mix of highly targeted acquisitions and organic growth. So it's a very nice story, very nice positioning. We have a very specific value proposal for data centers.
Number 1, we'll see that we are adapted to all type of data centers. We're not solely focusing on colo or hyperscale or container. Number 2, We are really focusing on selling the best technology on a limited set of product families. Number 3, we have a high level of local customization and service, notably on our rack and cabinet product offering. And last, we are data center information management agnostic.
Of course, if customers want us to provide a DCIM, we can. But our Promise is to say, choose the best DCIM, the one you love, and we'll be able to connect our product offering. So very specific positioning. When it comes to our sales, as you can see on this slide, close to twothree of our data center sales are made in North and Central America, which represent probably 40% of the market. So we are overexposed to North and Central America because that's where we made a number of acquisitions.
As far as white space versus gray space is concerned, 93% of our sales are made in white space, despite white space represents only 55% of Our accessible markets. So we are overexposed to white space. And again, it comes from our history. This being said, We have a large set of products fitting not only into the white space, as you can see here, best way, PDUs, containment and so on, but also a large set of products that can be fitted into gray space, especially transformers, switchgear, UPS and a few others. So in total, more than 100,000 SKUs that can be sold into data centers, including 45,000 that can go to the gray space.
So We clearly have as an objective not only to continue to sell and to make inroads into white space, but also to become a relevant player in the gray space. Same comment as for the type of data centers. You have here a sort of schematic of the data center market with the size of the market, trends, decision makers and decision driver. We have value proposals for each of those data centers. Again, we are not solely selling to hyperscale or to on premise.
We can sell to all those type of data centers. We have fantastic room to grow. As you can see on this Right. Our market share is less than 5% market share in our accessible market again, less than 5% In Europe, in the rest of the world and even in the U. S, which again is 2 third of our data center sales, it's slightly more than 10%.
So we have Plenty of opportunities to grow our market share in those three geographies. And again, when you look at the gray space, white space split, you can see that In all of those three zones, we are very much white space focused despite we have for most of the countries the relevant offer to become a meaningful player in interest space. So, gross priorities in a nutshell, we will continue to do significant technology investment. We want to provide our customers with the best products for the categories in which we play. You have on this slide a couple of examples Our products we have launched or we are launching is the next bond cabinet range of UPS and the latest addition to the catalog is a claim fiber solution that was launched a couple of weeks back.
And we will continue to invest significantly in technology for the benefit of our customers. Number 2, we will Continue to deploy your platform. What does platform means? Front office and back office platform. Front office platform, We are building up what we call LDCS, Legrand Data Center Solution Teams, throughout the world.
And So that we can have a dedicated team leveraging, of course, local people, local asset, local ability to invoice, local brand, entries into specifiers and so on to sell data center solutions. And we now have LDCs teams in about 40 countries. And we have Already great success, especially in Europe. And you have on this slide a couple of good work that our teams did to secure meaningful and significant projects, both in gray and in white space. But platforming also means platforming back office, and we have built our position by doing a number of acquisitions.
I think the Number of acquisitions we made in data science is probably 12 in the past 10 years. And now it's time to combine these acquisitions together. So take, for example, racks and cabinets. From a collection of catalogs, we have built 1 catalog taking the best of each of the brands that we can propose to our customers worldwide. So platform me, this is a key objective.
And 3rd objective and 3rd priority, if I may say, finding additional acquisition opportunities. Last acquisition we did in data center was announced a couple of months ago. It's a champion one in the U. S. Doing OPTICAT transceivers being on the white space and border to the IT space.
We have in our pipeline a large number of data center potential acquisitions. As I'm sure that in the years to come, you'll see additions joining the group and reinforcing our plane in data Well, this was for data center. Let's now move to the 2nd faster expanding segment, which is Elliott Connected Products. Well, the objective is clear. It's to PayPay is a program to connect our existing product offering to enhance customer experience.
So today, we have more than 40 product families out of the 100 that we have that are connected and Eliott represented last year, 13% of our sales. Again, a very specific, precise, clear, Well understood from our customers' value proposal. Our products have to be simple to install, simple to use. We are selling products. We are not proposing recurring service fees.
And it's a strong competitive advantage, especially when it comes to selling door entry system, for example, or video phones. We are building cybersecurity by design, which will increasingly matter for our customers. And we are proposing the full set of products. You can take a connected products as an individual solution, if you wish, but you can easily fit it into an inter repairable system if you want to have a complete Building Management Solution. So very precise value proposition.
If you look at the breakdown of our sales for Elliott, it's It's well balanced between data center, commercial and residential, almost once a each. It's geared quite a lot toward the energy efficiency. 57% of our Helios sales are products that are meant to help saving energy, which makes a lot of sense, because Connectivity has a strong benefit to help to monitor, to report, to compute and to activate. And last, by geography, it's pretty well spread between North and Central America, Europe and the rest of the world. You have on this slide a couple of examples of products.
I'll not comment much because we'll see more. So this slide is important. It's what are we trying to achieve with Elliott and with the connected product. Well, it's a this slide shows a sort of symbolic representation of the market. The blue part, the lower end part are traditional non connected standalone products, the switch, circuit breaker, a thermostat and so on.
The upper end of the pyramid are complex, expensive building management system, which today are installed mostly in big factories or big buildings or very big data centers, but not in most of the countries. And we are trying with the connected products to number 1 democratize connected building by providing BMS like solutions to a larger number of buildings, smaller buildings, using connected products with hardware that are modular and light software that are easy to install, easy to configure, easy to use. And we are trying also to develop connected building by convincing people to switch from non connected to connected. So we are sort of eating on the base of the pyramid and eating on the upper end of the pyramid. And when we look at the numbers, the base of the pyramid and the The pipeline is growing about like GDP.
And clearly, the middle part of connected functions is growing a lot faster than GDP. So that's a sort of strategic intent to democratize Connected Buildings. Well, the penetration rate, I. E, the percentage of the Legrand sales we are doing in a category unconnected versus unconnected depends very much on the category. We have high penetration initiatives.
So 100% of the thermostat we are selling are connected. It's a very interesting case actually because we are not in the thermostat category when thermostats were non connected. And when they started to be connected, Well, naturally, fed into our portfolio of products. And now we are a significant player in Europe at least in connected So we have a significant piece of ourselves which are connected in thermostat, assisted living, PDU, video odourm3, Which is another good example, when we started our audio program 4 years ago, 0% of our sales of video phones were connected. Today, it's almost a third.
So you can see how fast the market is moving. And then we have what we have called mass opportunities, which are product families, which are not yet connected a lot. Two examples being wiring devices and protection pillars. Only 2% of our sales are made with products that are connected. And we see that as a nice opportunity because we are mass sellers of those products.
We have very significant market share of those products throughout the world. And if you can convince our customers to move from 2% to 10% or from 2% to 20%, the leverage we have on our sales is very significant. And EV charging is also a mass opportunity, not because they're not connected. 59% of our sales are already connected, but of course, because the market should go extremely fast in the years to come. We have a program we have already a large product offering.
As you can see in this slide, We do have already products to come and shatter, to meter energy, to switch on and off the light and so on. And we do have plans to broaden this portfolio despite, I believe, we already have today the largest product portfolio of connected products for residential and small commercial in the industry. Well, the difference between planned and possible, actually this is a snapshot of an internal slide. Plan our products for which we have a roadmap, possible product that we are still thinking about and where we have not yet formally taking the decision to switch. And you see the platform to operate and maintain those products are our own platforms, HomePlus Security for security related products, cameras for example, and HomePlus Control for energy savings and comfort related products.
Same for data center, large commercial. We already have a large range of connected products, some of them with a low penetration rate, but at least we have the products when it comes to UPS, emergency lighting, smart shading. And as for residential and small commercial, we have a plan And we have identified a number of product categories which we like to enter into. As far as operation and maintenance is concerned, you can see that the positioning is different. We don't pretend to offer the one software protocol that will come on everything.
Also more as you have to manage your legacy products, but we can propose products adapted to any protocol. You have a couple of examples here, KNX, LoRa, ZigBee, BATNET and a few others as well as compatible with a number of market operating platforms. So what do we want to do as far as Elliott is concerned? 3 priorities. Number 1, pursuing geographical expansion.
It is a fact that we're not selling all connected products in all countries. So we have a program to roll out our products into a growing number of countries. We have put on this slide the example of user interfaces. When we started the program in 2018, we were selling in 18 sorry, in 5 countries. Last year, it was 44 countries.
In 2023, we are shooting for more than 100 countries. So progressively rolling out all our programs. Number 2, we are launching additional product categories, Well, most of them being confidential. Sorry, I cannot be too specific. But here you have a couple of examples of categories we have either launched or announced.
For example, door lock, which would be a completely new category for Legrand, which should come in 2022, connected door lock. And last, we are working hard to enhance customer experience. And Frederic, Jerry, when you will comment on the European case, we'll say a word about that by working a lot on app refresh, optimization and progressive integration of a product offering into ecosystems. So we have discussed data centers. We have discussed connected products.
And now I'm turning to Gloria to discuss green.
Thank you, Benoit. So coming now to energy efficiency. We actively support our planet, Support saving our planet and stop global warming and, of course, the need of our customers to reduce energy consumption and CO2. We are very proud that we have been able to save already 10,000,000 tonnes of CO2 over the past 7 years for our customers. That counts up to 19% of our group sales in 2020, which contribute to that.
And we will continue, of course, to push this even further. I also want to highlight the specifics of Legrand here. So our products are really designed for all buildings, Be it small, midsized, big ones, renovation cases or new builds and really connect to most of the leading platforms. We do leverage our network of distributors, specifiers and installers and bring measurable Payback of up to 35%. So going into the next and coming to key figures.
Looking at our portfolio In Energy Efficiency Products, you see, we do have really a well balanced split between commercial, residential and data center and also balanced by geographies. So if we take a moment on those 3 verticals, now 1 by 1 and going into the first, Starting with data centers, we do see that our products can impact the energy consumption Offer data center positively on several ends, really leading to significant savings, as you see. Our offer range broadly from measuring and metering solutions, helping monitor and track better To products helping decrease the use of energy, thanks to their design, for example. Further, our offer helps to optimize IT equipment By better leveraging server capacities, for example. Coming to the second, commercial buildings.
Also here, our offer is broad and also well set up to contribute significantly to energy saving needs of our customers. We offer products also here to measure and optimize the use of energy, like with our Nemo Green measuring solutions And products to actively reduce the energy use, like with our lighting controller present sensors. On top, we also have tailored solutions that actively save energy. In hotels, just to highlight 1, Savings can range up to 35%. So this shows our positive impact on saving energy is quite remarkable.
Coming to the last, residential and small commercial, same approach as for the others. We measure and optimize. We meter and monitor, and we reduce the energy use. Just for example, from measuring your consumption, one can save up to 10%. So leveraging our Elliott program, connected offers in many applications are supporting the effective energy management.
So with those examples, you see that we really have a large product portfolio in all verticals To drive significant energy savings and reduce or avoid CO2 emissions for our customers. So if we go to the next, so if you really think about fighting climate change, the electrification of transportation It's really key to really to tackle this actively and to avoid emissions. So we took the decision to expand further into EV charging, not only to better participate in this high growth area, but also to further support actions around saving CO2 and towards reducing global warming. So really, with our latest two acquisitions, as you can see here, Ensto and Ecotab, This year, with the business we already had, we are really completing our product portfolio And also broadening our offering from a technical and also geographical perspective to derive to one of the most complete ranges, both AC and DC. So all in, EV charging Solutions now make already up to 1% of our group sales.
So summarizing it, Our growth priorities to support our customers around their need to save energy and reduce CO2 emissions are as follows. 1, we leverage actions around the stimulus plans and regulations For buildings to become more energy efficient and less CO2 consuming. 2, We deploy further our product launch programs to support those, roll them out and grow them Where really possible, as you can see. And of course, as already mentioned several times, we continue to explore M and A opportunities, Which support this strategy, as you can see from our recently done acquisitions. And we can tell you, we have a very long target list and a very busy M and A team, And we will continue to make deals or to invest in partnerships wherever possible and where it makes strategically sense.
We will now show you a video from our dear customer, Kim Gonillos, who is the cofounder of Fidcolo, a Finnish company which got rated top climate friendly data center by Greenpeace. Enjoy.
So FICO is now the number 2 data center In Finland, we started about 10 years ago. We introduced colocation basically to the Finnish market. Kim Granerius, Chief Commercial Officer
and Co Founder of
Trecolo. Sustainability has always been high on the agenda. There was an analysis done by Greenpeace at the time to see which one is kind of the most climate friendly of the data centers. And we actually got the top spot. The racks are key for building the hot I'm called aisle containment.
So with different kinds of requirements, you still need to take care of the cooling. So this could be an area where there's room For instance, we really need the supplier that's able to provide, shall we say, the speed we need And then be able to deliver the quality and tenderness. That's really the key part of the whole, Shall we say, working together with Legrand.
So what we presented to you was about Green by usage, our scope for products, which make 19% of our group sales and help customers saving energy. On top, We have a large offering, which is green by design and process. Here we talk about reducing our carbon footprint, SBTI aligned targets throughout the whole company, eco design and packaging of our products in line with circular economy and And other initiatives to tackle this topic really 360 degrees. Both our energy efficiency programs And Green by Design and Process Products make 70% of our turnover. So this not being enough, of course, we have higher ambition.
Our ambition is to reach 80% of sustainable sales by 2,030. With that, Thanks a lot for listening. Hope you enjoyed and giving back to Benoit.
Thank you. Thank you, Gloria. So We have explained how the market should be boosted by a number of exciting major trends. What we were doing to enhance our traditional gross leverage, we have Hatch a bit more into the 3 faster expanding segments, which are data center, connected products and energy efficiency. Well, we have 2 more leverage to that should enhance our growth profile.
Number 1, we should somehow benefit from A number of friends that will appear post COVID, and we have named 2. Number 1, Assisted Living. Homes have been a shelter for all people during the pandemic. And everybody has realized how good it was to be able to stay at home even at the time where you were losing progressively autonomy. Well, we are the 2nd European biggest player in Assisted Living Solutions and a strong believer that this trend should support our business.
2nd example, work from everywhere. No doubt that it will help and support our residential sales. When you want to remote work, you have to be equipped with network Capabilities and a number of other products. And well, we have estimated in the U. S.
That between a simple code driven installation for homes And more elaborated homes fully equipped to remotely work, you can sell potentially 4 or 5 times more you can do 4 or 5 times more But it is less intuitive, but this is also the case for offices. Yes, we might need less square feet because of remote working and all that. And according to specialists, at worst, if I may say, the number of square feet that could be potentially canceled. It's 10%, 12%, 15% at worst of the surfaces. But most of the specialists think that value per square foot will increase very significantly.
And we have done the math. And again, between a simple Basic meeting room installation and a more elaborated meeting room, which is which will help to accommodate many people With sanitary measures, good connection, good video, good ability to plug in a number of devices and a few others value could be multiplied by 10 per square foot. So again, those two trends should be somehow boosted, if I may say. Sorry for the word, but by the post COVID word. And last, I told you that we were on a €100,000,000,000 market, even though many players could define it in a different way.
Well, we think that this market will grow. The sort of core infrastructure product should grow close to GDP or GDP and faster expanding segments should grow faster than GDP. And midterms, this €100,000,000 will become €130,000,000,000 Interestingly, We have identified already additional €30,000,000,000 of additional categories that we could potentially add to a portfolio. So new categories are categories of products in which we are not playing today, which we see as highly From what we have today, that can be either in core infrastructure or in fast expanding and that would usefully complement our catalog. So this is very interesting because €30,000,000,000 should come from the market growth, €30,000,000,000 should come from additional product categories.
This has always been at the heart of Legrand strategy to progressively add categories of products. Well, that's what we wanted to tell you today about The many actions we are doing to enhance our growth profile. Now we will see practically speaking how we are handling that. And for that, We will be with Frederic Zery, Head of Europe John Seldorf, Head of North and Central America and Jean Luc Cartier, ahead of the rest of the world, and I'm moving to join Frederic.
Hello, everybody. I'm very pleased to share with you a very nice success story we have in Europe concerning the connected solution. But before that, I propose you to look at the key figures for Europe. So last year, We enjoyed €2,400,000,000 sales, representing 39% of the group sales. And as a reminder, On average, we were generating the last 3 years 21 percent EBIT margin.
On the right hand side of the slide, you can see the split by geography. But let's come back to the success story. Everything started a few years back when we launched the 1st door entry system Connected in Europe and it has been very successful in many different geography like France, Italy, Germany, Switzerland. And we have gained high market share. Based on that success, we have decided to build a complete unique system of connected solution, which allow the end user to manage completely its installation.
You have seen just few minutes before A very nice video showing you the features of those system. And we are able the end user is able to control You know by touch, by voice or by smartphone, it is a complete installation. Today, we are enjoying 1,500,000 users in Europe, 3,200,000 devices are activated. And we are leading the smart home revolution. And you see that it's representing already 5% of the European sales in 2020.
Below, you see the year on year growth and you can see yourself that it's a very dynamic trend that we keep on in 2021. Obviously, what makes us strong is our capability to be to have a kind of dual approach. We are strong in B2C and you see that we are in channel like Shops like Fnac, Laura Merlin, Amazon or some Apple Stores with our brands, NetATMO, Legrand, Betichino. But what is key for us is that we are very strong in the B2B part. And the fact that we are strong in B2C also, Our brands are visible.
The end user are very happy to request those kind of products and it makes life Much easier for the installer. So this kind of dual approach is a real asset for us and allowing us to grow fast. On the next slide, I will go quick on this one, obviously, because This is photos of very traditional product, but in fact this is the new connected offer that Legrand is Launching, you see that from 2018 to 2021, there is a lot of new product that have been enriching this system. Benoit has been mentioning the door locks that we will launch in 2022, a fantastic product. And The new EV charging solution that we will be having also in the offer.
So I have to say that we are very lucky at Legrand because we have the capability to propose to our customer a full set of connected product. And this is really unique. When you look at our capability to duplicate the model, well, it started with the R and D system, but we took The example of switch and socket, very traditional product. The first range connected Have been launched in 2018, as I said, in 3 countries. Now in Europe, we are present in 39 countries and Next year in 'forty three.
But what is very interesting is also what we described below is the capability of Legrand to be Everywhere answering to all standards. And you see that from 6 ranges in 2018, we are now at 13 ranges in 2021. And next year, we will be at 18 ranges of a wiring device And bending this new technology and this capability is very unique also to Legrand. When we speak about technology, it's obviously very important to be able to explain the technology to make it known widely and this is what we illustrate on this slide. You see that we have been training 30,000 installers till end of 2020.
At the same time, we have done mass communication campaign, digital campaign. And we have been reaching a lot of Customer in the chain, a 52,000,000 impression on YouTube and Facebook last year. And obviously, this is something we are doing every year to make sure that our system are known by the maximum of our customers. The best reward is obviously the feedback we get from customer. You see the rating of our 2 apps, Ompus Control and Ompus Security.
And you see also the comments The customer are doing online. This is very important for us to follow that and to make sure that We are always at the top because it's a direct link we have with the customer. And this is I mean, my conclusion and this is very important to understand that we are entering in a new world where Legrand is able to have The daily conversation with the end customer, which is very new through the app and for SmartHome, it's very important. We have all their feedback, obviously, but we can speak to them very easily. The first thing we do is that when They connect, we create the relation and this is important.
Then after Step by step, we create loyalty. And at the end, because we are proposing Through marketing automation, new product, new function, new capabilities, we are able to repeat sales. So this is the end of the presentation, but this is very important because this is the warranty of our success in the future. So thank you very much, and I give the mic to John now. Thank you.
Thank you, Frederic. Let me start with just a quick summary of what the North American key figures are. As was stated earlier by Benoit and Frank, we now represent a little more than 40% of the worldwide turnover of the group. And I would say, we are a full complementary player in terms of profitability and growth With all the segments that were mentioned. What I'm going to focus on today principally is our growth in energy efficiency.
Next slide, please. So it starts with the historical growth. I'm not seeing the slide advance, please. The historical growth in what we characterize as energy code or building code marketplaces, Starting with basic wiring devices used to shut off lighting when no one is in the room has evolved over time to now buildings, more complex buildings With systems, and that's been a big driver of growth for us. That is shifting with the focus on new mechanisms that look at the building holistically, think about the total Carbon footprint and environmental impact of those buildings, so that it's about optimization of the buildings, not just, if you will, the construction compliance
with Coats.
So, highlighting that for us next slide, please. A few years ago, we introduced a remote monitoring and management service for our lighting management system so that our customers could connect to us and understand how their buildings were actually performing versus how they were designed to perform. And the advantage here is that we can essentially be an extension of our customers as they actually live and operate in the building. And This has been extremely attractive because many customers have had to reduce their facility staff, and yet this is an important Dimension for them to manage and operate. So we have grown significantly in the number of buildings we're connected, the number of devices that are connected.
And the result is Typically, we can deliver between 10% 30% more energy savings than were originally anticipated by understanding how the building was actually operated. So on the next slide, I just want to show you an example of that. In this case, we're talking about a commercial office building In the middle part of the country, it happens to be an engineering firm. But what you see here pictured on the left is the dashboard of real time data that we are capturing with them that shows them how they're actually operating the building versus what it was designed. And in this particular example, Optimizing and making adjustments to the way that the building is actually functioning from a lending perspective, based on real world history, We've helped them reduce their energy utilization through lighting by almost 33%.
So a nice opportunity and a high growth Direction for us. If I expand that beyond the traditional commercial building, this slide please, this picks up on some of the trends that were talked about by Frederic Others and that is the connected devices can be used in this way as well. And what's nice is it's not only driven by, let's say, energy codes, but it's driven by other Interest on the part of the end user, such as if it may be related to security or Comfort of the occupant or sustainability on other dimensions. And what they use is our base products With communication capability to be part of a network, including other devices, typically using open system protocols, and they end up with And the ability to manage that infrastructure differently than they originally designed. So we currently have 22% growth rate over the last 4 years of smart devices that enable that function.
Again, taking you to an example of that It's an example with a hospitality company. And historically, from the next slide, hospitality companies have been a little intent to impose changes in how the infrastructure is operated, let's say, for the guest room because They don't want to have a bad experience. Now by putting smart devices in the room, as pictured on the right, they can not only manage The actual activity in the room turning, if you will, creating an experience when the guest arrives and keeping it cool not over cooling or lighting it when there's no need, but they also get better connection with their client, which translates into better loyalty. So this particular example is for a very large nationwide, actually international hotelier chain. And we've been able to work with them.
And depending on how they Optimize their actual installations, they get between 10% 30% energy savings from that installation. Moving forward, the 3rd area to give you example of how energy efficiency is affecting our business is in the data center space. It's important to note that data centers today probably represent about 1% of total energy consumption, but it's expected based on the growth Demand for computing capacity that, that will approach 3% in the not too distant future. So energy is a huge cost, probably the number one cost The data center operators have to be concerned with. Having said that, they're very, very concerned about reliability and performance And as a result, hesitant to design anything that puts them on the edge of of performance for their equipment.
And the issue is heat, managing the cooling demand in the building. What you see here pictured is the fact that While the demand is measured in IP traffic, the surrogate has been growing significantly, the demand for energy utilization has not And how has that occurred? Next slide, please. It's because they buy products like the ones we provide with smart PDUs, With metering capability or now with the additional Starline smart plugs that provide power from the busway, So that they can actually measure the actual usage in the at the sometimes at the server level And certainly at the capital level. And you could see the growth rates that we've been able to achieve with our product.
So moving to an example of how this has And deployed in this case, the example is one of the top 3 U. S. Banks
that
is a customer. In this particular case, We were able to profile for them their installation. And obviously, the first benefit is energy Usage, when you build a data center, you build the building and the gray space, but then you populate it over time in phases. And so the advantage of having the actual energy information that we provide is that they can adapt the amount of cooling that they require and the equipment that's required in the subsequent phases. So number 1, they get the energy savings of not Cooling the building more than it needs to be.
And actually, there's a second benefit, which is a significant reduction in capital expenditures because they don't have to buy the equipment to provide that cooling that was originally intended. So really good example how this particular customer was able to save over 30% On their overall cooling and consumption, therefore, energy spend. So So that's just a little bit of an example how we've been selling and deploying energy efficiency solutions in North America. And I'd like to turn it over to Jean Luc to Finish this on report.
Thank you, John. Good morning and good afternoon to all of you. First, maybe to start, my name is Jean Luc Cartier, and I am in charge of what we call internally the Latin America region, Standing for Asia Pac, Middle East Africa and South America. The perimeter is maybe better known by all of you as The rest of the world region representing in 2020 around 20% of the group revenue with the split detailed in the slide in front of you. So I'm very happy to be with you today and to be part of this digital meeting to give you an overview of the way the group is approaching the business of data center.
To move to the next slide, I will reuse a slide presented by Benoit earlier and even rephrase a bit what has been said. But I guess it's important to start with this introduction. So talking about business models in the data center space, I guess it It's important in my opinion to underline that there is not one single approach for this vertical, but as many different roads to market as types For data centers, starting from the smaller on premise on the right that is roughly a private server home and to the huge hyperscale, sorry, on the left hand of the slide. Often at Legrand, we split the market in 7 different types, All having a different business approach, different decision making processes and even different product efforts. For Armiza, our estimation is that the segment of hyperscale headers, cloud services and colocation providers will present roughly 60% of the total business and this part that is dominated by big players like the Gaffam or the Bags in China It's growing faster than the on premise segments, mainly because many companies are moving from own facilities to colocation.
As mentioned before, the business model is different for each category. But to make it more simple, maybe we can split it into 2 Many friends, colocation and hyperscale on the left, for which hosting and protecting data is, let's say, the core of those companies are basically looking for the best solution for each product category before Therefore, dealing, let's say, with brands and product specialists. And on the other side, what we call on premise data center, Basically, we are talking about private owned data center for example, the banking sector or governmental applications like defense. For those segments, the concept of turnkey solution could be an alternative to the product specialist approach, but not the only trend Only for that part of the slide. So at Legrand, we are well positioned today to answer to all needs, whatever the segments and business models, Thanks to a lot of different assets.
So among them, we have, of course, the best in class products coming from specialized brands like Carrington or Surf Artec For PTUs, Starlight for Busway is mainly for U. S. Customers like the big Gafam. We have clever product coming from Clever for PDUs and plus ways for the Chinese big players, AG manufacturing and makers for racks and containments among other products. Joining all together, we have today a comprehensive product offering for the white space that has been commented by Benoit.
We enjoy, at the same time, a good market penetration for some key markets in the growth space like India, Chile, Colombia among others in my perimeter, but of course, other countries in Europe are as well. We built a dedicated teams of specialized, let's say, highly skilled people for each product category. And those specialists join the group at the time of the different acquisition. Those product specialists are supported by a global Legrand data center solution teams localized in each key market to answer the need of project coordination as well as key account management. And from the operation point of view, when short time is required, we enjoy a rate of local facilities, Able to propose tailor made solution, for example, for racks, containment or even panel boards.
So moving to the next slide, No, no, sorry, the one you have in front of you. To explain a bit that this successful approach, this is a smart mix of specialized in corporate brand strategy, specialist in global business approach, global and local manufacturing, And it has been deployed over the years. And we have today a dedicated organization for all types of data center in 16 of the major office of ABMEA SA. And as you see in the slide, the strategy is, of course, to speed up the deployment in the coming years. Now moving to the next slide, I want to illustrate a bit this strategy with 2 examples, starting with Singapore, where all recent acquisitions have given us, let's say, a powerful footprint.
So we have there the full offer of PDUs for all big players, Whatever the origin of the specification, clearer for Alibaba. To be clear, Ravi can serve a thing for the Gaffam, specific offer of Starline Busway is Manufactured locally in Singapore for all customers in the data center space, a comprehensive offer of fracs, KGs and containment, thanks to the acquisition of SJ almost 10 years back, with an ability to answer all specific needs of the market In terms of, let's say, very short time. We have several global brands of Racks for global key accounts like Minkus For the players like in clinics, big colocation company, all the product experts joined forces to become a solid A team of data center specialists for the whole Southeast Asia region and all those assets have driven us to The great growth you see in front of you of 135% in 2020 in the data center space. The second new expression moving to the next slide It's the one of South Africa. So you know that the African continent is foreseen today as the next growth driver for data center in the medium term.
As the infrastructure, we'll have to serve all the needs of a very fast growing population, highly connected. So we are talking about around 2,500,000 people by 2,050. So today, 3 countries are likely to play a major role in the development of the data Country where we already deployed our business approach, a very similar situation like Singapore and the result is quite outstanding with what you see, more than 300% growth in 2020. And now moving to the last slide of my presentation, it's a kind of illustration of, Next slide please. Of several examples of the data center project in all continents.
So you will see that we are present in all types Data center everywhere in the world. It is also important to note that the value of a project start at 150 ks On the bottom left, up to €10,000,000 for some project, but of course, this size of project of €10,000,000 is quite, let's say, exceptional over usual. And that's it for the conclusion. So now a short transition before giving the mic back to Benoit
for the rest of the event.
And thank
you very much.
So Thank you to Frederic, John and Jean Luc. We are now heading to the last part of our journey with a quotation focusing on operations and HR. So we will first have Antoine A bureau that most of you know very well, Deputy CEO and Head of Operations then Karinel Alquay Carrot, the Head of purchasing and then Benoit Baillier, the Chief HR Officer. Antoine?
Yes. Good morning, good afternoon. Nice to talk to you. Operations, as you see on the slide, is basically innovation, research My first slide is about operations organization And why disorganization and clear allocation and roles and responsibility drive at Legrand a strong operating Let's take the example of the decision making process for new products, For having a good illustration of that. Of course, it is the responsibility of country managers to discuss what product they should have on their catalog and also give their local insight in terms of Design local market habits, price positioning.
But when it comes to decide How to develop? Where to develop? On which platform? How and where to manufacture? We have a global decision making Process at the level of group operations so that we are able to optimize 3 things.
First, the financials, cost and capital employed. 2nd, customer satisfactions, key features of the Legrand products, time to market, quality and third, sustainability. As you may imagine, that Operations have a big role on sustainability and CO2 emission. And when the manufacturing part starts, The production starts, the responsibility is transferred to country managers, the country manager where the production site is located. And he becomes responsible for the day to day performance of the manufacturing, and it also becomes part of his financial performance And to sum up, global management of structuring industrial decision and Local management of day to day operations activity and performance.
I move to the next slide. On this one, I will talk about the 3 main missions of operations and also Pain, those missions are very complementary, which is not so obvious maybe for you. The first mission on COLON-one is to fuel organic growth With a comprehensive new products roadmap, also innovative, and ensure customer satisfaction based on the key features associated to Legrand solution that you can see on the slide. Moving to the 2nd column. The second mission is to drive industrial competitiveness.
And for that, we have set at The Legrand level, what we call the Legrand Way Management System, which is for us the ways of working, the best in class ways of working. And this program is deployed across all the group. And on top of that, our industrial competitiveness is also supported I clear policies in terms of productivity, and those policies also are fully deployed across the group. I move to the 3rd column, sustainability. It's clear that operations strongly contribute to the sustainability journey of Legrand.
Of course, you can think about that as far as the CO2 emission is concerned, for example. I will come back on that on the next slide about KPIs and targets. As I was saying at the beginning of my comment, One interesting takeaway of that is that the 3 missions could be very complementary. Having a strong and Strong renewal of products. Of course, it supports sales growth, but it also opens The door to many productivity initiatives as far as reducing to cost is concerned, then you can lower your cost each time you renew the product.
And of course, if you reduce your material consumption, you not only reduce the cost, but you also do some CO2 savings. And you see the complementary sales growth, productivity and sustainability. 2nd example, footprint. We have a very active footprint optimization process at Legrand. And this footprint optimization, of course, is driving lower cost, lower capital employed, but at the same time, also reducing our CO2 footprint.
Moving on to Slide number 3. This slide is about Operations KPI to finally illustrate the 3 how we manage the 3 missions I have just presented. I will not go through all of them, but the key messages are: number 1, on the left hand side, And it was said many times during this meeting, we confirm the fact that we are able to maintain a 5% R and D to sales ratio, mid term ratio. And at the same time, onboard Skills and capability in terms of R and D for fueling the fast expanding segments that have been commented also today. 2nd, in the middle, you see that we have plans to further improve our operations performance, Very important to support group operating margin are also linked capital employed.
And for example, we intend to raise The level of productivity from 3% to up to 4%, many drivers. I have presented those I've heard on the preceding slides, but let me mention one interesting one, which is Industry 4.0. It's very interesting because with Industry 4.0, you have Very, very quick payback with very cheap CapEx. And finally, on the right hand side, You also see that we have very ambitious targets in terms of sustainability. Let me only focus on CO2 emission, then we intend to reduce our scope 1 and 2 emissions by 50% by 2,030.
Yes, the drivers are quite clear, reduction of energy consumption, but also a move toward green energy. And second, as far as COP3 is concerned, we shoot for a minus 15% by 2,030. And here, the main drivers are the shift of our suppliers toward also the green, but also the reduction of the material consumption Or as a example, the optimization of the transportation. This is for my part. I'm happy now to hand over to Karine, and it's also important for operations because Karine is Head of Purchasing and Purchasing is a major stake of The operations activity.
Thank you, Antoine. Good morning and good afternoon to all of you. We will now talk about Purchasing in Legrand and how it is an essential part of the value creation for Legrand model. 1st, let's look at the figures and our purchasing footprint. You can see on the left of the slide that our purchases represent a bit less than 50% of our external sales, 1 third for material and components.
Therefore, as said by Antoine, purchasing is key in the productivity of Legrand. On the chart of the left, you can see also our geographical footprint In terms of where our vendors are located, keeping in mind that Asia is the factory of the world. You can see that we have quite a balanced footprint in terms of sourcing. To leverage this cost, we have in Legrand a global purchasing organization. The buyers, corporate or local, Have the same objectives in terms of performance and CSR targets.
We have a mix of global and local sourcing approach in order to optimize the cost And availability of our components and materials. Now on the right part of the slide, You can see the split of what we purchased in terms of materials and components. And as you can see, we have a quite widespread scope of materials and components, which means that we are not significantly dependent from Any purchasing family or any suppliers. In order to leverage purchasing performance, we work On 4 main axes. First one, profitability.
As said by Antoine previously, we accelerate On one lever, we designed to cost, but also maintain negotiation and resourcing actions. 2nd one, reliability. We ensure through very well established risk and crisis management processes, The availability and the securing of our procurement. 3rd one, efficiency. We have efficient and working a lot on efficient processes with dedicated global reporting and tools that All our teams in the different countries share globally.
Last 1, but not least, sustainability. As already mentioned by Antoine, we met our vendors to achieve our SBTI and CSR targets, especially on decarbonization, Scope 1, 2 And 3, which is possible thanks to a very responsive and professional efficient organization and tools. As a conclusion, Legrand Purchasing Team is a mature organization with clear processes and objectives and priority and a clear contributor to Legrand objectives. I let now Benedicte speak about talk about our human resources and entrepreneurial spirit.
Thank you, Tarin. Good morning, everyone. Good afternoon. Well, the Legrand team is made of close to 37,000 employees based everywhere in the world. And the first region in terms of location is rest of the world with more than 40% of total headcount.
If we have to choose 3 attributes to better define the Le Grand people, they are engaged, Skilled and performance driven. We strongly believe that employee engagement is a key driver for our success, And we are really delighted to say that this year, we have reached 80% of engagement rate worldwide on average. The upskilling and development of our teams is a priority for us, and we maintain a high number of trained hours to employee in 2020 despite the difficulties caused by the pandemic. I will come back later on performance management. And in the meantime, I suggest us to listen to Jameelie Binot.
She's one of our General Managers. She runs a business unit in the lighting sector in the U. S. Let's watch the video.
My name is Gimmelie Bino, and I am the President of Focal Point Lighting and OCL Architectural Lighting. I've been with Legrand for a year and a half, but I've been in the lighting industry for all of my career. Being A business unit leader within Legrand allows me to be the best leader possible. And when I say that, it's because Legrand allows for creativity and innovation, But at the same time, I have an infrastructure. And when we talk about that, whether it be the IT support, The HR support, just business knowledge and information, I can leverage all of those pieces.
We're really focusing on our Innovation, corporate and social responsibility and profitable growth. So we have a very sophisticated customer And those are architects, lighting designers, interiors, and they value innovation and they reward us With their specifications in these areas when we are innovative. Corporate social responsibility is part of what's in our DNA. And so we always have to be measuring and holding ourselves accountable, whether it's the sustainability goals, we've put a diversity plan in place. It's our opportunity to be a better organization.
We are always more creative when we have diverse teams. And so it's important that we keep those diverse perspectives. Our specifiers also share our values in sustainability. The CSR is one of the reasons and our commitment to it why I would never leave this organization. If you think about how some organizations approach corporate social responsibility, they hire a marketing person.
And It's about telling the story, but not really walking that walk. And at Legrand, it's something that we live and breathe every day. It's It's a part of who we are, and it's why I'm proud to be a part of this organization.
As part of the Global Human Resources Policy, We want our employees to contribute to the purpose of the group, which is improving lives. That's why we make sure to provide them with an adequate and motivating work environment. And this has been recognized by various awards. If we want to select one of them, the brand on whole silver medal is a great recognition for the launch of our Corporate Learning Academy, Learning with Legrand, which is now available in more than 90 countries and which counts more than 20,000 Active users. Our general managers have a key role in the organization.
If we come back to their profile, Most of them have a sales experience as a background. And as you have seen with GMilly, a number of them are coming from acquired companies. Their first mission is to deliver financial performance. But what differentiates Legrand from other companies It's the fact that they are like local entrepreneur. They have full responsibility for P and L with sales and profitability, including Cost of capital employed.
But this is not only a question of financial performance. CSR is an important part Of the strategic plan, including diversity. Gender diversity is a major issue for us in the years to come. And this is one of the 3 topics for which we have set up targets for 2,030. You have the figures in front of you.
They have been improving over the past 3 years, but this is a long journey. This is why we continue to work on long term actions in order to bring on the whole organization to the goals We have set up and to be where we want to be in 2,030. An example is the GE's diversity label we obtained in 2020 for France and for our corporate policy and which we intend to extend to other geographies. Our diversity policy also covers the following dimensions: LGBT Plus, minorities, disability and next generation. So we have a lot of actions and results for all of them.
As an example, we have provided support to employees for their gender transition in the work environment. We have a high number of people with disability in our workforce in France, 8%. We commit to offer significant number of opportunities to young professionals. And we also Supported the creation of employees' resources group like Legrand Rainbow for LGBT plus And the Black Professional Network in the U. S.
And all of this and this is really important for us It's perceived very positively by our employees. The diversity and inclusion dimension Obtain 81% of favorable answers in our last global employee survey this year. To conclude with this Human Resources section, you have in front of you our global employee benefit program, Serendione, which provides a minimum standard in 3 areas: Parentality, Health and Death for Disability. And we are very proud To say that by the end of this year, we will cover 100% of our staff, which is not that common for a global company. Well, thank you for your attention.
And now Benoit will give you his closing remarks.
Thank you. Thank you very much to Antoine, Karine and Benedicte. So before formally concluding this C and D, I'm Giving the mic to Frank so that he can give us and give you a bit more color about the midterm targets of Legrand.
Okay. Let me walk you through the financial items of our midterms ambition, starting with sales. Our ambition as far as sales growth is concerned is to grow plus 5% to plus 10%, excluding FX. There are 3 major levers for that growth. The first one is the market.
The market will be will grow On behalf of some megatrends and just to name 2, digitalization and climate agency, it will also grow because we will expand our addressable market. 2nd lever will be to enhance our growth profile. Thanks to the many initiatives that we shared today. And just to name one notably, to grow the share of faster expanding segment from 31 to 50% of our sales. And obviously, the last we don't stop a success story and the last lever for our growth that will be to keep on with our bolt on M and A strategy.
As far as adjusted EBIT is concerned, we confirm that 20% is the relevant and sustainable level for Legrand. 20% combines in a balanced manner many factors. It combines a leverage from volume, pricing management, and spends for organic growth, demanding level of productivity, frugality in cost management, restructuring initiative and of course, the dilution of acquisition. So to sum up, 20% is the right balance for the growth. It's the right balance between appropriate resources to grow organically and it's also the right balance for a nice profitability to finance M and A.
And this 20% of adjusted EBIT margin is converted into a through free cash flow generation. And we are shooting on the midterm of normalized free cash flow ranking from 13% to 15%. And the way we intend to allocate our capital is quite balanced and is the following. More than 50% of the free cash flow will be invested into bolt on acquisition, while of course preserving the solid balance sheet that we enjoy. Around 50% payout ratio will enable us to Staying attractive dividend and there will still be some marginal share buyback on behalf of the good discipline not to dilute our capital because of our LTI program.
Thank you. Thank you, Frank. Well, beyond the financial targets, we also have, as you know, very ambitious EAG targets. So you have on this slide on the right hand of the slide our long term ESG ambitions and we have commented some of them, Climate and Carbon Neutrality, Sustainable Revenue and Diversity and Inclusion. And as most of you know, we are also putting an end in 2021 to our 4th CSL road map and we'll start in 2022 our 5th CSL road map.
And I can tell you that we will Take very challenging objectives and targets and this roadmap will be presented to you I think Q1 2022. Well, this is also for me the opportunity to introduce to you the latest addition to our executive team. She has not talked yet because she's a newcomer. She joined Legrand a couple of weeks back end of August, Virginie Gatain. I would let maybe Virginie say a few words.
Before that, just to tell you that Virginie, after her first experience in marketing in the luxury industry, specialized in sustainability and she's worked in the sustainability topic for more than 10 years now in international companies such as JC Doku, Heineken or Mondelez. And she accepted to join the Legrand Executive Team, Executive Committee to lead the CSR approach as Executive Vice President for CSR. Let you maybe say a few words, Verdelite.
Thank you very much, Benoit, and good morning, good afternoon to everyone. As Benoit just said, we'll have the opportunity to talk about Our CSR roadmap and pathway in a few months. But just for now, this is a nice opportunity for me to say I'm delighted to join the Legrand Group. It's really great to work for a company with such an amazing track record on ESG and with a really exciting CSR journey ahead of us. So I'm very excited to be here to be on board and looking forward to working with the group on this topic.
Thank you, Benoit.
Thank you. Thank you, Virginie. Well, In order to conclude, I have not much more to say than I strongly believe that Legrand is perfectly positioned to benefit from the next cycle. We are in the right industry. We are in the place to be today.
We have a unique profile and we have a clear roadmap. So now we are collectively ready to pursue our journey and to continue to accelerate profitable and responsible value creation. Thank you very much for your attention. Rodent?
Yes. So thank you, Benoit. So this is it for the presentation part of our Capital Market Day. As you will see, it will be available in replay on our website shortly after the event. So the question and answer session will start in about 5 minutes from now, I remind all the registered attendees that they can ask questions either to the chat and we have already many, I can tell you, or live on the phone.
They have a number appearing on the screen next to the chat box. And don't hesitate to dial the number from now, and we'll be very glad to let you ask your question live to the whole executive committee. So thank you, everyone, and let's meet back in about 5 minutes.
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Each device is carefully designed to integrate seamlessly. Data centers of all size are transformed into efficient and upgradable facilities. They have everything they need to meet ever growing data demand. In commercial spaces and offices, Our solutions let users adjust and control lighting and ambient conditions, improving comfort and Optimizing energy efficiency. With Legrand, businesses are ready and prepared for new ways of working.
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So welcome again, everyone. So we'll start now this Q and A session. And we will start just now with the first question over the phone.
Thank you, ladies and gentlemen. We will start the Q and A session by phone. We have the first question from Andre Joaquin from Credit Suisse. Please go
ahead. Good afternoon. Thank you very much for taking my questions. I've got one broad question about the strategic focus on Le Grand. When you started the Capital Market Day, you talked about You know the midsized building being the traditional area of focus.
And then when we talked about the key growth drivers, then we shifted into What seems to be kind of larger buildings such as data centers and hospitals. So I just wanted to ask a broad question whether that is leading to a shift Our focus for you into larger buildings and hence larger potentially higher voltages equipment. And somewhat related to that, when you talked about the opportunity in the gray space, in data center Specifically, I was wondering if you could talk a bit more about addressing that opportunity and how you can do that, whether that would involve potentially getting into larger UPS systems and or systems alike that, that gets you into those areas more directly. I could start with that, that would be great. Thank you.
Yes, sure. Hello, Andre. So first question, well, number 1, It's not because it's a health related building or a data center, that it is a big building. You have a large number of small data centers. You have large Number of nursing homes or small hospitals, for example.
So you don't have residential and small Commercial buildings and everything else being a big building. You have small buildings everywhere. Number 2, it's not because we are coming from The small and big and medium sized building that we are not able to seize opportunities in big buildings. We've already I mean, 10 years back, we've been able to secure, for example, in switchgear, the French Ministry of Defense, which was at that time the largest Electrical work in France. And we've been selling our products in big commercial buildings, big data center and big offices for 4 years.
So No, we're not shifting gear. The bottom line is that we believe that our positioning in small and mid size building It's a very strong asset because it's a lot difficult for other players to enter those buildings because the decision making process is spread between a lot of makers because usually don't have one single owner to talk to, because not a single of those midsized buildings are big enough for you to put in place a dedicated team to serve them. So for many good reasons, it's a very strong barrier to entry. Now We've been pushing to enter bigger buildings for years, if not decades, and we will, of course, continue. As far as UPS is concerned, well, gray space, you have understood it, it's not only about UPS.
It's about, for example, cast resin transformers. It's about switchgear. It's about power busbar. We do not intend to enter into medium voltage. We believe that Being a medium voltage player is not a must to sell low voltage.
And actually I don't recall that we have lost a significant piece of work because we wouldn't have a medium voltage piece. Now UPS or Switchgear or Busbar are very nice places to be. And even though we are a small player in gray space, can tell you that on those specific products, we are already a very meaningful player in commercial buildings, in hospitals, in universities and education and so on and so forth. So the reason why we are not yet big enough in data center is not coming from products. We do have the right products in both switchgear UPS and so on.
It's coming from the fact that we are a new player amongst the great space players. So we need to put our names into the specs. We need to demonstrate that we're able to serve This market with reliability, we are already securing a number of nice orders and I'm pretty sure that In 5 years' time, we will meet again maybe to give you an update on our strategy. We'll be able to demonstrate that we became a very significant player in ClearSpace. So To make long story short, yes, we are coming from the mid- and small size building world and this is a very strong Asset and the very same brand 2 and 3, but we've been doing inroads into bigger building for decades.
And number 2, as far as Grace Pace is concerned, This is not changing the business model of Legrand. It is just a matter of time before we can demonstrate a number of success and get to a meaningful market share in this space.
Very clear. Thank you. And if I may ask second question on the Productivity target going up to 4% per annum from 3%. Given that you're keeping the R and D to sales target about the same and at the same time, The group margin target has unchanged to 20%. I wanted to ask whether there is anything specific that you plan to reinvest that additional 1% of sales that you expect Generate from higher productivity.
Well, as you have noticed that we said up to 4. So we're not shooting necessarily for the 4 From day 1, it is an internal objective we are saving ourselves and we are happy to share it with you. All savings that we would do, productivity or other type of savings. For example, the year where we will have higher selling price than per saving price, All the savings, leaving potentially Legrand to exceed the 20% EBIT margin, will be reinvested into growth with, for example, additional expenses in communication, additional salespeople, Targeted price decrease, which might sometimes be necessary and into dilution coming from acquisition. So it's a very important number that Frank pointed out, don't forget that the 20% EBIT margin target is including each year Dilution coming from acquisitions, which could be minus 10 to minus 50.
So the initial savings we'll do will be reinvested into growth. And this is exactly what Frank said. We believe that the 20% EBIT margin, not that it is a major number, but this is a right balance between value creation and keeping the ability to reinvest into growth. We could very easily be 21% EBIT company, but I strongly believe that it would be at the expense of growth. It means that we would have to do less acquisitions.
It means that we would have to reinvest less SG and A into the business and it would definitely be at the expense of us. So this is the answer. Any additional savings we would do through productivity, pricing, restructuring will be reinvested into gross expenses and dilution coming from acquisitions.
Very clear. Thank you. I'll get back in the queue.
Thank you. Okay. Thank you. So Benoit, I think before we take another question over the phone, I see on the chat that there are a few topics that are regularly coming from both shareholders and investors and analysts. The first one is regarding the midterm model or the midterm target.
They look back on the organic growth and scope effect of the group and they would like to know Forward looking, what would be the split between organic growth and scope effect in our model on the plus 5% to plus 10%. And then the second question is around this concept of sustainable sales. What's in it? You mentioned 70%. How do you bridge it with the 19% of energy efficiency sales?
And if you have 70% sustainable sales, then it means you have 30% non sustainable. And what is it? Okay.
So as far as the first question is concerned, so we are shooting for plus 5% to plus 10% average top line growth, excluding ForEx per year. The first comment I would like to make is that it's a pretty nice target. And as Frank said, if we are doing that with a 20% EBIT and 13% to 15% normalized free cash flow to sales, it will be extremely value accretive for Legrand. Now how does it split between organic and inorganic? If we look at the past 10 years, let's say between the financial crisis and the COVID-nineteen crisis, let's say, 2009 to 2019, the past 10 years, We had an average perimeter effect of +4.2 percent and it includes Milestone, which as you know was a bigger deal.
So With Milestone, it was plus 4.2. Without Milestone, it was a plus 3. It's not out of reach to seeing that over the next cycle, we should be able to achieve more or less the same parameter effect, let's say, 3% to 4% per year. So having that in mind, when it comes to organic growth, either we are at the low end of our target, 5% all in. And then the organic growth would be more or less 2%, which is what we achieved between 2,009 2019 or will be the upper end of the guidance as the organic growth will be closer to 6% to 7%.
Well, obviously, we are shooting to do better than the previous decade. And we are shooting rather the mid of the guidance or the high end of the target rather than the low end. So in other words, in a nutshell, we are shooting to achieve more or less the same parameter effect as in the previous decade, 3 to 4. And we expect to significantly boost and improve the organic growth compared to what we achieved between 2019, I. E.
2% per year. As far as the second question is concerned, well, the math is pretty simple. We added all Sales related to energy efficiency, what we call what Gloria called scope 4, so all products and solutions that are used to help our customers to save energy. And to that, we added products which we see as sustainable by design. In other words, products that do have product environmental profile, which we are able to give to our customers saying how much CO2 it will emit both in the manufacturing phase and use phase.
And the combination of that makes us 70%. What does it mean having 30% of sales which are But it's basically 30% of our sales, which do not have a product environmental profile. Most of those being products sold by recent acquisitions. When we have acquisitions joining Legrand, It takes 2 or 3 years or 4 years sometimes before we are able to because it takes a lot of time, it's a big budget, before we are able to emit product management profile for their products. So it's not that we have by nature product that wouldn't be sustainable By design, it is just a sort of phasing issue that we cannot do that very easily from day 1 at the time we buy an acquisition.
Keep in mind that When there is a typical acquisition joining Legrand, well, it comes together with 5,000, 10000, 15,000 catalog members. It's a huge work to do this work. So again, I see no reason why we should be sort of structurally with a significant portion of our sales, which wouldn't be sustainable by design.
Okay. Thank you, Benoit. So I suggest we take now one question over the phone.
Thank you. Next question is from Andreas Willi from JPMorgan. Please go ahead.
Yes. Good afternoon, everybody. Thank you for your time. My first question is on the 31% of sales in faster growing Could you please help us understand how fast these businesses have grown organically maybe over the past 3, 5 years so we can better understand The contribution they have already made to organic growth and maybe what you expect these businesses to grow in the medium term. I know you give the 50% target as a share of the total, but that's quite difficult for us to work out given we don't really know how big Le Grand will be, what the acquisitions will be over time and what the mix is?
So that would be helpful.
Yes. Well, I can give you a number. Hello, Andreas, sorry. By 2015, so 5 years back, those 3 categories of products after accounting for overlap, represented 18% of our sales. So in 5 years, it moved from 18% of our sales to 31% of our sales, which if you make the math and my colleague will tell me if my number is right, should be a compounded average growth rate of 17% per year.
Out of the of course, it's 17% all in. Out of the 17%, you approximately have 1 third, which is organic growth and 2 third which is coming from M and A. So it gives you enough, let's say, meat on the bone to do your math. I have to highlight that, of course, it was easier, if I may say, in 2015, 'sixteen, 'seventeen to do growth on those product families because they were a lot smaller. I recall that I remind you that, for example, Elliott, it was 5% of our sales in 2014 and it's now 13%.
So this is for the past. So 18% of our sales in 2015 moving to 31% in 2020 moving to 50% midterm. How should we see the growth going forward? Well, we hinted that those products Categories should grow faster than GDP, whereas the core infrastructure products should grow close to GDP. So it gives you a flavor of the growth rate.
And it goes without saying that we'll be very interested to do deals in these categories of products. So I cannot give you a precise number. It depends on many factors. It depends on the underlying economy. It depends on the number of deals available at that time.
But yes, clearly, the 50% is consistent with what we have done in the past and it's a challenging but achievable target.
Thank you very much. That was very helpful. My second question on M and A, you mentioned just before the 20% margin target, the annual dilution you get from the continued contribution from M and A. But you should also get Margin improvement from the acquired businesses in the past, if you buy them at low teens margins and get them to group average over time, Shouldn't that offset the annual dilution from new deals?
Well, not exactly because you have a Sort of prerequisite in your reasoning, which is that we are taking all acquisitions up to 20% EBIT margin. Well, it is not always the case. And well, there are companies that we buy that are accretive to group margins, 21, to EBIT and we are happy enough to keep them at 21%, 22%. There are companies which are at 12% EBIT, which we are happy enough to take them to 14 using Legrand techniques, cost synergies, revenue synergies and so on. So we are not taking all acquisitions margin up to 20%.
Well, now this being said, it's a mechanical effect that when you buy companies which tend to have lower margin than yours, whatever synergies you're achieving, You are diluting year on year your profitability. Is it a problem to shareholders? I don't think so, provided, of course, we are paying the fair price. And with our policy, which is to pay a multiples that are lower than a multiples, as Frank said, To be value accretive, so positive impact on EBITDA within 3 to 5 years of the acquisition, accretive on EPS from year 1, I think that those acquisitions are good ones. But again, the synergies we are doing or the margin improvement we are doing in the acquisitions is not enough To compensate for the yearly dilution, which again is significant, I understand to minus 50.
I don't know, Torrance, if you want to add something.
Yes, yes, yes. Thank you, Benoit. Perhaps To complement about the methodology, the dilution we are speaking of is year 1. It doesn't mean that year 2 or year 3, If the acquisition was made at 15 percent EBIT margin, it has jumped to 20%. So the dilution of a new acquisition can last over years.
The minus 10 to 40 bps is year 1 for the acquisition.
That's very clear. Thank you.
Yes. Maybe just to add on that part because we have also the question several times in the chat is do you expect higher dilution from M and A going forward?
No, No. I mean, when we said that the targets 20 percent EBIT margin include a 10 to 50 bps dilution impact. This is more or less what we have experienced in the past years. The sort of proxy you should have in mind To do your model is that on average, when you are adding one point of perimeter impact, you are adding 10 bps of dilution. So no, I don't think it should change.
Yes, it is a fact that in the recent months, the prices for acquisitions have increased. And you have a fierce war from private equities, SPACs and a few industrials on acquisitions. Now it's our job to do smart acquisitions, wise acquisitions to pay the right multiples. So not cheap, but Not too expensive. So no, I don't believe that I'm not expecting the dilution from acquisitions to increase or to worsen.
There could be a year which is 50 minus 50 bps, for example. But on average, it should be more or less consistent with what we have done in the and consistent with the sort of target that we have of having a parameter impact between 3% to 4% per year.
Okay. Thank you, Benoit. So I think we'll take now another question over the phone, please.
Next question from Pierre Legrand from Deutsche Bank. Please go ahead.
Well, thank you very much. Good afternoon, everybody. I have 3 questions actually. So the first one and maybe I'll take them 1 at a time. The first one is about Slide 59, which I think is very interesting, in particular, the mass opportunities for wiring devices and protection panels.
So my question is, what do you think the penetration of connected offerings can be for these To specific categories in the medium term. I mean, how far can it go, let's say, by 2,030?
Well, I'm taking my crystal ball, Gael, To give you the answer, I have the clue. What I can tell you is that wiring device so, safety breakers and protection devices, it's Really a new product that we launched. We launched it a year ago. So I think that the numbers are not really relevant. As far as wiring devices are concerned, what I can tell you is that for the upper ranges, the ranges that we have, upper end ranges.
This 2% can be as high as 15% or 20%. And so it starts to be significant. And as it is the case in what usually happens in wiring devices is that Functions or finishes that are at the upper end of the ranges, they progressively go down to medium ranges and then to access ranges, Which is not negative, by the way, because yes, we have to sell those functions a little bit cheaper. But in terms of mix, this is a fantastic opportunity. So I think that this 15% to 20% upper end ranges could easily become 25%, 30%.
That's what we're shooting for. Now the challenge is how fast These will come down into medium ranges and excess ranges, and I have no clue. Will it be 100%? No. Now there's no structural reason why it couldn't be quite fast, again, 20%, 25% or 30%.
So the leverage and the mix can be very significant indeed.
Okay. Thank you for this. And the second question is about the Drivers for growth that you've mentioned, but clearly some of them have been around already for quite some time. So if I try to take a step back and look at the prior decades, I mean Legrand's volume growth has been fairly limited, right? So Can I ask what do you think went wrong in the past and can be avoided in the next business cycle?
Well, I wouldn't say that most of those engines were there 10 years back. Again, in 2015, it was 18% of our sales, which is half close to half what we are doing. So we have a lot accelerated on those three items In the past 4 or 5 years, Elliott is a program which was launched in 2015. Data center, I showed the number. It's an approach we started in 2017, 2018.
And energy efficiency, It's about in the same area. So I wouldn't say that those engines were there 5 or 10 years back. I think they are pretty new and we have constantly worked for 3 or 4 years to reinforce those challenges. Now again, to make things clear, Are we happy by the organic growth rate that we had between 2,009 2019? The answer is no.
2% gross per year, including pricing. So it means a very limited growth in volume. No, we are not happy with this growth rate. There are good reasons for that. We were not really helped by the economy, especially in Europe, which was a bit disappointing.
We had the double dip and stuff like that. Well, so no, we are not happy with the 2% and we are shooting for more significantly more now. It's good to look at Legrand. It's also good to look at our peers. And if you look at our peers, nobody did really better than us in this decade.
If you look at listed peers, You'll see that on this 10 year period, most companies did a 0%, 1% or 2% loss. So it's not specific to Legrand that the growth hasn't been very, very. So we strongly believe that with investments we've been making in the past 3 or 4 years, with the companies we've been we had acquired, With the game plan that we have in place, with the product investments that we are doing, we should be able to do more than 2%, definitely, Significantly more than 2%, the good years.
Okay. Okay. Thanks very much.
You're
not convinced, you're not convinced, Gail. You're not convinced.
No, no. Well, let's say, yes, partly convinced. But I'm sure definitely that the growth outlook for the company is much better today. So yes, and thanks again, by the way, for the granularity of the presentation. I think today was great.
Can I ask maybe a final question on the addressable market size and the scope to Traced that to €30,000,000,000 And I guess there are plenty of things you have in mind and you will probably not talk about them Today, but specifically your intention to launch smart door locks Probably as part of the smartphone revolution, but do you really think this is an area in which you can provide something different? I mean, It's also an area where very often the distributors of the channels are desperate, right? So I'm just wondering about the rationale.
No, no, I understand. I mean, we do not intend to compete a big scale against Assa Abloy. Clearly, this is not our intent. By the way, please look at organic growth of Assai Abloy in the previous decade. We do not intend to compete against Assai Abloy.
We think that it's a good complement to our connected home offering. And we are shooting for a couple of €1,000,000 at beginning, couple of €10,000,000 after a while, not couple of €100,000,000 And we have a number of customers that are telling us now that we have HomePlus security and HomePlus control, we would like to have a smart lock because on one app, we have outdoor camera, we have indoor camera, We have connected Videophone. Why don't we have door locks so that we can combine all product together and have one single seamless experience when it comes to my security. So it's really a demand which is coming from customers. But again, The challenge is to make from a couple of €1,000,000 to a couple of tens of €1,000,000 will not become one super big player in this field.
But it's a good illustration of interesting fields of activities where we could indeed enter.
Okay. Understood. Thanks very much. I'll get back in the queue.
Thank you.
Okay. Thank you, Gael. So maybe one question from the chat. We have this question that we expected a bit that is to you Benoit and to Karine is to get some comments on the short term pressure we are seeing at the moment on the value chain. How do we assess the situation?
How is it evolving? And how long do we think that this challenge will remain.
Well, I understand the rationale behind the question. And while the difficulty that Clearly, we'll not give you any specific update. The objective of this The CND is to talk about long term trends, not to give short term updates, neither about the sales profitability or constraint that we may have. I recall you what we said End of July, remind you what we said end of July when we published our Q2 numbers. It was that, yes, we were facing a number of Shortages and difficulties, not only for electronic components, but also for a number of raw materials, aluminum, for example, of Paul Lai Propylene and a few others.
And we said at that time that it was a concern that we were well equipped to deal with this issue that it hasn't led Legrand to stop any factory. That's what we said at the time of the release. And the next update will be provided to you beginning of November when we will raise our Q3 numbers. Sorry to not to be more specific, Ronnen, but you know the rules of the game between 2 publication, we are focusing on Midterm, not on short term.
I know the rules. So we will take another question over the phone, please.
Next question from James Moore from Redburn. Please go ahead.
Yes. Hello, everyone. Thanks for taking my questions. Maybe I could start with the faster expanding segments. I wonder if Is there any way you can help us understand the profitability given the different growth rates?
And I'm thinking about what that means for the mix Yes. Between the 31% and the 69%.
No. It's indeed an important question because you may wonder whether Moving from 31% to 50% may change the profitability profile of Legrand. Well, number 1 part of the answer Yes. In my previous answer, we moved from 18% in 2015 to 31% in 2021. And our EBIT margin was 20% in 2015 and we guided for approximately 20% in 2020.
So despite this switch or this move from 18% to 31%, The margin profile of Legrand hasn't changed. Now second, it is more, I think, insightful. The profit margin of Legrand does not depend on the segment. It depends on the market share you hold on this given segment. If you are in your product category a strong leader, You will enjoy very good market share, very good profitability, whether the product is faster expanding or core infrastructure.
If you have a low market share, you will have lower profitability. So to turn things differently, in data centers, Energy Efficiency and in Elliott, you have products that do enjoy your 25% or 30% EBIT margin. And you have products that have or need 10% or 15% EBIT margin. And the driver is market share. And again, this is the reason why we've been insisting so much about the fact that 2 third of our sales have a leadership position because this is a condition to profitability.
So in a nutshell, moving from 31 to 50 It's perfectly consistent with the 20% EBIT margin we are shooting for, provided of course we are doing it by developing and acquiring leadership positions.
Yes. Perhaps, James, in addition, Just to remind also that in 2015, the margin was not 20%. It was 19.3%. So Currently, the margin are slightly better. But the most important point is that the growing segment are not changing the margin profile nor they do about the R and D, the gross margin, the free cash flow, the cost of capital employed and the CapEx.
As a whole, the model is working globally on the same balanced way when we had 18% of our sales in the faster expanding segment as it does with the 31%, and it will be with the 50%.
Thank you. And you mentioned we're trying to ride the cycle at the moment. And I wondered if you could just talk a little bit about How you see the cycle? Because I can see nonresidential picking up in the U. S.
And Europe, maybe not China. But on the residential construction side, where You still have some decent exposure. We've had quite a, how can I put it, sugar rush market with everyone at home for a year and a bit? Do you see Any clouds or risks on the residential side of your portfolio going into next year?
Well, sorry, but this is part of the questions we cannot answer today. This is really Short term, we'll give you more insights about the year of 2021 when we'll release our Q3 numbers and more insights about what we can see in 2022 when we release our full year numbers. So it's a bit early. This being said, again, keep in mind the Legrand model. We can give you early signs.
We can give you feelings. We can give you internal analysis, but we have absolutely no order book. So I'm not sure that we are at the best position to give you really smart insights about what the market is going to do in 2022. Again, sorry not to be able to answer this question. It is a bit early.
We'll do that in a couple of months.
Fair enough. If I could just squeeze one last one in. On your plans for M
and A, the bolt ons, some
of the extra growth levers you talk about, I don't need particular technology gaps as opposed to market share or regional gaps that you need from here.
No, I'm not a great fan of technology acquisitions, I have to say. I'm a much greater fan of market share acquisitions. You have tens and tens of different ways to acquire technology. Of course, you can buy a company. Well, you can OEM a product.
You can buy some IP. You can license a development. You can hire good R and D guys. So no, we have rarely done acquisitions because of technology, even the acquisition of NetAppmoo, which was by many sense a strange animal. When we bought it, Net.
Atmo had a 0% EBIT margin. So it's not really the type of companies we are used to buy. Even the acquisition of Netatmo was not much technology driven. It was more to access a large portfolio of existing products or existing market share that it would have taken a bit of time to develop. So I don't believe we have a big missing technological piece.
And if we had, It wouldn't be a big concern to acquire it through licensing, hires, partnership and a few other leverage.
Thank you very much.
Thank you. Okay. Thank you, James. So one topic that is regularly coming in the chat questions for you, Benoit, the fact that We are highlighting an increasing productivity, stable R and D ratio, accelerating growth even if the midterm target is not changed. Why cannot margin go somewhat higher?
And similarly on growth, lots So positive drivers, but no changes to previous targets. So is there something offsetting all these positive drivers? So that's the first question, let's say. And the second one is the same on this 20 percent EBIT margin. Does it mean that some years it can be below, some other years above?
That's the question.
So the answer to the last question is yes. Slightly above, slightly below. So it's not 18, it's not 22. But yes, on a given year, it can be slightly above, Slightly below. We are not such a precise clock that like taxes every year it will be 2020.
Now for the 20 percent EBIT, I answered. Yes, we could very easily be a 22 percent EBIT company in 2 years if we wanted. And we do the recipe. We stop dilutive acquisitions. So instead of 3% to 4% perimeter impact, we have 0.
We reduced R and D expenses. We moved maybe from 5% of R and D expenses to sell to 4.5. We cut on a number of long term analysis, studies, investments. Potentially, we divest a few businesses, which are a 12% EBIT. 12% EBIT, it's nice EBIT.
And at the end, we are a 22% EBIT company. Now it would be done at the expense of top line growth. It's clear. We will do less perimeter growth, less Less organic growth. And I strongly believe that it would not be a good trade off for our stakeholders, including our shareholders.
We would be less value accretive that is a great way. As far as the 5% to 10% top line growth is concerned, again, you might be disappointed. I think that it's already over a full cycle quite a nice target. Again, I cannot be clearer than repeating again that we are shooting more for the mid or high end of this target rather than the low end. And this is the internal objective that we have and this is how the roadmaps I built at Legrand.
Well, it's not like if our targets were very old. We Made them public in February 2021. It shouldn't be such a surprise for analysts or investors that in September, we don't change them radically.
Okay. So I propose that now we take a question over the phone, please.
Next Question from Jonathan Monte from Exane BNP Paribas. Please go ahead.
Hi, good afternoon. Thanks for letting me ask a question. So I'm just I'm wondering, querying the route to market and how it might need to evolve over time. So obviously, historically, I think you're very much focused on selling to the electrician. I just wonder, customers seeking energy efficiency gains across the building infrastructure, and I guess that leaves the thoughts around ecosystems and connected products.
Doesn't that mean that it's more like the building owner or a consultant thereof makes a decision around what to install? And if that is the case, does your sales force I have to start pivoting to address those types of clients, particularly in the larger building space, if you want to take share there. Well,
I have to tell you that the vision of Legrand selling exclusively through electrical distributors, mostly to small contractors, Simple very simple and low face value product is a bit old fashioned. We've been dealing with plenty of different targets for years. We have extremely good connections with big contracting companies. We have very good connections with design offices. We are talking to a lot of end users, not only you and me in our home, but also big buyers or investors in buildings.
Now that we have Ecotap as part of the group, we increasingly talk to charging point operators. So it has been since a couple of years that we have started to diversify our portfolio of product and that we are able to talk to all these yield makers, Whether the buildings are small or big. Well, again, same as what I was saying a bit earlier, our position our historical positioning in small and mid sized building is an asset, because if you want to be relevant in those buildings, you have to talk to millions of contractors. I think in Europe alone, you have 1,200,000 of contractors. You have to talk to all those guys.
You have to be known by all those guys. You need to assess people visiting those guys. You have to have product. So it is a very strong asset, but for years we've been not only taking care of those guys, but we've been already talking to design office, engineering This is big panel builders, big contracting company, end users and so on and so forth. So it's not a concern.
We know how to do. We have already secured in the past big airport project. We have secured big towers. We have secured hyperscale data centers. We have secured Ministry of Defense, we have secured some of the largest universities across Europe, Asia or the U.
S. So it's not a concern for us. We know how to do. So it's more An opportunity to add business to this sort of historical positioning amongst small and mid sized building rather than some things that would radically change Legrand Business Model.
If you don't mind, what I've heard also in your question was about connected product. Does it deserve A different route to market because it would be more complicated to install or to sell. This is not the case. The beauty of IoT is that enriched functionalities are easy and easier to install that what they were before. Our mix in DIY, in online for collective product is quite high.
So don't think that because it is connected, it is complex and it deserves a different route to market. It's not the case.
As a follow-up to that, on the consumer side, the residential side, if you will, a lot of these connected products are effectively new Degrees that, I guess, consumers may not be aware of. And again, perhaps before, you were selling to electricians, but now you kind of need to create the desire in the residential space. Would that require then classic marketing spend in the way, say, an appliance company like an Electrolux, someone would have to advertise by billboards, TV, advertising, etcetera. Is that a marketing cost that's going to have to increase materially if you're going to properly penetrate that segment and get the kind of market The shares that Legrand is looking for?
No. I mean, we are already talking to end users, and we, from time to time, already do TV advertising. We did it in Italy, in France, in India, in Brazil, in many countries. Well, we may have to spend a little bit more to talk to end user and to our specifiers, but it will be at least compensated by Different expenses that we do to talk to traditional contractors. I can give you one very simple example.
Years back, we were used to issue 300,000 pieces of French catalog, also catalog for the French contractors. 300 1,000 pieces of 1,000 page catalog. You can imagine the sort of expenses it was. Well, now we are still doing a paper catalog, but we have switched a lot of Those contractors to digital catalog and digital tools, which are cheaper to manufacture. And 40% of our marketing expenses today, 40% for the euro are digital.
So even though it may require a bit more expenses to talk to end user, Ed, I'm not sure of that because we were spending on TV. I think today you better spend on social media and in app marketing and it's cheaper. It will be compensated by Cevix. We'll do elsewhere because our professional targets are now expecting from us Digital tools are no longer physical tools.
Maybe just one final question, so well related. So On the sustainability side, I think it was clear this thing about the 69% of products which are not the faster growing, But you're still expecting them to grow in line with GDP. So that would tend to suggest they're core. On the other hand, the more you're focused on Sustainability and increasingly laterally, it will be circularity. Are there potentially elements of the portfolio, Which, through that kind of lens, wouldn't be core anymore, I.
E, they wouldn't be green enough to deliver the kind of overall ESG Rating, for want of a better term, that Legrand is hoping to migrate across to? Are they just products which are never going to be green enough, maybe good businesses, may make good margins for you, But in some sense, you might actually be better off exiting
that. Well, I'm not sure I got the question actually. Maybe you did.
If I get the question, it was about is a part of our portfolio harmful to the environment and that we should Give it up. You said divest or give it up, but it would arm our top line. Is it that? The 30% of our sales which are not sustainable, should we give them up because, of course, there would be a damage fall to the environment?
Yes, exactly. It would impair your company's overall BSG rate, for one
No, no. First, the 70% that will become 80% is not based on it's our own computation. It's not based on You know, reporting stand out, the sort of taxonomy like exercise that would be used by all players, Number 1. And we are much welcoming if somebody can finally set up a sort of hold to compute. 2nd, again, the 30% are not, in a sense, Not sustainable by design.
Well, we acquired a company 6 months ago. They are not yet doing product and on-site profile. They will. They will. Now why isn't it 100%?
It is because Every year, we will acquire companies. Every year, we will have companies joining the perimeter of Legrand whose product will not have a product developmental profile. So no, no, clearly not. It's like if you were telling me, well, you have 2 thirds of your sales with leadership position, Why don't you sell the remaining 1 third so that you would have a 25% EBIT margin and the word would be franc4 desic for Legrand? Well, Same answer.
This 1 third are products where we have a leadership in country X that we are trying to sell in country 3Y, so yes, at the beginning, they don't have a leadership position, but hopefully they will. So no, I don't believe that it will make any sense for Legrand to divest Any of those 30%, which again most of the time are products we join or companies we join the Legrand Parimeter not too long ago.
Understood. Thank you.
Thank you. Okay. Thank you, Jonathan. So over the chat, yes, we have Several questions around this topic of what is the percentage of sales exposed to the EU taxonomy? What gives you confidence regarding the stimulus plans that will help us to accelerate growth given the previous programs and so on.
So here they are mentioning the programs after the GFC saying that at that time, you did not really boost the economy. So why are we more confident now on that front? And then the green, let's say, turnover as per the taxonomy rules.
Well, 2 separate topics. As far as the taxonomy is concerned, Well, things are not yet completely settled at the EU level. What we can today tell you is that most of our sales will be Taxonomy eligible. From what we understand, the eligibility is depends on your NAS code. And most of our products should be in the right mass code and most of our products from what we understand today should be taxonomy eligible.
When it comes to be taxonomy compliant, it's a different exercise and things are not yet settled and clear enough for us to give you a number just because it has not yet been decided at the EU level how companies, corporates or sales or CapEx or OpEx would qualify to be taxonomy compliant. I think that investors have a role to play, I may say. And you should also use your entry at the EU level and we are doing the same with our professional organization in order to encourage EU authorities to be extremely clear, Simple, pragmatic on this taxonomy compliance topic and not to build something which could be too complex. So In a nutshell, most of our sales will be taxonomy eligible as far as being taxonomy compliant. We don't know yet because things are it's a work in progress at the EU level.
As far as the potential impact of stimulus plan is concerned, well, It will definitely have an impact. I think because the political Strategy is clear and because it is now on top of the agenda of the EU policymakers. You can have a look, for example, at the fit for 55 recent initiatives, which clearly says, Well, as far as EV charging stations are concerned, I'm not sure that those are the exact numbers, but it should be orders of We should shoot for 1,000,000 EV charging station by 2025, 3,500,000 by 2,030 and 16,500,000 by 2,050. Well, this is a very practical example of business opportunities that we should be able to say that Legrand and on which we are working hard. And so one of the reasons why we acquired Ecotap.
2nd, there is also this Feed for 55 initiative. The fact that 3% of the buildings should be renovated every year. Well, this is fantastic. We've been advocating for years the fact that 1% renovation per year was not enough to have most of the buildings being energy efficient to meet the agenda of the EU. 3% is the right pace.
And last, there is an update of the energy directive stating that all public buildings should increase their Energy consumption by 1.7% per year. So it's extremely positive. Now the concern is that Too much text, too much updates. Now this money should flow into the market. And this is a big thing that we are pushing for among with our professional organizations.
It's a huge complexity at the EU level as far as regulations, directives are concerned, many of days, every quarter, many texts, Many inputs and now time has come to make this money flowing into the economy. And when it will flow, it will definitely have a positive impact on the market because by managing electricity, we are at the heart of energy efficiency buildings. And I think that it wasn't as high in the list of priorities of the EU policymakers after the great financial crisis was a priority was to do savings, if I may say, after the inflow of money. It is now the top, top priority for policymaker. And it is a big change.
Okay. Thank you, Benoit. One question from one of our historical shareholder that is around, I would say, we have 2 questions from him, but they are a bit linked. Is will M and A be focused on fastest emerging segment only? And are we assuming that our growth targets are embedding market share gains?
So I think the question behind is, do we will we defocus on certain segments of portfolio of our offering in order only to be focused on growth.
No. So the answer to the first question is no. There could be very interesting, very Acquisitions in more traditional segments. Good example being Ensto that we bought a couple of months back. We announced a couple of months back.
So no, I think that we will look at acquisitions in faster expanding segments and we look at acquisitions in core infrastructure products. And even what may seem to be a boring field of activity for some of you, Installation products, tubes, boxes, floor boxes, cabinets could be very interesting play for Legrand, provided they are bringing us market position on which we can leverage. So the answer is no. We'll do M and A all across the board, Geographies and core infrastructure as well as fast expanding. As far as our Top line objectives are concerned.
Yes, we are embedding market share gains. Well, it's always difficult in our trade to give you a precise market growth rate and a precise Quantification of the market share gains because it really depends on the product and on the market family. But what I can tell you is that internally, We have meet their plans to reach zone leaders, operations and financial functions are committed, which we are reviewing every year, where we are looking country by country, product family by product family at the market shares and that those internal plans in that indeed market shares.
Okay. Thank you, Benoit. I think we have one last question over the phone maybe.
Yes. We have one more question from Andre Kukhnin from Credit Suisse. Please go ahead.
Hi. Thanks so much for taking my follow ups. I wanted to check on a couple of things you said during the presentation. One was that You have no interest in going into design and planning our asset to monitoring performance management software, and you said that you think that could be actually quite a tough place To be in, in a couple of years, I wanted to ask why you think so of that becoming a tough place to be and Why you completely rule that out for Le Grand?
Well, because it's too exciting, Andre. This is what specialists call red ocean. You have a field of activity where everybody wants to go, software will eat the world. So everybody want to go there, electrical specialist, software specialist, service specialist. Well, my feeling that it's going to be a tough I may be wrong.
And even it's a nice place to be, it might be a nice place for others, but maybe not for Legrand. You also have to be aware of your strengths, weaknesses, This is assets. And I believe that it's not the right play for Legrand and it's not the area where we have the greatest chance to succeed. Again, I prefer to be in somehow a little bit more boring places, but where we have which are closest to our strength and where we have greatest chances to succeed and data centers, connected products with again a lot of software And firmware content into it, green efficient product, core infrastructure products are, I believe, nicest place to be. Again, follow on.
All those comments are follow on.
Got it. Yes, certainly some of those valuations in the space point to hype that word. And may I ask on the mid term growth target, You talk about 5% to 10%, but you say excluding economic downturns. And we're in this situation now. We obviously had a downturn last year that Just created a low base and as we're opening, we're bouncing back and hence the much faster growth in 2021.
Can I ask that can we expect that 5% to 10% target to be applied to 2022 onwards Until the next economic downturn, can we think about it like that without including the 2021 bounce back year?
Yes, you can. We are shooting to do that every year. So yes, you can assume that even without taking into account year 2021, which indeed will be higher than that, This is still a target we should have in mind.
Perfect. Thank you.
Well, I
hope the next economic downturn Turn will not be as tough as the COVID-nineteen one, neither as a great financial crisis. You can have downturns which are softer than those 2 ones.
That certainly makes 2 of us, yes. And just a final one, something we came across recently is the Conductivity Standards Alliance and the matter initiative that you're a member of, what's Your view on that, is this a game changer for the industry? And as we always think about these And standardization initiatives, they always, I think, come with a risk of driving at least a degree of commoditization of the hardware and breaking the kind of loyalty to single brands when everything is just plug and play. Just really interested in your thoughts on how you view that and where is Kind of the balance of risk and opportunities there for Le Grand.
You're talking about the matter opportunity, correct? Yes. Which is very exciting. Actually, we are part of it because Among the founding members of Matter, you have the Zigbee Alliance. And you may know or not that the Chairman of The Zigbee Alliance is a Legrand guy.
So we've been very active in the matter initiative. Well, matter For those who are not aware of this initiative, it is a sort of creation of 1 single protocol, which would become a sort of universal To call for a smart home, so that all connected products could easily communicate one with the other without complex interfacing. We would be delighted if matter would become such a big thing. It has a huge cost, as you can imagine, to provide product that are ZigBee, KNX, IP. It is difficult as far as customer experience to interface products using cloud and an app and an API.
The customer experience between Legrand product and Nest product, to take one example, is not as good as it should be because of protocol differences. So we strongly welcome 1 single protocol in the home, Again, because we don't want to be the 1 single player proposing everything. Yes, of course, we are delighted when a customer wants a thermostat, weather station, switch, panel board, indoor camera, outdoor camera, door lock, everything from Legrand. It is a top customer and we invite him twice a year to Dimanche. But it happens one time out of 100.
Why? Because most of the time people already have legacy product and you cannot ask them to get rid of all their products in order to install Legrand products. Why? Because sometimes in some geography, other products have a bigger market share than Legrand. So we have to Except that end user could mix and match Legrand product with X, Y and Z.
And what makes the difference is how good, how solid is a product and whether you can have a good experience with this product. And I think that matter will provide a seamless experience between Legrand product and 3rd party products that can only do one thing, which is to increase the overall level of the connected home. So yes, we are Extremely excited by this initiative. And again, we are part of it through our chairmanship in the ZigBee Alliance.
Thank you very much for your time.
Thank you.
Thank you, Andre. So now one question from the chat, Basically, on our ambitions on EV charging, today it's more, let's say, a European position. So what are our ambitions? You want to be global? Will we be very aggressive in terms of M and A?
What is the potential, globally speaking, and the targets? Well,
today you have 2, I think, 2 places where this market is really booming, Europe and China. We are a bit cautious on China because this is I'm not sure this is a market which will be nicely profitable. We'll see. So we are today focusing on Europe. And we have and Frederic, Head of has accepted to take a very, very ambitious challenge, and we are eager to make this €60,000,000 of sales, mostly in Europe, a much bigger story.
So I can tell you that even the remaining in Europe, which is Kimi said, even the remaining in Europe, Given the market share that we have, which are still small and given the numbers I gave you moving from a couple of 100,000 today to 6,500,000 charging stations in 2030. We have plenty of opportunities for growth. So yes, we'll focus on Europe. Now If we find good opportunities either organically or through acquisitions in the U. S, In Latin America, in India and even in China, of course, we will say there's opportunities.
But again, as a starting point, It's I think tackling Europe is good enough challenge for the teams.
Okay. Thank you. One question maybe for you, Frank. We have several times this question. Is trading up embedded in the pricing that we disclose every quarter or every year.
Yes. Thank you. It's a
kind of methodological question. The answer is no. Trading up is embedded into the mix. The way we compute the pricing is we have to have the same SKU reference, the same SKU numbers to consider that as pricing. So if we sell a connected switch versus a non connected switch, it's not pricing, it's fixed.
Okay. Thank you. One question for you maybe Benoit on the data center and our exposure to gray space. There is this question on the fact that a company like Vertiv made a big acquisition recently on that front. And the question is, what are our ambitions on the gray space and not to be North and Central America?
What's your ambition, sorry?
North and Central America for the greyspace.
Yes. Well, we have more ambitions outside of North America in great space than in North America. For those of you who know well Legrand, you know that in North America, we do not have a position in Swiss gear, Neither do we in UPS or in Power Bus Bar. So we have a number of plants to go into the gray space area, but we don't have the full set of products that would allow us to make it a big, big story. Firstly, we have Jean Seldorf has taken the challenge to do a number of interesting things and to leverage the current position we have in white space.
So The gray area game plan is rather for rest of the world and Europe, Well, which is exciting enough and big enough for us to provide years of growth. Grey Space market in the U. S. Is probably 30% of the world market. 70% of the world market for Grey Space is in Europe or in the rest of the world.
And here, We have the product offering, switchgear, busbar, UPS and more. We have all the service capabilities, including people to the presales to do presales and post sales. We have increasingly the brand legitimacy because we are able to get big projects. So we have all the necessary product and assets to grow our position. So limited ambitions in North America.
We have a lot of ambitions elsewhere And a lot more ambitions in Europe and the rest of the world.
And then the question that comes with it is, do we know what is the market split on our addressable market and data centers between white space and gray space.
Well, I gave the number. I think it's, again, On our addressable markets, which is only €10,000,000,000 worldwide, it's 55% white space, 45% grace pace. Now you asked the same question to Vertiv. I'm sure that they have a different split and different valuation of the market and the same if you have the question to ABB or whoever.
Okay. One question that is more, let's say, on the so still from the chat, I would say, on the historical model of Legrand and our strong relationship or stickiness with distributors and installers. The question is, how do you invest today in this relationship? And do you still invest?
Yes, we do. I mean, I'm a strong believer in the fact that electrical distributors are the most efficient to serve the market in which we are. They are extremely knowledgeable of the product. They have superb service level to serve contractors. They have such a deep knowledge of their customers that managing credit is not a big issue.
They have physical setting everywhere. Some of them have developed great expertise in terms of e commerce. So I think that electrical distributors are the best, Let's say, play the most efficient ones to serve our market. So we have very good relationship with them. Of course, we have tough discussion on price.
This is life. But otherwise, we are trying to build with them Plans to grow connected product, data centers and so on. Now we also have to admit that they do not represent 100% of the So I think they are gaining market share. That's my feeling. They are gaining market share, but they do not represent 100% of the market.
So we also have to deal with other customers, which are very respectful customers, because the market is made in such a way that you have many players that have a say in our trade. So yes, we are dealing a lot with them And we remain extremely committed to the electrical distribution channel as well as to the contract of sale.
Okay. One question also that is coming regularly on the margin level we are doing on e commerce, because it's vertical where maybe it is felt that we are a bit under pressure and that margins are a bit tight on that vertical. So is it true? Is it not true? And again, the question on the margins on the Elliott kind of
No, no, same answer for Elliott and for e commerce. Margin depend on market share, Not on whether the product is connected or not and not on the channel we are selling. So there are products we sell online, which are extremely profitable because they have good market share, others Sure, which have a low profitability. So I cannot I don't think there's any structural difference in profitability between e commerce And physical commerce. So moving up our sales in e commerce shouldn't lead to any specific pressure nor to specific support to the Legrand margin.
Benoit, if you allow me, the question behind the question is E commerce is bringing price transparency, and we would suffer for price transparency. But first, as we explained, we have the pricing power from The quality of our products, accordingly, we are there is no risk of price transparency of commoditization, sorry. And second, the price transparency is a little bit for Legrand for years. We have very big customers. So they know exactly what our prices everywhere in the world.
So if there were to be there is no reason that additional price transparency would damage our business.
And If I may add, there's also a lot of price transparency for foreign users. If you have your computer next to you, you can type weather station connected weather station. You have the net at Legrand net at one €200. You have some alternative at €10. Do the same with safety breakers, because we just curve B breaking capacity 6 ks.
You will have 100 alternatives of which 95 cheaper than ever. So there's always been a lot of price transparency in this market. Now we know that for customers what matter, it's not only Price, but it's also quality, reliability, availability, ability to be connected to a broader system and so on and so forth.
Okay. So that will be the last question before you will conclude the event, Benoit. So as this is the last question, It's up to you to
see That's the answer.
It's up to you to see how you end your answer
to it,
but this is the last one. It's more on the M and A part. So we are we showed that we were quite successful and saw all dockers. The question is, did you have any failure at all? And then any significant opportunity that you missed.
Yes, we had a couple of fellows and there are a couple of Small companies, very small companies that we didn't dock well enough. I have in mind Mexican company. I have in mind a company in Saudi. And I think we have learned a lot and we know that the recipes not to fail. But yes, we had a couple of fellows.
Now none of them were big enough for us to have a meaningful impact to the accounts neither on the top line nor on the bottom line. I think that most of the acquisition we've made were properly docked for a couple of reasons. Number 1, because there was the right ones, Successful companies. It's always easier to dock a successful company than a failing company. And number 2, because we have Made close to 200 acquisitions.
So we are used to docking processes and our managers, the processes are in place for successful docking. So We had a lot more opportunities and success than fellows. Have we missed? Yes, of course, we have missed a few. Well, none of the company that we have purchased in our trade in the past, Let's say 12 months is where companies that I would regret.
So none of them are Legrandis, if I may say. I don't recall of a company that would be strategic because it would have helped us to make very significant inroads into the strategic field of AET that we would have missed. When we have a company that we really want to acquire, we are ready to pay a little premium and we already did. So yes, capital failures, but small ones. Yes, couple of misses, but not strategic
ones. Is
it all? You can conclude. Well, thank you very much, first of all, to the Legrand team. But of course, More importantly to you, it has been a long event, 3 hours and a half. So thank you for your time.
Thank you for the support. We will be available for further questions. So please do not hesitate if things are unclear or need clarification. Ronan,