Morning, ladies and gentlemen, and welcome to today's Nagrand 2020 Full Year Results Conference Call. All participants are in listen only mode. Later, there will be a question and answer session. For your information, this conference is being recorded. At this time, I would like to hand the call over to CEO, Benoit Vakarin, PFO, Franc Lemery.
Sir, please go ahead.
Thank you. Hello, everybody. Good morning. Frank Lemery, Ronan Marc and myself are happy to welcome you to the Legrand 2020 results conference call and webcast. Let me remind you that we have published today our press release, our financial statements and a slide show to which we will refer, those documents are available on the Legrand website.
Please also note that this conference call is recorded and webcasted. Let me start with few opening remarks, following which Frank and I will comment into more details our full year results. I begin on Page 45 of the presentation with the 5 main takeaways of today's release. 1st, in the context of the crisis, Legrand deployed a proactive and responsible approach. 2nd takeaway is that While strengthening its competitive positions, Legrand delivered both financial and ESG very good performance With sales declining minus 7.9 percent in 2020, the adjusted operating margin reached 19%.
Free cash flow to sales stood at 17%, and we achieved 128% of our CSR roadmap targets. 3rd, while having accelerated synergies with previously bought companies, we announced today 3 new acquisitions specialized in connectivity and energy efficiency. The 4th takeaway is that Legrand has enhanced its growth model, which is clearly well profiled for the post crisis period. Now last takeaway, Legrand is developing its midterm model further. So moving now to Page 78 on the responsible management of the crisis.
From the beginning of the crisis, the group has focused on taking a responsible to all of its stakeholders by for example, by immediately protecting the health and safety of its employees and partners And maintaining services to customers, notably with an early reopening of production plants as of April. Page 8. Legrand also accelerated 1 off and structural initiatives to strengthen the pillars of its medium and long term growth, Including many marketing initiatives to grow market share, swifter digitalization throughout the group, quick and targeted adjustments of its cost base, The sustained drive for innovation with new product launches and safeguarded R and D capacities, Finalization of 4 acquisitions and keeping active contacts and Stepped up environmental, social and governance commitments with, for example, new carbon neutrality targets. After this introduction, let's start with an overview of sales on Page 10. On the backdrop of an unprecedented crisis, sales retreated in total by minus 7.9%.
This trend resulted from an organic decline of minus 8.7%, quite similar in both mature and new economies. In addition, the increase in the scope of consolidation was a positive plus 3.6%, while the impact of Exchange rates was negative minus 2.6%. Based on acquisitions already completed, acquisition driven growth would contribute around plus 2.5 percent in 2021. On ForEx, if we apply to the last 11 months of 2021, the average ForEx rates observed in January, then Theoretical annual ForEx effect for 2021 would be around minus 3.5%. Let me now go into more details regarding the like for like evolution of sales by geographical zone.
Please refer to Pages 11 to 13 of the slideshow. In Europe, organic sales were down minus 7.9% in 2020. In major countries, sales declined by minus 9.7%, Driven by a particularly negative second quarter due to lockdowns as well as a steady destocking by distributors. In New Economies of Europe, sales were up a solid plus 1.9%. In North and Central America, on Page 12, organic sales retreated by minus 8.7 percent in 2020.
In the U. S, sales declined minus 7 point 8%, including minus 10.7% in the 4th quarter alone. Good trends in bus ways and PDUs for data centers As well as in offerings for residential spaces were not enough to offset other segments. You should be reminded We had a good relative performance in the Q4 of 2019. Let me now move to the last zone on Page 13 with Rest of the World.
Sales were down minus 10.3% organically in 2020. In Asia sales retreated minus 7.1%. The area's overall sales were steady, excluding India, Which was severely hit by the crisis. In South America, net sales were down in many countries declining minus 14.3%. And in Africa and the Middle East, Sales were down minus 16.6%.
These were the main comments on sales. Let me now pass the mic to
Thank you, Benoit, and very good morning to all of you. I will start on Page 14, where I would like to stress 2 points demonstrating the good resilience of the adjusted EBIT margin. 1st, before acquisition, adjusted operating margin for the year came to 19.1%, Which represents a limited 0.9 decline versus 2019. Excluding the increase in exceptional customer gains and despite a market retreat in sales, the adjusted operating margin for 2020 was done by only minus 0.3. Reflecting the effectiveness of early measures to offset the impact of the crisis.
2nd is that excluding exceptional item, the adjusted EBIT margin for 2020 Stand at 20%. Moving now to net profit on Page 15. It was down minus 18% in 2020, reaching €681,000,000 This decline comes from the decrease in operating profit Together with an unfavorable trend in net financial result, a positive impact came from the decrease in absolute value Let's now share the last part of the financial performance on Page 16 regarding free cash flow and balance sheet. First, you can see that cash flow from operations Came to EUR 1,109,000,000 or 18.2 percent of sales, down very limited minus 0.2 points from 2019. Then working capital requirement decreased significantly At 6.8% of sales and therefore the ratio of free cash flow to sales reached 16.9%, I.
E, plus 1.1 points versus 2019. Last, the balance sheet remained solid with, 1st, a net debt to EBITDA ratio of 1.9 And second, cash and cash equivalent of €2,800,000,000 These were the key topics on the Legrand's 2020 financial performance. I give now the mic back to Benoit.
Thank you, Frank. Let me present now our 2020 ESG achievements on Page 17 to 20 of the deck. Legrand launched in May 2019 its 4th CSA road map structured around 10 key challenges t LeBron reported an overall achievement rate of 128% of its CSR roadmap, placing it again ahead schedule and demonstrating the group's commitment to creating sustainable value. On the next pages, 2019 2020, Legrand was again very active, enabling, for example, its customers to save 3,000,000 tons of CO2 on the year While developing skills and promoting diversity at the workplace. Two slides to conclude on 2020.
On Page 21, Legrand strengthened competitive positions in its main market While protecting its margin, generating strong cash flow and delivering CSA achievement ahead of its road map. And on Page 22, Legrand will propose a payment Of a dividend amounting €1.42 up 6% versus 2019. This would place the payout ratio at 56%, in line with the group's practice of offering an average rate of around 50%. So let's move to the 4th part of this presentation on Page 24 with external growth. So today, Legrand announced 3 new bolt on acquisitions of companies specializing in solutions for connectivity and energy efficiency In the U.
S, in Netherlands and in Italy, for total sales of close to €120,000,000 Those are all highly complementary, well known players with very promising positions. Now on Page 25, Legrand has continued to focus on efficiently docking Its recent acquisitions and maximizing synergies. In 2020, the group accelerated the successful rollout of new product lines outside their home countries. Now we would like to look at the future Through the 5th part of this presentation to see how Legrand enhanced its growth model So that it is well profiled for the post crisis period. I will be quite fast On this very important part from Page 27 to 44.
But of course, I'll be happy to answer any question you may have and to come back to a specific point. So Page 28. With solid leading positions accounting for 2 third of its sales, Legrand is a key player and a pace setter in its markets. The group exposure is well balanced between verticals. Each of them benefits from very supportive long term trends such as demography, lack of housing, new digital usage, Search for comfort and safety, energy savings and more.
Page 29, One of the key pillar of organic growth and leadership is innovation. Legrand pursued its innovation Devoting over 5% of sales to R and D and maintaining, for example, its software teams who account for over 15% of R and D staff. From Page 30 to 33, an update on Elliott, which is, as you know, the Le Grand program for connected offers that we continue to expand, it now represents 13.1% of total revenue with a good resistance in 2020. Amongst all those topics, I would highlight the successful docking of NetATMO, launches of new ranges and Continued geographical rollout. On Page 33, the key innovation through partnership, the co development of an innovative autonomous wireless connected switch that requires no battery.
Now from Page 34 to 38, we have listed some examples of products that meet emerging new needs With, for example, from Page 34 to 36, offers that can bring close to 10% energy savings at home, 5% to 15% in data centers or up to 55% in nonresidential spaces. And from Page 37 to 38, you will see new product launches answering the needs of improved connectivity, new work modes, security and increased comfort. This was for organic growth. The second growth engine of Legrand, as you know, is external growth. On Page 39, Legrand operates in a market of which half is managed by small and midsized companies.
This offers Solid scope for external growth. We track a portfolio of 300 leading local players with whom we keep very active contacts. Page 41. In its ongoing drive for efficiency, Legrand stepped up the pace of its digital transformation by increasing its digital presence and doubling its investments in Factory 4.0. Page 42 to 44, last part of this Chapter 5.
For over 17 years, Legrand has deployed a demanding and acknowledged approach to ESG. Legrand aims in particular to achieve carbon neutrality in line with the highest requirements, limiting the global increase to 1.5 Degrees Celsius above pre industrial levels. Legrand is also encouraging diversity in the workplace and is recognized for its exemplary governance through an independent gender balance and international board. Coming now on Page 45. Backed by a proven gross model and offers Driven by long term market trends, Legrand is developing its midterm model further.
Over a full economic cycle And excluding a major economic slowdown, the group aims for an annual annual sorry, an Average annual gross in sales, excluding exchange rate effects of between plus 5% and plus 10%, An average adjusted operating margin of approximately 20% of sales, as usual, of course, including restructuring costs. The normalized free cash flow of between 13% 15% of sales on average. At the same time, Legrand will continue to deploy a bold and exemplary ESG approach driven by demanding roadmaps with a particular focus on the fight against global warming and the promotion of diversity. And now on Page 47, the last topic of this earnings release with our targets for 2021. Based on current macroeconomic projections, Which are still very uncertain and assuming a gradual improvement in the world health situation, Legrand has set the following targets for 2021: organic growth in sales of between +1 percent plus 6 percent, total impact of the broader scope of consolidation and sales of at least plus 3 percent, Adjusted operating margin before acquisitions, so at 2020 scope of consolidation of between 19.2percent20 0.2% of sales, achievement rate of 2021 targets in CSA roadmap of at least 100%.
We are now ready to answer your questions. Thank you.
The first question from Andre Sveoli from JPMorgan. Please go ahead.
Yes. Good morning, gentlemen, and thanks for the efficient conference call this morning. My question relates to your guidance and assumptions. Maybe you could give a bit of a backdrop what you have assumed for the economy for your 1% to 6% range, particularly at the lower end, which looks quite modest. And your revenues in 2020 declined a bit more than some of the peers given your geographic mix.
So maybe Why don't you expect also a bit more of a recovery of that lower level? And on the profitability, You said that 2020 was close to the 20% level underlying. You should have some volume growth in 2021. You also have done quite a bit of restructuring in 2020. So why is the midpoint of the guidance for 21, effectively below the underlying level of 2020.
Maybe you could also include in that comment what you expect on price cost and the raw material. Thank you very much.
Hello, Andreas. So taking your three questions. So as As far as the guidance is concerned for 2021, number 1, we have, I think, to acknowledge that the situation remained highly uncertain And especially on the sanitary front. And clearly, if we take the Two hands of our guidance, plus 1% to plus 6%, plus 1% assume soft Improvement in the sanitary situation, for example, very low pace of vaccination, stronger than expected by most economists impact Of the sanitary situation and the economy, lower than expected impact recovery plans, potential additional destocking and a number Of tensions persisting, if I may say, such as U. S, China and so on and so forth.
And the higher end of the guidance, the plus 6, It's the other way. It implies an effective pace of vaccination. It implies that we do not discover in a few weeks and a few In a few weeks and a few months, there are variants that are resistant to vaccination and that lead the countries to take Additional sanitary measures, global resilience in investment and household consumption. So So plus 1 to plus 6 implies a sort of those 2 scenario, very soft improvement in the same And stronger improvement. It does not include, of course, the situation whereby The situation in 2021 on the sanitary front would be worse than in 2020.
If for whatever reason, The vaccination is not effective at all and there are new variants which are tougher than the existing one. And that if We are in a series of additional tough lockdowns implemented by the government, then of course, it's a different story. So this is sort of 1 to 6 Guerin, as we have said, as far as the comparison between X, Y and Z, I really have As usual, tell you that it's always difficult to compare Apple and Banana. All of us do have all the companies do have a different geographical Do have different vertical exposure. For example, looking at 2020, it is a fact that we are More exposed to other companies to Southern Europe, including France, Italy, Spain and Portugal, which were hit More than Northern Europe, for example, or Eastern Europe, by the epidemic and by the series of lockdown, We are also quite exposed to geographies such as India or such as Latin America.
So I think that you cannot compare between peers and companies without taking into account the geographical breakdown of ourselves. What really matter and what we are looking at Legrand is geography by geography, how are Our market share is moving and that's the most important piece for us. We, of course, do not want to see Legrand Losing market share on its key market segments. And we have done this deep dive into our main geographies. And I can confirm that In 2020, our market shares were held very firmly.
I can take 2 examples, Starting, for example, with France. France saw a decline in sales in 2020, very solid H2, Growth in Q4 and we believe that in France, we have gained market share In a lot of our product families, thanks to a lot of growth investments we have made in the previous years, launching The series of new products, especially in user interfaces, pushing a lot connected products and so on and so forth. 2nd example, the U. S. Well, of course, the situation in the U.
S. Is very different between the various verticals. But if you take, for example, data centers, We have high single digit growth in data center in the U. S, especially on products such as NPUs and we think that we are significantly gaining market share in the U. S.
In data centers and even in the product families where we see Drop in sales in the U. S. Because they were more exposed to non residential spaces, for example, Our market shares are held very, very nicely. So when comparing Legrand with other companies, you should really take into account the geographic breakdown of our sales and the vertical breakdown of our sales. Now as far as your third question, which is Which is why are we shooting for 19 point I mean, for 19.2% to 20.2% with the midpoint at 19.7%, number 1, We have to acknowledge that this would be a return to The historical level of margin of about 20% or close to 20%.
Number 2, it would then be very consistent with Long term model, which we are developing further today, we are shooting for 20% across the cycle. We're not shooting for 22%, nor For 18%. So it's very consistent both with the history and with our Midterm model. You also have to take into account that it includes Restructuring, as usual, so it's all in. Our EBIT level is all in.
Now I understand that your question is with all the cost savings that you have done, all the restructuring that you have done, why is your margin not going Toward the 21% or 22%, well, the number of savings that were done in 2020 are nonrecurring. When it comes to cutting, for example, travel expenses to reducing advertising and a number of other stuff, Some of those cuts were off. Number 2, we believe that this above 20% margin is the right level of margin where Which is a good balance between generating enough cash in order to finance Our long term growth, R and D Acquisitions and so on and so forth and delivering good value. So it's a good compromise, a good trade off. And we believe that this is a sort of long term numbers that we should fall.
So in other words, to make a long story short, The 2021 guidance is getting very close to historical average And to the long term model, we are developing further today.
Thank you very much.
Thank you. Next question from Lucie Carrier from Morgan Stanley. Please go ahead.
Good morning, gentlemen, and Thanks for taking my question. I have two questions and one short one. I'll go one at a time. I was hoping you could maybe comment a little bit on What you are seeing in North America in terms of trend and also in terms of current trading maybe because I guess the 4th quarter decline was maybe Looking or looked a little bit more pronounced maybe that at some of your peers also in North America. And also the comp effect was not Clearly demanding in the Q4.
So trying to understand a bit better the current trend in North America.
Yes. So the Q4 is clearly on the downside. You saw the numbers In North and Central America, it's down 10.6% in Q4. It's I wouldn't say that it's so two comments. Number 1, the relative basis for comparison is You may remember, Lucie, that last year, our sales were up in Q4 in the U.
S. And they were down For most of our competitors and not down 1%. They were down 4%, 5% for a lot of our competitors. So our relative performance in Q4 2019 was very demanding, first comment. 2nd comment, when we look at the peers, I wouldn't say that we should be ashamed of our performance.
But of course, again, you need to compare what is comparable. Some of our competitors are only competing against Legrand on data center, for example. And on this activity, again, our sales in 2020 were up high single digit, and I don't believe That we are losing any share to them or the contrary. And if you look at the U. S.
Peers, you have Number of companies, which are down 10%, 7%, 10%. So again, I don't believe that I mean, I'm convinced that we have we don't have any market share issue in the U. S, including in the Q4. I don't believe that we are deviating from what similar companies with similar exposure are doing. The fact is that If I take a step down, there are sort of 3 segments in the U.
S. You have Residential, Which is doing very well for Legrand, where we have recorded growth. And sometimes on some sub segments, very significant growth. And residential, but residential in the U. S, it's about 20% of our U.
S. Sales. Then you have data centers, which again recorded high single digit growth in 2020, So which are doing very well with significant gains in market shares, but it's also about 20% of our sales in the U. S. And then you have 60% of our sales in the U.
S, which is all other kind of spaces. So all other, let's say, non resi Spaces, it can be office, it can be shops, it can be a bit of industrial spaces. And definitely, this is a piece which was under pressure in the U. S. In 2020, Coming mostly from the sanitary situation and you have many big metros in the U.
S. Where people Didan go, for example, to the office for 10 months with very little innovation work being performed. So again, when looking at the lower end performance, there's a clear split between resi data center doing Well, and the other non IT space, which were under pressure in the U. S. Two comments.
Well, I will not comment on January sales because well 1 month of sales is not relevant of any trend. What I can, of course, tell you is that, obviously, The month of sales is consistent with the guidance we are shooting, but I will not comment on any trend because I believe that 1 month Does not mean any trend. Number 2, midterm, I'm Strongly convinced that the positioning we have in the U. S. And elsewhere and the fact that we have this strong nonresidential business in the U.
S. It's very strong competitive advantage compared to some of our competitors. So I'm very happy to have this nonresidential Market position in the U. S. Made of strong leaderships in, for example, Architectural lighting, in energy efficiency through lighting controls, in audio video, in Cable management in wiring devices, and I think that those very interesting leadership positions will bring Significant growth and profitability in the years to come.
It is true that the situation was a bit more difficult in 2020. I think you had a second question, if I'm correct.
Sorry?
I thought you had a second question.
Yes, Exactly. I was going to ask now. So thank you for the color on the first question. My second question was on M and A and the Strategy, I appreciate obviously that M and A allows you to kind of target sometimes new markets or reinforce in some markets and You operate in a very fragmented industry. But when we look over time, it doesn't seem necessarily that the M and A that you have done Has enhanced the organic growth profile because we don't really see an acceleration on the organic growth over the years And also on the margin profile and at the same time, it seems that the return on capital employed on the company tends to be also a little bit impacted by that.
So how should we think about the M and A strategy in terms of bringing what I would call really additional value to the financial profile of the company going forward?
Well, it's an interesting question. I'll take each of your points one after the other. So The acquisitions made by Legrand not always are accretive on organic growth. And what we are looking for When we are buying a company, it's not always this company to be accretive on organic growth. I'm going to give you 2 examples.
When we buy Netatmo, yes, of course, the main objective is that Netatmo enhance the cost profile of Legrand. And when we bought NetEtmo, we told everybody that as part of our main three targets, we wanted To enjoy the same growth rate on NetATMO than before the acquisitions. And that's what we've been doing. If you look at 2020, Net atmoo grew double digit for the full year. It grew double digit with the total Legrand sales Being down minus 8.7%.
So there is, let's say, about 20 points difference between the total of the group and net debt move. So it is Clearly, growth enhancing and we are very proud of this performance in a context which was difficult In the context where NetAppmoo is a lot exposed to countries such as Italy, France, Spain, which suffered from the epidemic. Now you have other cases where we buy companies that do have 1%, 2% or 3% organic growth profile. So of course, when joining Legrand, we try to achieve revenue synergies, but we all know that revenue synergies are slow to come And do not turn 1% or 2% organic growth company into a 10% organic growth company. But why are we buying those companies despite They are not able to achieve, let's say, 10% of any growth.
It's because they bring us something else. They bring us Stickiness vis a vis the customer. They bring us leadership position So that we can embark on the product families. They bring us profitability, cash flow And many other topics. So yes, organic growth is not the only criteria we have in mind when we buy a And we are looking at everything, organic growth, profitability profile, relationship with the customer, Potential cost synergies, value creation and so on and so forth.
Now when it comes to return on capital employed, Well, return on capital employed, number 1, we have to be Clear on the fact that we have a return on capital employed, which is well above the industry. I guess it depends on the way you compute it. But In 2020, it was about 16%. Total capital employed was 18% in 2019, sorry. And when we look at our peers, so adjusted for the The step up which was booked in 2002 and during the LBO, if you look at our competitors, it's between, let's say, 10% 13%, Well, we are at 18%, let's say, excluding the crisis impact.
So it's well above the one of our competitor. Now it is true that when you buy, For example, milestone, it has a negative impact on your return on capital employed. But Is it value creative or is it value destructive? See, it is a very important question. I can confirm that when you buy Milestone, 9 times EBITDA, which is what we paid for Milestone in 2017.
Maestro is a company which had more than 20% EBIT margin. It's a very value accretive deal and we are Extremely happy to have done this transaction. So yes, the time you do the acquisition, it waits a bit On your return on capital employed, but in terms of value creation of EVA in absolute terms, this is very value accretive transactions. So I've tried to be a bit precise answering your question. But if I step back, we will continue to do Very active M and A policy.
We have the strategic intent to do that. We have the pipeline to feed the strategic intent. We have a level of leverage and a cash flow generation, which allows us to do that. We believe I believe that it's a very important part of the Legrand business model. And I believe that over the long term, this is EPS accretive, EV accretive and a good allocation of our cash.
Thank you very much. I guess I have to check with Ronald how you can say at ROCE. We come to a slightly different number. And it's probably a bit difficult for us to Compare you on ROCE and other companies, but we cannot compare you on organic growth with other companies. I guess, this may be the challenge.
Just one last question, which is more mathematic on the M and A impact for 2021. You very kindly gave us the impact benefit On sales, how much margin dilution do you or benefit do you expect from M and A in 2021, please?
So I'll let you indeed, yes, with Ronald on the computation of the return on capital employed, which is quite straightforward, Brian. I know that then you have several ways to compute it, but there's no magic No mystery into computing this number, but please, yes, with Ronan today and we'd be delighted to take you through the computation. As far as the dilution impact of 2020 on 2021, Can you also maybe let me first remind you the numbers for top line. So we should To deliver at least 3% scope impact, and we have a carryover impact of 2020 acquisitions of 2.5%. So we have you have rightly come to the conclusion, you see that we have a go get, if I may say, of 0.5% To be at least at plus 3%.
This was for top line. And again, you see it demonstrates that we are Strongly convinced that the M and A is a very wise user for to spend our cash. As far as the dilution and the earnings is concerned, we have no numbers to communicate to you yet. This is traditionally something we do When we release our Q1 and Q2 numbers, when if you look at the past 10 years, Except the year during which we bought Milestone, which was accretive to earnings, we have always enjoyed, let's say, Between 0 to minus 40 bps of dilution. So it's highly likely to be within this range, Depending how much external growth we do, of course, but we have not a precise number to give you yet.
Thank you very much.
Thank you. Next question from Gael Dobre from Deutsche Bank. Please go ahead.
Thanks very much. Good morning, everybody. I have two questions, please. The first one is really a follow-up on Andreas' earlier question on the guidance. Given the very easy basis of comparison for 1st half, it seems that the revenue guidance would kind of imply that growth could actually turn slightly negative again in the So I just wanted to get a clarification on this.
And then the second question is About the dynamics in the nonresidential market, in particular in the U. S, I think one of your Piers recently indicated that they had seen a slight improvement sequentially in the nonresidential market throughout the quarter and continuing in January. So I wanted to get your views on this case. Thank you.
Hello, Gael. So well, again, Sorry to insist on that, but we are beginning of February and we can see that the number of contamination is On the rise in many countries that you have a number of countries which are under lockdown that so again, it's not that we are pessimistic for 20 21, and I hope that you can read in our guidance and midterm model that We are extremely confident in the strength of the program model and our ability to leverage the recovery whenever it comes, But we have to acknowledge that the situation is still highly uncertain. Talking about the basis for comparison, which is I understand your question, it is true indeed that we will have Nizi, if I may say, basis for comparison starting mid March until Mid May, which was a period during which a lot of our countries were under lockdown, mostly in I mean, As I said, not only in Western Europe, but also in a couple of Asian countries in Latin America and a couple of U. S. States.
So we will have an easier basis for comparison. Let me remind you that our Q2 sales last year was down by more than 22%. And we will have a more demanding basis for comparison in H2 and especially in Q3. Our Q3 sales were Almost stable in 2020. So yes, we will have a very quite of a strange profile in terms of basis for comparison.
Now the question mark and the fact, which we don't do yet, is when the Effective recovery will come, at which pace and in which geographies. So my comment was not saying anything about what the economy will be in H2, which I don't know and I guess you don't know either, but it's really about basis for comparison and the fact that Q2 going to be an easy basis for comparison and Q3 a tougher one. And of course, you could say the same for margins. As far as improvement or not, I'm very, very cautious in commenting any sequential improvement or Sequential worsening because and it might be different for other companies. But in our trade, again, 1 month or 2 months numbers It depends on so many factors.
It depends on the number of days. It depends on the inventory Stocking or destocking from the distributors, it depends on one big project that you could get. It depends Many, many things. So I would hardly comment any trend, Neither for the nonresidential in the U. S.
Nor for other topics. But again, coming back to the nonresidential piece in the U. S, I would really like to insist on the fact that those are made of extremely solid market positions With very, very strong leaderships and that mid term, they are extremely good places to be. But again, we'll see in the months to come if we can comment on
Thank you. Next question from Martin Wilkie from Citi Investments. Please go ahead.
Yes, thank you. Good morning. It's Martin from Citi. Just a couple of questions. So the first one is on pricing.
Obviously, we've seen Some pretty high ramp ups in copper costs and others. Just to understand about the phasing of your price increases, did they go up meaningfully Going back to the mix effect, you pointed out correctly, obviously, your mix can be different to peers. But understanding, is there a structural difference between your Optimability in residential versus nonresidential. And within residential, in data centers, it means different than office and so forth. I appreciate it, obviously, vary enormously by product, but just to give some sort of sense if there was a margin mix difference between those key categories.
Thank you.
Sorry. So as far as pricing is concerned, let me maybe give you the numbers. So pricing for the full year 2020, our prices were up 1%, 1.0%. And in Q4 alone, our price was up by 1.3%. So Q4 For pricing was slightly above the full year pricing.
And of course, the pricing and Our management of pricing had a significant impact on our profitability since for the full year. The price of raw materials and components was about minus 2%. So plus 1% in pricing, minus 2% in raw materials and components. So it had an impact Positive impact on the margin. Now you have to understand that our pricing is not One price list that we issue on December 1, on Jan 1, all across our product families, across our geographies and that would impact 2021 pricing.
Our pricing is a mix of many things. It's a mix of price list. It's a mix of managing the discount. It's a mix of end of the year rebates. It's a mix of Using X or Y currency to give our price out to our customers and so on and so forth.
So going into 2021, We don't have a set price effect for all across the group. We will, As usual, adapt our pricing depending on the evolution of raw material and components, which are effectively On the rise in Q4 compared to the rest of the year and we'll adapt it also to the currency What I can tell you as far as 2021 pricing is that, as usual, we are monitoring Closely the situation. This is a process which is well managed and well under control at Legrand. Our prices will be up in 2021. I don't recall of any single year during which our prices on average were down for the past 20 or 25 years.
So in 2020, our prices will be up. The extent or the magnitude of the price increase will depend on many factors, some of them being still unknown, such as, for example, What will copper, zinc, aluminum, oil components do in 2021? As far as mix and profitability is concerned, there's no Structural reason why resi or non resi should be more profitable than the other. It all depends on The market share we enjoy on a given product family. If you are a leader in Even product family, which is non resi and if you are not a leader in the product family in resi, you'll be more profitable in resi than resi and the other So the profit sorry, the profitability the driver behind profitability has always been and will remain The market share we enjoy on a given product family.
So looking at the U. S, for example, because we are focused a lot on the U. S. Nonresidential Position today, there are product families where we enjoy higher than average profitability because we are leaders Those and their product families where we enjoy lowers an average profitability because we don't enjoy leadership position.
Okay. Thank you very
much. Thank you. Next question from Andre Kukhnin from Credit Suisse. Please go ahead.
Could you give us an idea how much you grew in the second half of twenty twenty and in Q4, in particular, in that segment?
In which segment? I'm sorry, I didn't get your question.
It was on it's on data centers in the U. S. And you gave the high single digit growth number for the year 2020. I wondered if you could give us details on how much you grew there in the second half of 2020 and then in Q4 in particular?
Well, I'm trying to see if I have the numbers. Give me a few seconds. So I confirm it was high single digit For the full year of 2020, and it was A bit stronger In H2, in terms of gross rate than in H1. So It was above plus 7% in H2. But again, be careful not extrapolating that into trends and saying that there is an accelerating In data center in the U.
S. Between H1 and H2, well, it's also the result of many things, including, for example, the fact that in H2, you had A bit less lockdown, and it can also depend on the number of big hyperscale projects that you can get or not. So It's not necessarily an indication of a trend, but to be very factual on your question, it was slightly stronger in H2 in terms of gross
The mid of the end market growth as well or you can confirm that, that was above the end market growth.
We're above market growth Quite significantly that we have gained market share in data center in the U. S. This is pretty clear. Well, it also depends, of course, on which market segment of the data center you are and there were some segments which grew faster than others And typically, the so called hyperscale sector in the U. S, driven by big consumers such as the so called Super eight consumers such as AWS, Google, LinkedIn and a few others, this sector grew faster than other typology of data centers.
This being said, we have clear evidence that we have gained market share in data centers in the U. S.
Great. Thank you very much. Could I ask you also on the M and A pipeline? You obviously closed 3 new deals. Is that something that we can take as evidence of Accelerating trend or is it just timing?
Well, it is just timing, having in mind that starting in March, we have decided to Hold a bit our acquisition approach because, of course, we nobody really know at that time what would The profile of 2020 B in terms of activity and we thought it was a sound decision to hold a bit And focus on managing the crisis for our customers, for our people and so on. So there were a few months during which even though we have kept The relationship with the seller, we were not actively looking for opportunity. And the day we decided to Start again talking about with targets about the Ponacelle acquisition. Then given the large number of targets that we have On the sector, we easily found appropriate partners to join forces with. So it's timing now.
If the question is, will you still be active in M and A? And I already answered this question. Yes, we will. Steve, in M and A, and I already answered this question. Yes, we will because again, I think that It is the right strategy for Legrand, and we have the pipeline and the leverage for that.
Great. Thank you. And final, any comment you could make on the stocking levels in the channels? Anything kind of globally that we should be aware of terms of either stocking or destocking happening in the Q4?
Well, I can comment on the trend, not that much on the level because the level is, of course, a responsibility of our distributors and we don't have full knowledge of the level of Stock and inventory they have about the Laurent product. What I can tell you is that looking at the sell in, sell out numbers on the main geographies, there was clear destocking In 2020, which occurred more on Q2 than In Q4, and it was consistent with the fact that the demand dropped a lot in Q2, especially in Western Europe. But if you take the whole of 20 There has been a clear destocking, especially in our main geographies. Take for example France Italy and a few others. What will it be in 2021?
I don't know. You probably have to ask our distributors what they intend to do. It will probably depend on what they think about the profile of the year. They believe that the demand will start to increase And that they will enjoy strong growth. They will probably restock a little bit.
If they believe that the environment is so uncertain that They should wait a bit. They will hold the level of stock to the same level today. So it really depends on their vision of the 2021 Sales evolution, but what I can confirm based on the numbers we have is that in 2020, there's been some destocking.
And Can you confirm that there was still destocking in Q4?
There was probably a bit of destocking In Q4, indeed, in a number of geographies, but not to the same extent to the one than the one we saw in Q2.
Great. Thank you very much for your time.
Thank you. Next question from Anika Jain from Barclays. Please go ahead.
Hi, there. Good morning. It's actually Shane McKenna from Barclays. Thank you for taking my questions. Just given the high level of restructuring in 2020, how do we see the cadence of savings from these actions, particularly as A number of the actions were in Western Europe.
Is it more likely 2022 when we start to see the uplift? And what sort of restructuring level should we assume in 2021? Is there a return to a more normalized level? That would be great.
Well, you are right to point out a significant level of restructuring, which was indeed €76,000,000 compared to an average of €20,000,000 to €25,000,000 in the previous years. This EUR 76,000,000 being before the The benefit of the capital gain of the sales of our building in South America, which occurred in Q1, euros 76,000,000 where the payback Of this restructuring, really depends. It's between a few months to a few years. If you take, for example, the U. S, Which is a place where clearly you can implement very quickly restructuring.
It's a matter of months before it pays back. If you take, as you said, Europe or a number of other countries, it's a bit longer. It can take 3, 4 years To pay back, so yes, we saw some benefit of that already in 2020, and we should see some benefit of that also in 2021, 2020 and 2020. This being said, and that's why we are clearly guiding for midterm margin of about 20%. We don't believe that this is structuring, which was very useful.
For example, we have closed or announced The closing of 18 sites out of 130. So it's a very, let's say, tonic restructuring. We don't believe and we don't want it to change the margin profile of Ferrant. We still believe, as I said, that the 20% margin Is the right level of margin, the right compromise between value creation and financing of growth? And in front of this Restructuring, we will have in 2021, 2020, 2020 to put oil back into the machine so that we can grow.
So we have to put more budget to launch our new products. We'll have to keep sustaining very healthy R and D to sales budget, To hire salespeople and so on and so forth. As far as now the restructuring level in 2021, the level of restructuring Expenses in 2021 will, of course, depend on the profile of the year, but it shouldn't Be of the same magnitude as 2020, and we expect that it will come back close to the historical level, Which would make a lot of sense, except again, if we are in a situation where the situation becomes worse than in 2020, in which case we would have to take additional measures. But Again, this is not the central scenario in which we operate.
And my follow-up question, If you can expand a little bit more about the market trends that you saw, particularly in France and Germany. You highlighted Strong showing during Q4. Could you also give us some color around Italy? And within those markets, Some breakdown between what you're seeing in both resi versus non resi as you went through the quarter. And I know it's difficult for you to share based on just 1 month, but whether those trends have continued into 2021?
Thanks.
Well, Italy so a couple of comments. So Italy in Q4 was down again, And 2020 has been a difficult year for Italy, not specifically for Le Grand, but for the Italian market, which was down double digit in 2020. And we believe that on this market, we did pretty nicely and actually we had Interesting performances in especially in connected products and in, for example, smart thermostat in other connected products. So again, Even though our sales was down in Q4 and in full year, in Italy, Our market position was untouched. If you look at Western Europe, we don't see the same kind of Trend as sort of obvious as the one we saw in the U.
S. So looking at Germany, France, Italy, Spain, Scandinavia, the Netherlands, the UK and so on, you don't have As clear of the difference between resin and resi, what was positive, especially in H2, of course, in Europe was The highly scattered and pulverized, if I may say, sales to small contractors for small works For innovation, either so to the professional channel or through DIY because you have a lot of people Coming out from the lockdown, which wanted to do some work at home, either by themselves or with a contractor. So also little works of innovation did very Nicely. So this is mostly resi, but at the same time, for example, the new resi piece wasn't so supportive in H2. And as far as non resi is concerned, you had a number of topics which were very positively oriented.
Connected products were pretty okay. Wiring devices was pretty okay. And then you had other which were less positively oriented. So Not a clear difference between resi and non resi, but a couple of items which grew pretty nicely And some were under pressure. As far as January is concerned, again, same comment as what I did before.
I don't want to comment on January sales neither in Europe nor in the U. S. Or elsewhere because I believe that 1 month sales are not relevant of any trend. We did it in April last year. When we released our Q1 numbers, we highlighted that April was down 41 Because we wanted the financial community to be aware of the brutality of what companies were experiencing.
And We thought that nobody had I mean, not everybody had in mind that sales could go down by as much as 30%, 40%, 50%, 60% in some geographies because of the lockdown. But again, in a sort of more normal situation, we are today in a more normal situation, we don't believe that commenting 1 month number make any sense. We'll comment and a lot more our Q1 numbers when we release them in a couple of months. Understood.
Thank you very much.
Thank
you. We have a new question for Lucie Carrier from Morgan Stanley. Please go
ahead. Thank you for the follow-up, but actually the question has been answered. It was on the restocking. So I'll just leave it.
Thank you. So next question from Eric Marrier from Bryan Garnier. Please go ahead.
Yes. Super good morning Eric from Bryan Garnier. Thanks for taking my three questions please. So first one on your presentation Page So, I'm a bit surprised by the 1% decline in organic sales in connected products. While you said net angle sales were up 20%, so I suspect The kinetic product sales, the non res were very bad in 2020, which is not surprising.
But I was wondering whether you expect or not a sharp recovery in 2021 in the nonresidential connected products. On the back on the trend for Digitalize the buildings is my first question. The second question, do you expect Anything from the European Green Deal in terms of impact on your activities in the years to come? And the last question regarding the free cash flow. Do you have any sort of indication for the 2021 free cash flow?
Because maybe I missed something, but when I look to 2020, The level of free cash flow looks to be much better than the consensus. I was wondering if you could give us any sense of what could be the trend this year? Thank you.
Taking your three questions, so I confirm that the Elliott organic sales in 2020 were down 1% And that the net ADMO sales were up double digit. So the 20 points I was referring to is not a 20% growth of net ADMO, it's About the 20 points difference between the growth of net atmoo and the decline in the group sales of minus 8.7%, but Minus 1 for Elliot, double digit for net atmoo. Where does the difference come from? Well, net atmoo, it's only 10% of Helios sales. And you have 90% of Helios sales, which are non net atmo, either both resi All non resi.
So you have, for example, if I take the resi piece, products such as Door and 3 systems, which are not NetAdmo products and which are residential which are either products. And in the non resi front, You have PDU for data centers, you have lighting controls, you have power products, you have UPS and a few others. So it is true indeed that if Net net move, which represents 10% of Helios sales, is growing double digit. And if Heliot is only minus 1%, it means that Eluot, excluding net debt move is down by more than 1% by definition, first comment. 2nd comment, It's not such a bad performance because it means that there is about 8 point difference between Elliott and not Elliott.
Elliott minus 1, non Elliott minus 9 to make a long story short. So what we intended To see in 2020 and what we wanted to achieve is clear over performance On connected products compared to non connected, the same over performance that we've been able to achieve in the previous years. We have achieved it in 2020, except that in difficult markets, Instead of enjoying a plus 10 percent organic, we enjoy minus 1%. But we can demonstrate this clear over performance. And again, we are convinced that Connected products in the years to come, both resi and non resi will be growth enhancing.
And that's why we have invested a lot in 2020 despite the crisis on connected products. We have kept launching new products. We have shown a few of them in the deck. We have increased by 1% R and D expenses, P and L in 2020 compared to 2019 and a lot of that being on Connected Products. We have a record high 5.1% of sales on R and D.
We have deployed aided products further. And for example, the The line of wiring devices is now sold in 44 countries. So we are extremely pushy on connected products Because we believe that in years to come, it will help us to sustain and to enjoy nice growth. But again, in 2020, there was this Minus 1 compared to minus 9. As far as the European Green Deal, we'll see, The Green Deal is a series of initiatives.
A lot of them not yet being translated into a local into clear with clear budget and local regulation. What I can tell you is that It's extremely encouraging to see number of initiatives being taken either at European level or local level. Such as, for example, in France, what we call the decretier, which is the obligation for a number of commercial buildings To measure their energy consumption to reduce it, it's highly promising to see the vacuum cleaner system Of incentives given to end users so that they can finance works at home To improve the energy efficiency of their buildings. Not all of those incentives are targeted toward our trade. Some of them are.
Those, for example, focusing on global renovation. Some of them are more focusing on Isolation or heat exchangers or stuff like that. So to make a long story short, the Green Deal I have yet to come into the reality and local legislation and budgets And work, but the initiatives that have been launched so far show a change in mind In the spirit of lawmakers in Europe that demonstrate that the green topics are now On the top of the agenda and it will definitely help Legrand and the industry in the years to come. The good news is that It is also now on top of the U. S.
Agenda. And the fact that the new U. S. Administration decided to join back the Paris agreement, for example, It is very good news and we see a lot of potential behind the budget that will be dedicated to make Buildings more efficient in the decade to come. As far as the free cash flow question, I will leave it to Fran to answer.
Thank you, Benoit. Good morning, Erik. Yes, as far as free cash flow is concerned 2020 is an excellent year in terms of free cash flow, 17% of sales over €1,000,000,000 as last year. Talking about 2021, three items to underline. 1st, the mechanical effect that has benefited from 2020, the working capital requirement We'll be adverse.
2nd, there was a one timer in 2020 with some asset sales, Which will not be repeated in that level. And so and also we will second item, we will Resumed a normal pace of CapEx in order to keep fueling the growth. So To consider some numbers, I will revert to the midterm model with a normalized free cash flow at a Nice level between 13% to 15%.
Thank you very much.
Next question from Jonathan Mounsey from Exact.
Thank you. Good morning. Yes, just a couple of questions. First of all, on Residential, obviously, it's been very strong Even though even as your sales have been down, how long do you think that's going to continue? I guess, I mean, it sounded from your comments on the interview.
A lot of it's driven by People renovating the houses as they're being forced to sit in them so much longer than normal rather than new builds. It feels like this is a trend that can't last It's also pulling forward demand. At the speed at which people are doing up their houses, it's going to mean their house is in a much better state at the end of this. And maybe I could see a situation in a year or so's time or even less where there's no need to renovate in the way that people have been. And then on the cost savings versus The margin targets.
It sounds to me, and correct me if I'm wrong, but is this the right interpretation, the savings versus the investments are basically a watch. You're going to use the savings To invest in the business in terms of R and D, marketing new product launches, hopefully, I guess, all of the aim is in boosting sales growth. But when we think about the EBIT bridge, The investments basically cancel out the benefits of the 18 site closures that you've announced in the last 12 months. Is that right? Thank you.
Okay. Well, the shortest answer to your first question is I don't know. To elaborate a little bit more on that, you have some short term positive trends on resi and you have some longer term very So short term, you're right to say that there is an excitement of many people in many geographies that they have Spend 2 or 3 months locked at home and have discovered how much it was difficult to work from home that did not have the right level of activity that it was worth renovating 1 additional room to work that So all that translated into a boost in resi in managerial fees, especially in the U. S. And in Western Europe.
And you could see that as short term. Now mid- and long term, there are clear trends that should support the residential market. There is a lack of housing in many geographies. The trend toward home working Our smart working, as we call it today, remote has and studying remotely, We last of course, people will go back to the office and spend maybe on average 1 or 2 days at home instead of 5 days during the lockdown, but there is there will be a trend toward more home working and there will be a need for renovating the home. Everybody now has got used to do a lot of things using their smartphone, including Ordering food and stuff like that.
So a lot of people start to realize how nice it is to have a camera which can be Remotely operated or thermostat, which can be remotely operated. So there will be a continuous trend for connected products at home. Electrical vehicle, We have enjoyed nice growth in EV charging stations in many geographies because the more electric vehicle You said hybrid, the more charging stations and electrical infrastructure you need. And not to mention energy efficiency. We won't be able to tackle the 2,030 and 2,050 challenges at the European level or at the American level if we don't improve Significantly, the energy efficiency of residential buildings.
I remind you that in Europe, 75 of buildings, Both resin and resi are considered as being non efficient. So all those very positive trends might, of course, be impacted One way or the other by the crisis or the rebound, but there are sustainable long term trends They should support the growth in residential buildings. And the same for non resi. Of course, When people such as in 2020 were not at their office, as I said, you don't have a lot of renovation work, which is performed. But long term, you have many very positive trends that could help non residential buildings.
The fact that people will alternate between home working and office working will imply, for example, that The network and the AV systems of non resi buildings, of offices, we need to be upgraded so that you can have an efficient work between and Resinazi. A lot of collective spaces will have to be reorganized For more meeting rooms and it will translate into works. Energy efficiency in buildings will also be a must and so on and so forth. So I'm sorry to spend a bit of time on that, but beyond very short term trends, which are impacted by lockdowns, Q, surge in contamination, number of deaths and so on and so forth. Long term, you have a number of very positive trends that As far as the benefit of the 18 closures is concerned, so number 1, it's 18 sites closed or For which the closure has been announced.
So sometimes not yet closed and some of them will be closed in 2021. Well, we have 130 sites. So those sites are not Employing all of them, 1,000 of people. Still this being said, it is true that we have done a lot of restructuring effort in 2020, I can give you one more number. The number of people average headcount at Legrand in like for like decreased by 8% Between 2019 2019.
So we had a lot of restructuring. But again, not All the benefit have to be enjoyed in 2021. And on top of that, there are a number of areas where we should Put additional budgets and most of you have named a few of them, Advertising, travel, of course, freight, if we We have To boost the number of budgets in order to sustain growth. So it's not a surprise to us and this is a way our Saving plan was designed that not all the benefit of the restructuring will flow as is into the P and L because we have additional expenses to finance.
Understood. Thank you. We don't have any more questions for the moment. We don't have any more questions. Back to you for a conclusion.
You have a very busy day, and sorry for that. It was not planned this way that So many companies in the same so called peer group communicate the same day. So sorry for that. Thank you very much Thank you for taking the time to listen to what we have to told you. If you have additional questions, Ronan, Sami and myself are available for any questions you may have today.
So thank you very much and have a good day.