Hello,
ladies and gentlemen. Welcome to today's Blue Cross, 20 29 months results conference call. All participants will be in listen only mode later on. 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, Mr.
Benoit Coquia and CFO, Mr. Frank Lemmei. Sir, please go ahead.
Thank you. So good morning to everybody. Frank Lemarie, Rononak, and myself, a happy to welcome you to the LeGrand 2029 Months Results Conference Call and Webcast. First of all, I hope that all of you your close ones and colleagues are doing well. Let me remind you that we have published today our press release of financial statements and a slide show to which we will refer.
The documents are available on the local website. Please also note that this conference call is recorded and webcasted on our website. So I will start with a few opening remarks, following which Franco and I will comment into more details or results. Then we will conclude with the anticipated trends for the fourth quarter of 2020. I begin on Page 4 of the deck with the 2 key takeaways of today's release.
First, Laureux recorded good showings in Q3 2020 and overall, good performance since the beginning of the year, which overall demonstrates once again how solid levo for the models are. 2nd takeaway, since the beginning of the year, Laurent has actively pursued the deployment of its model through many initiatives, sorry, So let's now move to Page 6 and start with an overview of sales. So on the backdrop of an unprecedented crisis, sales equated in total by minus 8%. This trend resulted from an organic decline of minus 10% with more particularly a stable plus 0.1% in Q3 alone. This was completed by the increase in the scope of consolidation, with a positive impact of +3.7 percent, whilst the impact of exchange rates was negative by -1.5%.
This is, of course, for the 9 months. Looking now for the end of the year and taking into account acquisitions already completed and their likely date of consolidation, the scope of consolidation should come to around +3 0.5 percent in fiscal year 2020. Also, if we apply the exchange rates of the month of October 2020 to Q4 2020, the theoretical impact of FX filtration should come to about minus 2.5 percent for 2020 sales, as a whole. This works for the total group. Let's me now go into more details regarding the like for like evolution of sales by dramatic as well.
Please refer to pages 7 to 9 of the slideshow. So in Europe, organic sales were down minus 10.5% in the 1st 9 months of 2020. In Europe's major countries, sales declined by minus 13.1%, while strict lockdown measures took a toll in Q2 sales then rose plus 2.2 percent in Q3 alone by, in particular, by the residential projects suspended and the success of many commercial initiatives. This was for Europe's major country, as far as Europe's new economies are concerned, The 9 months' sales were up plus 5.1% and plus 10.8% in Q3 alone. Sales to September showed sustained growth in Turkey and were up slightly in Eastern Europe.
I will add that figures of Q4 2019 will be a demanding basis of comparison for q44 2020 in this area, I did in Europe. Let's now move to North And South America on Page 8. Organic sales retreated by minus 8% in the 1st 9 months of 2020. In the U. S, sales declined minus 6.8%, including minus 1 point 5% in the third quarter alone.
Compared with September 30, 2019, the steep rising sales of products for data centers, including busways and PDUs and the strong performance of residential business In particular, our user interfaces and AV infrastructure solutions were not enough to offset retreats in other areas. Let me now move to the last zone on Page 9 with rest of the world. Sales were down minus 13.1% organically in the 1st 9 months of 2020. In Asia Pacific, sales recruited minus 10.4% These resulted from marked declines in many countries, including in India. On the other hand, There was limited fall in China and a rise in Australia.
In Q3 loan for Asia Pacific, sales rose +1.9%, driven in particular by good showings in China and Australia, which offset declined elsewhere, including in India. In South America, net sales were down in many countries declining minus 19.8% of 9 months and then rose slightly by plus0.8% in the 3rd quarter alone. In Africa and the Middle East, sale to September were down minus 14.8% and fell minus 6.3% in Q3 alone. These were the main comments on sales. Let me now pass the mic to Frank for more colors on our solid financial performance.
Thank you, Benoit, and good morning to all of you. I'll start with profitability on Page 10. On this slide, you can see the adjusted operating margin before acquisitions, meaning a 2019 scope of consolidation, for both the third quarter and the 1st 9 months of 2020. In the third quarter alone, the margin rebounded to 21.6 percent, up plus 1.4 points on the back of stable organic sales, which highlights the good showings of the quarter.
This figure
was 18.8% in the 1st 9 months, down only minus 1.6 points. While organic sales retreated minus 10%, which demonstrates the good resistance of our margin since the beginning of the year. Moving now to Page 11 to focus on margin trends recorded in the 1st 9 months of 2020. Against the backdrop of a steep decline in sales volume, we adjusted operating margin before acquisition shows good resistance in profitability, reflecting the effectiveness of measures taken in response to the crisis. This was achieved more positively, thanks to 1st, a balanced management of sales and purchase prices.
Second, a mark reduction in part of our in production cost and in admin and selling expenses, And third, structural adaptations of the organization with, in particular, 55,000,000 in restructuring costs, excluding net gain in building disposal. The dilution on adjusted operating margin coming from the acquisition was modest at the end of September with a slight negative impact of minus 0.1 points. Moving now to net profit on page 12. It was down minus 21% from 1 year earlier, reaching EUR 493 1000000. This decline comes from the decrease in operating profit, together with an unfavorable trend in net financial results.
A positive impact came from a decrease in absolute value of corporate income tax, while the income tax rate rose slightly to 29%. Let's share now the last part of the financial performance on page 13 regarding free cash flow generation and the balance sheet structure. On the left hand side, four points to be stressed. First, you can see that cash flow from generation, sorry, came to 781000000 dollars or 17.4% of sales. Down minus 0.6 points for the 1st 9 months of 2019.
Then Working capital requirement stood at 9% and the ratio of free cash flow to sales. Was stable at 13 point free cash flow increased by +22 percent from Q3 of last year. Last, The balance sheet remains solid with notably a net debt to EBITDA ratio of 1.9 equivalent to September 2019. Coming to the right hand side, normalized free cash flow was up plus 2.2% from 9 months 2019, as it stood at 773,000,000.
These were the main elements
I wanted to share with you. Good showings of the quarter and good performance show in our financial key indicators at the end of September these underlying efficiency of the measure that we have taken and also the resilience of our model.
Thank you, Frank, for the overview of the financial performance. Let me now move to the second main point of this presentation with the new deployment of the Elmo model. So Elmo is actively pursuing initiatives to preserve and sustain its development model. The first example of those initiatives with structural moves at the end of Page 15, this include the continued docking of recently acquired companies as well as the adaptation of cost and organization, for example, through the adjustment of the group's cost base to trends in business, the streamlining of the industrial and supply chain footprint as well as the DG Tiza shared on the back office and the front office. I will now give more details on the ongoing innovation momentum in the following pages.
Starting with Page 16, Loghorne attained a robust drive for innovating, developing and deploying new products. In the 1st 9 months of the year, 5% of group sales were dedicated to R And D. On pages 17 to 19, You will find some examples illustrating how we sustain the stream of new product launches in the first time until 2020. This was the case in particular for offers and they have been by structural long term favorable trends. For example, linked to the environment, the rise in data flows then it was safety.
The new ways of working was a search for more comfort. Page 17 shows on the left hand side some of the products launched this year for building energy efficiency, such as Bolivia with NetWoo, the industry leading, connected electrical panel, but also smarter with NetWoo, connected smart thermostat of energy measures to help measure energy consumption. On the right hand side, we present new solutions for data centers, that contribute to securing the housing of active devices and brings scalability and efficiency with a new structured capping solutions of the SAS 3 program. On the next page, you can see examples of safety products such as UHawa and connected emergency lighting as well as lighting features providing high integrity for critical spaces such as clean hoops. Also, we launched new residential solutions that fast lead networking from home such as the new Wi Fi Bluetooth and power over internet switches in North America.
On page 19, Le Mans added offerings to its catalog dedicated to comfort generation space financial spaces, with new user interface solutions and sound diffusion systems. We also launched the new Edge, acoustic, artificial lighting solutions for commercial space that provide ambient noise absorption. I will conclude with the right hand side of the base stating that ADAS deployment keeps going on with now smartphone devices rolled out in 40 one countries, meaning 8 more than at the end of 2019. So we covered the 2 main elements of this disease. Let's move now to page 21 to share the anticipated trends for the fourth quarter of 2020.
Taking into account persistently difficult and uncertain environment due in particular to new health measures in a number of markets and given the demeaning base for comparison recorded in the fourth quarter of 2019, Laurent anticipates an organic decrease in sales in the fourth quarter of 2020. Its market share and will continue to actively protect its adjusted operating margin. Finally, Legrand is rapidly deploying its CS7 app. Well, this concludes our presentation. Frank, Roland, and I are now ready to answer to your questions.
We have first question from Gal De Bray from Deutsche Bank. Please go ahead.
Very much. Good morning, everybody. Can I have two questions, please? The first one is, is about the prospects of, well, it's not even prospects anymore, but the tightening of restrictions in Europe again. Is there any lesson from the spring lockdown in terms of how you're getting prepared for the coming months?
That's question number 1. The second question is, is that I'd like to get your views on M And A And Product Innovation going forward. Mean, in the current context, with the development of work from home, how could you try and skew the business more towards data centers, more towards residential and possibly less nonresidential. Thank you.
Hello, Gail. So the first question, a couple of comments. Number 1, we have to recognize that of course, the tightening of sanitary measures and the implementation of lowdown curfew and other measures in Europe, is not a good news, obviously, and this is one of the reasons why, and our capital for those, this will impact the Q4 going forward, This being said a couple of things. Number 1, we have to recognize also that the electric shifts are not yet to the level they were in April, I mean, in March April and May, in Europe. I think there is a better balance which is currently being implemented between controlling the epidemic and the impact it could have on the economy.
So like for example, France, it has been officially stated by the authorities that the building industry was he may open. And actually, most of our customers being either professional distributors or DIY distributors as well as contractors have said that they would continue to operate. Schools are open. So as a result, people have less constraints stay at home to keep that sheet ready, factories are advanced. So it's not as tight as it was in April.
So far. Now of course, in the weeks to come, it will probably depend on the state of the epidemic. As far as glucor is concerned, We are also in a different, we are obviously more prepared Since April has been implemented in all of our factories, logistics centers, offices, a set of very strict measures, of course, masks, hydroelectric shares, organization of spaces, organization of remote or smartworking. So we now have the processes, the tools to face the epidemic, not to mention the fact that our people do also have are acting differently and have a different attitude be there with the epidemic. And everybody got, unfortunately, at this time, to the dealers, and there's less fear, for example, to come to work than they used to be in April.
So, I think Number 1, it's not a good news, and it will anyway impact the confidence, the economy, and many things. Number 2, as is being said, Look down are a bit different than the ones which we implemented in April and the reaction of the company and of the people, we are more prepared than we were As far as M And A And Product Innovations are concerned, it has always been our approach to anticipate the number of trends and to shift some of our R and D expenses of our CapEx expenses, to products, which would be supported by trading press and to acquire complimentary companies that would help us to become more sizable in the trends, which we believe would continue to grow. So we will continue to do that. Take, for example, data center that you mentioned, we acquired the past years, 11 companies in data centers, in the U. S, of course, but also in the Netherlands, but also in India, but also in China and a couple of other countries.
Of course, we will continue to do that. Now I would have liked you to think that in the is an interesting trend in the so called the next normal or new normal, you only find data centers and working from home. Security, for example, is a trend that will remain, present for a very long time, assisted living and all what we can do to help our old people to stay safety at home is also a very important trend. Energy Efficiency and everything which helps regulating the temperature and reducing Q2 emission is a very important trend also. So yes, we are looking carefully at all those trends and making sure that whether organically or inorganically, We do whatever it takes to answer those trends.
And being more specific in R&D, as I said during the presentation, you will have noticed that even though we have done a number of cost cutting measures to cope with the crisis, we have maintained a very significant R and D effort. Our R and D Let me give you a number or the 2 thousand number of people or staff for Leandro went down by 9% like for like. So significant reduction in the number of people in order to cope with the crisis. As far as R and D is concerned, our R and D teams were almost stable in the 1st 9 months of the year compared to last year. So we have really kept our R and D capabilities untouched.
I also mentioned during my presentation that our R and D ratio to sales was 5% in the 1st 9 months of the year. So it's still a very significant ratio of R And D to sales. As far as M and A is concerned, It is too indeed that we haven't, done any deal since focal point in 0s in February. But I can tell you that we maintained very close relationship with a number of owners and we are still keeping alive or pipeline. So to make long story short, yes, we are cutting all the trends, which goes much beyond working from home and data centers.
And we remain very active in R&D and and prepared email.
Next question from Andre Kukhnin from Credit Suisse. Please go ahead.
Good morning. Thanks very much for taking my questions. Can I just start with a couple of, technicalities first? Could you quantify, any potential impact from, less holidays being taken in Europe and I think in the U. S.
As well? During this quarter, during kind of traditional holiday months of July August, if that's possible at all. And also in the same vein, in terms of kind of stocking decisions by distribution, was there an impact in Q3 and if you could help us quantify that please?
Well, I don't believe that there was such a change in the number of holiday being taken in France and in, in the U. S. Or elsewhere in July August, which would have a very significant material in Aetna on our P and L. Our personnel cost, is going down by 7% you have to date, and it's a mix of many things. It's a mix of, more days are being taken in France, for example, during the lockdown, we have asked our people to take a number of days off in order to do savings, but it is also the result of the cut in the headcount.
I was telling you that our headcount went down by 9% like for like in the first name of a year. It could also be a result in the other country of a number of pickets and the number of countries have decided, for example, to do voluntary bakers. So all that, a big part, if I may say, explains the fact that we have natural acres going down by by 7% in the first 9 months, but it's a bit difficult to identify each of the various impacts. Also, no, as also as positive impacts, but also sometimes compensated by the negative ones. It'll take countries like India and China, for example, during the lockdown.
So we sometimes do that. I remind you that the sales in Nichena went down by 50% in Q1, and sales in India were almost 0 in April, still by the law we had to continue to pay, the people that have closed the short charges. But all in, if I may say, taking positive and negative impacts. The cost of personnel went down by 7% in the 1st 9 months of the year. As far as the distributors are concerned, there was very strong, and I have to admit that probably never seen destocking in Q2, which is a very logical decision from our distributors given the uncertainty and the low level of demand in many markets in April and May.
There was product somehow some sort of restocking in a number of countries in Q3. I don't believe this was a major impact. It's really difficult for us to quantify. Because we don't always have the sellout measures everywhere. So there was quite a bit of restocking, in a few markets.
But again, I don't see this looking as the main reason for a good performance in Q3. Going forward and looking forward, it is always a big challenge. Nobody knows what the distributor is going to do, in Q4. And again, a purely variable, not alcohol. Well, it is not a completely inogitai to think that they could continue to optimize inventory level in light of the lockdown and in light of the uncertainty.
Now we'll see. We'll see what will happen from now to December. So strong destocking in Q2 somehow a piece of restocking in Q3, but again, not that material is difficult to quantify for Q4 will we'll see, but it is, again, one of those uncertainties that could wait on the 4th quarter.
Thank you, Benoit. And I think I I apologize. I slightly misled you with the first question. What I was wondering about was, the impact on revenue for you, in Europe and North America in July August from, what we hear is construction industry taking less holidays to catch up close to lockdowns.
Okay. Sorry, I didn't get you your question. It is a fact indeed that, post lockdown and it happened in Europe, but also in the U. S, puzzle down, there was there were 2 fundamentals, which positively impacted our top line. Another one, there was a sort of catch up of all the projects that were started prior to the lockdown and that were only completed once the people could get back to the field and finish the work.
So it's clearly positively impacted or top line starting from June, let's say. Segment impact, And there was a sort of a strong appetite for, of people to invest back some of the money into their home. And for example, consumer markets and DIY shops did very well. After the Hernandez people just wanted to buy switches and check breakers and connected products because they have experience during the lockdown, how difficult it was have one of whom, which was not innovating enough for them to remote work, for example. So this also had a positive impact in the U.
S. And in in Europe and actually in many countries. Now quantifying all that and relating that to the fact that people took less days off is a bit difficult. I think it's more coming from the fact that some works were stopped and frozen because of the lockdown and the appetite from consumer to to invest money into the home. But clearly, yes, it had a positive impact and it supported our, our Q3 top line will it be sustainable enough to impact Q4 question mark?
And it's also one of the reason why, we see this Q3 as a bit boosted by that, this catch up effect, for example, we'll do that forever. So again, this was positive in Q3 and question mark for for.
Got it. Thank you. And may I just ask lastly, just conceptually in a environment where your top line is is down somewhere around kind of low single digit to mid single digits, compared to 2019 or kind of pre COVID levels would you be comfortable to say that you can sustain profitability at kind of those levels at least given the track record of Q3 and given the structural cost cost measures you've taken?
Well, you have to you have to answer to that. Short term answer, which is you can look back at what we did, Q2 drop in sales of 22.17 percent and our EBIT margin was slightly higher 18%, Q3, a significant leverage from top line and our margin expanded nicely. Now the key question mark for Q4 is, of course, a top line. And we clearly stated the press release was that we expected, the organic sales to go down in Q4. And there are, of course, similar reasons for that.
The fact that number 1, the looked at measures and curfew and all the sanitary measures, even if not as tight as in Q2, we have an impact on the market. We said we have an impact on the evidence on the ability of people to work on the field and so on. And actually, looking at the IMF measures, IMF, let's say, they expect Q4 to be more difficult than Q3 in terms of, in terms of economy. Number 2, you have a number of, one off, if I may say, which positive impacted Q3 and might not repeat in Q4. Take, for example, this catch up effect from all the work that was started before the sort of down.
Can last a few months, but not a few quarters. And number 3, on top of that, we have, the basis for comparison, which is demanding for Europe. I remind you that Q4 2019 was about two point higher in terms of top line growth than the full year 2019 in Europe. So we have, so to give you numbers, We were growing in Q4 2019 in Europe by 5.1% like for like and the full year 2018 was 3.3%. And in the U.
S, the base comparison is tough compared to our peers because most of the companies went down in sales in Q4 and we were up. So for all those good reasons, we can see that the top line for Q4. And as I said, we expect organic growth to decline. In terms of profitability, you have with Q1, Q2, Q3, a good sort of example of what we can do. Midterm, this is a different story, meter.
We haven't canceled our meter model. Even though we have suspended our 2020 guidance in March, but we haven't suspended our meter model, which as you know, stage 4 on average and excluding major economic downturns, an EBIT margin of about 20%. So we are still convinced that this is a model, which is a which we can highlight, which is which is working.
Thank you. Next question from Lucy Karriya from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen. Thanks for taking my question. I have three questions. I will go one at a time. The first one is it's a bit of a follow-up on the current discussion you've had with Andre.
Can you maybe help us quantify, how much cost savings you think you have annualized from your structural measures since the beginning of the year. And I think in your previous answer, we're also mentioning that some of the countries have taken voluntary pay cut which I'm assuming are not going to continue. So I guess what I'm trying to know is how much savings have helped maybe the third quarter And how much of that is structural versus what is a bit more maybe temporary considering the current condition?
Well, it's very difficult to quantify. I can take an example. The fact is that Since February 2020, our travel expenses has been done going down very significantly. And because of the measures, it's very difficult to travel for one time to as well. We have replaced the number of travels by, as you do, I guess, also by, online trainings, online cost with customers and so on and so forth.
How much of that is sustainable? So in the so called next normal how much will we be able to, convert from physical to digital it is, it is, it is extremely difficult to say. So I cannot draw if you like, between what is sort of one off or which we know that forever and savings, which are a bit more mature. What I can tell you is that? Three things.
Number 1, our total cost, in the 1st 9 months of the year. So including production expenses and SG and A, Our total cost went down by 8% for a top line going down by 10%. So we have had the ability to decrease our cost quite nicely. Number 2, I believe that there are a number of habits that will last, we will cover probably less than before. We will do more customer calls using these tattoos.
We will do more customer visits using these tattoos. We will switch more advertising from offline to online. So a number of those habits will remain. Well, there will also be a number of additional costs that will also remain. I don't believe that we will be able to get rid of the math, for example, or sanitary measures, plexigas and so on.
Before quite a long time. 3rd element, as you could see in the press release, we have booked in the 1st 9 months of 2020, restructuring expenses of EUR 55,000,000. You remember that an average year for LeBlanc as far as restructuring is about 20 to 25. 1,000,000. So in the 9 months' time, we have booked, let's say, between 2 to 3 times, what we usually book on a yearly basis, The payback of those respiratory is different from measure to measure.
In the U. S, you have, for example, a very happy payback, and it partially explains the very good performance in terms of margin of of Lebono, Central America. In Europe, it is true that the demand could be longer. It could be 2, 2, 3 even even sometimes 4 years but this is structural. Already can tell you that we are working on both fronts.
And at the end, expenses down 8% and restructuring expenses, amounting 50,000,000,000. Thank
you very much. My second question, I was hoping you could comment maybe across your portfolio. Of how much growth or decline you have seen in your residential business versus your non residential business in the quarter. Because you were mentioning obviously that the DIY business had been performing quite well?
Yes, I think it really depends on the geography and You know, there are some countries, in Q3, which rebounded pretty nicely and this rebound was not only in data centers in resi, but also in the number of also non recheck activities. So the main driver, especially in many Europe and ahead of the world countries, was more, let's say, the, the country situation, even more than the state of state of that specific vertical. This being said, there are a couple of verticals that did the pretty nicely all across the board, connected products better than the rest of the group. We will comment that put more in our full year numbers, but in the 1st 9 months, our aided program is better than the rest. Rated and shoe, and especially DIY and retail, it better than the rest.
Data center did better than the rest. In Assist living better than the rest. And of course, by definition, the other the other verticals of productivity, it's slightly worse than Sunrise. But again, I think the important driver well, even more the state of the country and economy and the state of the status of the works being performed even more than that because I also have to mention that, the Q fit SMS, I don't know if it was clear enough reading from the press release. Is also coming from a number of initiatives that we have done.
It is a fact indeed that in Q2, a number of product launches were frozen because you're not going to product, we have your customers back, I hope, but after the relevant period, we have launched a number of new products. So we insisted a lot of that the press release in the presentation it was, I believe, material to our performance and, a good way to reconnect to a customer. Take, for example, to give you a visit at Blue, which was the press release, which is a very, very interesting connected cabinet. We started to launch it in France, and Italy in September, We have good results and we are progressively rolling that out to a number of countries. We pursue the launch of connected warring devices, connected thermostat and a few other products.
So make long story short, number 1, don't forget the country situation, which is as important as vertical. Number 2, the things that it is with the number of vertical, which is better than the others. And number 3, we supported all that, but there's a number of product launches. We didn't give up on launching new products even though the economic institution is not as good as we would like it to be.
Thank you. And my last question, if I may, is around the e green deal on the recovery plan for building renovation. I just wanted to have your view in terms of now that we'll have a bit more details on that plan that was published last month. How long do you think this is going to be kind of hitting the different countries and ultimately hitting your P and L in terms potential benefit. And what do you think about the target that were provided?
Because 1.2%, of renovation of the building fleet in Europe for 2023 to 20 25 is not a big uplift versus the 1% that were renovated in 2019. So What's your view on that for Loma?
So a couple of comments, number 1, Even before talking about the green deal, the good news is that in a number of countries, you have had some measures that have been taken locally. Specifically on energy efficiency in order to support the activity tech, for example, because we like France, we had an interesting, initiative called Madram Reiner, which is providing some subsidies to a number of customer regardless of their wealth in order for them to invest into a synergies, say, selling quality products. So it is true indeed that a lot of those subsidies are granted for a installation of from a heating system, but they're also available for what we call active energy efficiency products, such as thermostat, for example. This was for follicular initiatives. As far as the case is concerned, The intent is obviously very good, and we believe that the European union is committed to that.
Well, our estimate is that if you really want to reach a cabinet quality by 2050, And be consistent with the 1.5% the EDA reduction, you would have to move from 1% of the buildings innovative to 3% of the building innovative. So it's a big, big uplift. This being said, the objectives of European Union remains ambitious and interesting. The key question mark and I have to admit that we don't have the answer is how long it would take to flow into the economy. It is, of course, a good signal set to market operators, But now a lot of question marks that remain to be answered.
And actually it is not yet fully voted. The way it would be applied is not yet completely decided. So how long will it take to flow into local regulations? How much of the incentives will be granted to active solutions. So the one in which we operate against the passive solution Will the incentive be good enough for really people to implement that.
What will be the reaction of public operators? And we know that state and local governments in many countries and not all in France are real estate owners and have the ability to do significant innovation and they want to do so with maybe a shorter decision making process than private owners. So all those questions remain still unclear. We have to admit it. And it's sometimes difficult to get full clarity on all those topics.
My assumption is that it will take some time before it flow into the local regulations and into into business. So it's not a matter of months or quarters matter of use. The good thing, if I may say that whether for residential buildings or for commercial buildings, we have the appropriate offer, and we are working hard, especially in R&D, to make it even more real event to tackle the topics in residential buildings, for example, we have solutions that allow to do significant 30, 40, 50 reduction in energy consumption. Smart carrier at the smartphone devices, smart thermostat, And so it's a thought. And in commercial buildings, we are targeting more, let's say, the midsize commercial buildings, not the big ones.
Still the market is extremely interesting because I remind you that buildings below 1500 square meters in Europe represent 80% of the buildings So it's typically small shops, small office buildings, Museum, showrooms, and a number for the boutiques. And for those boutiques, we do have lighting control solutions, top out your control solutions, the high efficiency UPS, which are efficient solutions. So not a clear answer to your question, you see, I'm sorry for that, but It's still a key IT domain operator. It's a good thing that whatever happens and we are ready. That's the point of it.
Thank you. Stay safe.
Good morning to you. Thank you for the time. I'd like to ask some questions about, the regional trends. You've mentioned the rebound in certain verticals in Q3 3, can we spend a little time talking about the importance of how the countries have behaved? I mean, I think specifically, could you give us an idea of the evolution that you've seen through this year, Q1, Q3 in France or Italy, specifically within Europe which have been or appear to have been big swings.
And then when we come down to the more general question across your Folio, can you update us on the classic commentary regarding pricing on your product catalog? But then also when we think about the challenges you've had with trade wars and supply chains over the last 18 months, can you perhaps talk a little about what you've observed in the evolution of the in the cost base, excluding the employment and indirect costs you mentioned?
Okay. So as far as regional trends are concerned, let me first start with group numbers and I will then focus more specifically on the countries you have mentioned. So The month of April was down, so it was really, worst, most in terms of the preliminary and development measures, we were down 41%. Then, May June, we were down, I think, 14% to 14% and then Q3, as we released this morning, we are still plus 0.1%. So obviously, there is a clear, change in trend, even if and I have to remind that, clearly, to everybody, even if we expect Q4 to be down again in sales by how much we don't know, it would depend on many things, including the the tactics of the sanitary measures being put in play the behavior of our distributors and many other things.
We don't believe that the Q3 performance is repeatable in Q4, but looking at the April, I mean, Q3 in Q3, this trend was clear. It was, the same in France, Italy and more generally in Southern Europe. Even though it was huge, but even worse in 'eighteen, you have to remind that the hospitality in Spain where at the center of the epidemic in Q2. And we had in some of those countries sales going down by 60, 70 or more percent in April. So drop in sales, which I have to admit, I've never seen myself in my 23 years at the law.
Then we have had a similar pattern than for the group, less drop in sales, if I may say, in May June and a recovery in Q3, which was not up 10%. It was in those countries, low single digit growth, but still appreciable growth. At the end of the period, France, Italy and Spain remain down by more than the group and more than Europe. If you take those 3 countries, Yet to date, they are down like for like, minus 15.3% whereas the total europe is down by 10.5%. The total group is down by 10%.
So even though Q3 was the issues of sort of catch up. As yet, this catch up was not enough to offset the very strong drop in sales, which we experienced in, let's say, end of March, a grid and beginning of space. So during the slowdown, care. Well, going forward, it's always the same as a set topic where we even though you have understood that because of all the measures and the number of other things will be that you're going to be going to be difficult. As far as your pricing slash, raw material and component questions were concerned.
So in the 1st 9 months of the year, our price prices were up 0.9%, so 0.9% and inflation of raw materials and components was down minus 2.2%. So maybe I have to explain what happened in Q3 because for those of you who will do the math, you will see that So high single, in Q3, was pretty consistent with the one we had in H1, but the inflation of Comatement components was down more than you could have expected. So to give you the numbers, in Q3 loan, price went up 0.8%. And inflation of raw materials and components was about minus 3.1%. We were a bit helped in Q3 by, the US situation where we benefited from refund and exemption on the US tariff imposed on some of the products imported from China.
Without those reforms and assumptions, the minus 3.1% which we had in Q3 would have been minus 1%. So still, we would have had a benefit from the difference between selling price and purchase price But the benefit would have been lower than the one we recorded. And for 9 months of the year, without those, refunded exemptions, the minus 2.2% which I mentioned would have been minus 1.6 points. Needless to say, those default extensions are temporary measures. They have a temporary effect on Q3, but therefore, the whole of the year, the first time answers, but don't expect them to be repeated in the quarters to come.
Well, that Have we had any significant issue in our supply chain because of the COVID-nineteen epidemic? No, it was the case indeed the very beginning of the year, because of the closing of the Chinese factories, now, Chinese factory, not only ours, but the one of our suppliers and subcontractors are fully up and running. So we do not have any supply issues for products or complaints coming from China. And I also have to mention that despite the values let's say, a lowdown to the Bureau measures of perfuse being implemented 100% of factories are working 100% of our office are working, even though a number of people are remotely working, no, so no, we don't have any supply chain issue. The question mark in Q4 is more is more a demand topic than a supply chain topic.
Thank you, Benoit. Can I call out one last question with
Yes, sure?
With respect to the rest of the world region, the profitability there was considerably better than expected. Were there 1 or 2 countries or 1 or 2 specific reasons that seem to enable you to report, you know, a very strong level of profitability in Rest of World?
Well, looking at the numbers, it is co indeed that in the right memory, it gives us numbers to make sure that we have our numbers here. So In the head of the word zone, the margin, EBIT margin before acquisitions was up
in the 1st 9 months
of the year by 240 bps. Excluding acquisitions, this would have been plus 230 bps. So negligible impact of the acquisition, if I may say. Well, it's, it's coming from, let's say, three things. Number 1, don't forget that we have very different profitability between countries.
As we've always said, profitability depends very much on the market share we hold on a given country. And in this area, you have countries with 5% EBIT and you have countries with 25% or 30% EBIT. So the total, let's say profitability of the zone depends very much on the mix of countries and which ones are going faster or decreasing less than Number 2, we have implemented a number of cost saving measures, and this is area where Those cost saving measures can be implemented faster than elsewhere. Because of the local regulations. And on top of that, we have had a good management of our pricing.
3rd, don't forget that we had the significant one time gain of asset disposal recorded in Q1, because You remember that we sold a building in Chile in Q1, which was about 15 of capital gain. And of course, on the zone, which is about 20% of group sales, it has a very significant impact. So you have to take these one off in two accounts. It probably explained, let's say, half of the increase in margin that we recorded. We recorded in this rest of the world, Avia.
Last, maybe just to make sure there's no misunderstanding, the profitability of this area should really be looked at the EBIT level, not at the gross margin level because the gross margin is influenced by intercompany sales, which are very significant from ZZO to other hubs.
Thank you very much. Great results. Congratulations.
Thank you. Next question from Alex Plaid from Societe Generale.
Oh, yeah. Hi. Good morning, everyone.
So I was just,
on the Capital Markets Day last year, you discussed scope to kind of optimize back office operations for data centers. You were talking about rationalizing the product platforms, 8 to 4, localizing the supply chains. I was just wondering if that was one area where you've maybe had a jump start on structural cost adaptation, whether you can maybe give us an update on how that's progressed. And are you launching similar programs, just in respect to your comments around structural takeout? Are you kind of launching similar programs for areas like lighting and audio visual as well given those are the kind of areas where you've been particularly active from an M and A perspective as well in recent years?
Well, we have many products, as you can imagine, going on to optimize our costs for the structure. It's not much about platforming because platforming, of course, the projects, those are projects which are going on and those are midterm projects. You don't let's say create a significant platform, which you could leverage within a few months. Amongst the products we've been launching to optimize our cost base. As for example, the optimization of our logistic and industrial footprint, we have to give you a number, we have closed or announced the closing of 14 sites since the beginning of the year.
The usual pace, because you know, that we are consented doing, of course, optimization, the usual pace for Lebao is between 3 to 4 sites a year. And we have closed or announced 14 sites. In many countries, including actually in France, in Germany, in China, in Russia, in the U. S, in Brazil, in Turkey, So this is a more material, I think, to our performance, and it explains also the reason why we have such an important restructuring charger, more more than and then performing. And on top of that, we are doing a number of 6, you know, this kind of crisis is the right opportunity to fish as well with the organization to make sure that we have the best vessel for the best position to look again at our remuneration strategy, to look again at our process and our organization, to make sure that we are not becoming too heavy in some places, to look again R and D programs.
So it's always a good opportunity, to have a fresh view on many, many different topics. Now again, I would not like you to conclude that midterm. We'll move from 20% if not into 22. A number of those initiatives do have a long payback some of that will be compensated by additional cost. And again, it's a sort of a mister model that we have to go and remain this as a result of about 20% on average EBIT margin.
Okay, thanks. And maybe just a follow-up, is it fair to that maybe the majority of the benefits from the million of restructuring will accrue in 2021. Is that kind of how you look
No, no, no, no, some of these benefits is already in 2020. You know, when you launch restructuring plan in the U. S. And when you have 40, 400 people leaving your organization, you book the charge in April, and you have you start on the benefit for the next month. It's very, very quick, in fact, they're not just because it's the way the U.
S. Enable Lewis is started. And typically for the U. S. And you may have at least that excluding, other expenses, the profitability in the U.
S. So excluding acquisitions and excluding other expenses, we have maintained the same EBIT level in the U. S, the 1st 9 months of the year compared to last year. Stability. Well, this is clearly coming from the fact that, not only, of course, we have very capabilities in the U.
S, but talk about that. You have the ability in the U. S. To restructuring a lot faster than in Europe and you have the benefits of that a little faster than Europe. So no, typically for Europe or for the U.
S, for example, a lot of the benefits already started to impact the P and L or P and L late Q2. Some other, we'll, of course, have some impact in 2021, 2022, 23. All of the things being equal.
Great. Thank you. Thank you very much, Benoit.
Thank you. Next question from Andreas Willey from JP Morgan.
I have a follow-up question to an earlier discussion on the component costs and the question on the U. S. Lighting business. If I start with the U. S.
Lighting business, maybe you could talk a bit what you see in that market in terms of demand. And also whether you have looked at whether UVC lighting for disinfection and so on would be an interesting opportunity, whether you're offering some single area or considering to do that. And the question on the component and raw materials, maybe you could give us an updated number, what percent sales that cost bracket accounts for us so we can kind of calculate the temporary benefit you had in Q3 from the the tariff reduction you gave earlier?
Yes. So as far as the question on like this, I didn't get which company you were mentioning actually. I can comment, of course, on the, or you slight thing, but you asked whether we could be interested by which product or which company?
No, to use ultraviolet light for disinfection, Upper airflow, disinfection in offices. Other lighting companies have introduced products solutions based on that, whether you're in that field as well and whether you think this is an attractive opportunity or not?
Okay. Yes. So as far as the U. S. Lighting is concerned.
So let me remind you, maybe how our performance did present in the U. S. For the 1st 9 months of the year. Data Center, but that's the high single digit. Residential business, So not only wearing devices, but the residential piece of my store, typically, so miles for the residential buildings.
Was up, single digit. All of the businesses were down about double digit, especially results related to commercial buildings being not being data center. So this is the case for the commercial part of, of Maestro and the AVE piece. This is the case for, cattle feed and wire holes. So wire mesh and cable management solutions.
This was the case for our sharing business, for example, and this was also the case for U. S. Lighting businesses. So we haven't seen significant difference between, if I may say, our U. S.
Lighting business, which I have to remind you, is mostly geared at commercial buildings. We have almost no lighting for residential, compared to the other non residential businesses excluding, of course, those relating to data centers. As far as products, allowing these infections are concerned. We do have with our canal. You know, canal is a specialty lighting company we bought 2 years ago.
Specialist of lighting pictures for, demanding environments, such as hospitals, tunnels, prisons, and stuff like that. We have within our canine offering, a dedicated lighting features with some treatments that is purifying or cleaning the air. Well, it's still a small business. I don't expect this very well business to you don't have such an impact that it will suddenly lower lighting business to grow significantly in the in the U. S.
So yes, it's an interesting piece, still a very small piece of our financing business. Now as far as oil products, which could be potentially used to, for example, the infect or key suppliers, we are, of course, looking at those solutions very carefully, whether we also have to be careful because some of those solutions could do a more hard than that good. And if you take, for example, UV Technology, not sure that it's a good neither for the skin nor for the goods we need a building. So we have to do that carefully, of course, but I'm going to get it. To lead a net share.
We do have an interesting offer, but which will not, by itself, compensate the market impact on our 2019 sales. As far as, the COGS are concerned where, raw materials represent, as you know, 33%. So one third of our sales. So and maybe to remind the numbers which I've mentioned, contacting price points. So including the tariff exemptions and acquisitions was minus 3.1 in Q3, And if we exclude the positive impact from tariff, it was, minus 1% and not minus 3.1 Does it answer your question or do you want more granular IT on those?
No, that was very clear. Maybe on pricing, obviously you have a good backdrop at the moment with basically falling costs and a good environment for pricing given also there were component shortages and people are restocking and so on. How long do you think this will last this environment? Are inventories now back to more or less normal of your products at distributors or do you still expect a little bit more of kind of the restock demand in Q4?
Well, so the pricing, so two questions, pricing and talking, well, the pricing we have experienced in the first time. And so the plus 0.9% positive price is very standard in the local history. We did record a lot more last year in 2019. It was +.8 percent, but this was influenced by the tariff of the goods imported from China. I recall you that we had more than 1,000,000 of financial COGS to finance because of the tariff.
But having a slight increase in sales, pricing sort of year on year, that being part of the room of story for error. So we don't intend, we don't think there will be a significant change in trend and neither in Q4, not all next year. Part of the story, and this is, I think, we know how that we are able to implement. As far as the stocking, or destocking is concerned, it's extremely difficult to have, complete view at our distributors. For many reasons, number 1, it's that goal.
No, that was number 2, have many distributors. We always mentioned Rexel, which, of course, is leading company to trade, but if you look at the global level, we have many, many debutors, number 3, we have many, at our number, many skews, in a country like France alone, we will have 20,000 SKUs, which are distributed. So having a complete, let's say, view at what our distributors could do is extremely difficult. Well, we don't believe that our so it's, let's say, it's a feeling. I don't believe that our distributors to have a very, very low level of inventory.
And I would not be surprised, but it's not it's not an information that I have, but I wouldn't be surprised if I were to do a bit more destocking in Q4, right? It could very much happen depending on their views about the start of twenty 21, and they are willingness to optimize their working capital. I don't know big question, Mark, what I'm pretty sure about is that they don't have no use lack of products given the, let's say, state of the demand.
Thank you. Next question from Martin Wilkie from Citi Investment. Please go ahead.
Yes, good morning. Thank you.
It's Martin from Citi, just a question coming back to end markets. You've obviously seen some strength in residential and areas like that. But on commercial, I appreciate a lot of projects that were perhaps paused during the second quarter kicked off again in the third quarter. I know you obviously don't have your own order backlog, but in terms of new commercial projects starting, there obviously are some fears that office, retail, your other parts of commercial could see some weakness next year given the sort of lockdown trends work from home these kinds of things. What are you looking at in terms of how you look at commercial going into 2021?
Do you get involved in tendering and sort of pricing that gives you some sort of sense or is your visibility really just sort of limited to perhaps a quarter or so just understand you look at commercial into next year? Thanks.
There's absolutely no leading indicator that will give us a good feel about what the market is going to be in 2021 neither actually for commercial nor for residential. So we are completely blind. And this is not due to Le Mans. This is the nature of our business, not to have any of those leading indicators. It's cool that you have, seeing that could positively wait on the non market and you've named one of them, a remote working.
And the fact that if people start to work 1 or 2 days, from home a bit less space by what we did. By the way, not as much as that, except if people are working 5 days per week at home, but except a few companies, is not the trend most specialists are expecting. They expect remote working to be 1 or 2 days a week. Which, by the way, would not reduce that much the need for a square feet. But on the front of those, let's say, trends or bigger trends that could possibly wait a bit negative impact, the non commercial the nonresidential space, you have many trends that will also be quite positive.
Well, we've discussed a bit about the green new new deal and the lease for energy efficiency, this will lead the number of spaces to be modified and to be more energy efficient. If you have people working remotely from home, you will need more common spaces to meet which will have to be equipped with a good AV product, good connectivity products that we use and so on. Not to mention, of course, the fact that, working from home or buying or selling more online all this stuff, we'll also leave the data center market to how they grow and more need for bandwidth and capacity. So I wouldn't say for Brampton that the next normal would have such a negative trend on the non residential, even though, of course, you can assume that some of those spaces talking, for example, about the high end hotel hoops could be negatively and negatively impacted. Maybe I can remind you so that you have the right orders of magnitude the right to break that up ourselves.
So again, with the limit that a lot of the products that we sell are sold in all key cyber verticals. So new residential represents about 20% of our sales renovation for residential represents another 20% of our sales. Data Center, it's about 10% of our sales. New commercial building, excluding data center, it's about 20%. Refurbation of, commercial building, organic film at that center, it's about 20%.
And all other types of buildings, industrial buildings, infrastructure and others represent themselves. So this should help you according to your own assumptions about the market trends to do your own computations for 2021.
Thank you. Great color. Thanks.
Thank you. Next question from Ravi Windbee from RBC. Please go ahead. Hi,
good morning and thanks for taking my questions. Just a couple of from me. Firstly, on data centers, could you give us a bit more color on that business and how much of the U. S. That is now?
Because you've made quite a few acquisitions, as you said, and it's been growing faster. So could you, so I'll just quantify how big that is within your North America region and also kind of trends you're seeing and expecting And if you could maybe split that between hyperscale and other, that would also be helpful if you have that visibility. And then the second one, was on restructuring costs. I mean, you highlighted that they've been elevated this year. I mean, we don't know what next year looks like, but if we were to assume a return to business as usual to some extent, should we expect restructuring to be lower than your usual range because of what you've done this year or did it go back to the normal level?
Yes. So that's part of data center exposure in the U. S. It's a slightly more than it's about 20% of our U. S.
Sales. It's about 20% of our north and South Africa sales. So it's a significant part of our business. It's mostly geared at White Home, So we're not much you know, in that sense, you have White Home, which is why you have the servers, and you have, well, what we call a great space, which a building infrastructure where you have, the protection, transformers, UPS, if you break it, it's a position in the U. S.
Would be mostly geared at Whitecomb, And we do have a number of leadership positions in some very critical product lines PDUs, which are the sort of severity outlets, the smart sockets, where you create the server and help you monitoring the servers, including heating and soil, plus we, where you connect the racks and cabinets, racks and cabinets and sales, connectivity and EBITDA, EBITDA fiber. In terms of type of data centers, we are selling to all capital debt centers, even though it is true that the large part of the growth, which we do have in 2020 is probably coming from what we call the hyperscale data center where the market is literally booming. Including with very interesting and very added value customers. So this is for the rest, our Just a word on outside the U. S, outside the U.
S, our position is slightly different. We have lower exposure to data center because we are more of a newcomer in Europe and in health of the world. We have a more balanced presence between the whitecomb and the gray space because we are the most significant and bigger player in Europe and the rest of the world in the Jiffy Brickell, transform the UPS intern, and then we are in the U. S. And we are currently in the process of rolling out our U.
S. Offering, smaller local organizations in Europe and in the rest of the world, leveraging local organization and the nice portfolio of products we have acquired in the U. S. So this is for Financial Center. Well, as far as substitution, restructuring is concerned, it's a it's clearly sense on the state of the economy and how much residential restructuring do we need to do in 2020 and what our prospects we have for 2021, sorry, it's for 2022.
It's a bit too early to commit. That's as far. So doing his consult focus on Q4 before getting into 2020. So No answer at this stage. No guidance for restructuring.
It's a bit too early. We'll probably discuss that in FME. It will partially depend on what we can see as far as the market could the market and the economy are our concern. It will never come down to 0, by the way, Because we always have a number of interesting ideas to close sites do site consolidation. We are acquiring regularly some companies.
So we inherit, if I may say, of sites that we can consolidate and then transfer costs. So that's 0, but to give you a number for 2021, a little bit too early. We have a
new question
from William Mc from Kepler Cheuvreux. Please go ahead.
Okay. Thank you for the follow-up. I just wanted to come back to M and A. I think you're flagging that the market base for transactions has improved. And can you just help reconcile between your key, focus areas for growth with the Legrande way and, where you see opportunities for M and A.
I mean, can do you want to flag up any particular areas and any sort of size that we should be thinking about with respect to your M and A policy? And how quickly you can develop that M And A policy? Thank you.
Well, we can resume quick if you want to, because we have retained the relationship and the contact and we have enough targets, even though most of them are modest side, but this is a common error. We have enough targets to be able to pick up the right ones if you wanted resume a bit proactively on a strategy. So it will not take quarters or years before we can start again. As far as sectors are concerned, I wouldn't want you to think that we are only focusing on the 3 or 4 sectors, which which are existing more than others to the crisis that has entered residential or asset delivering if there was an interesting leader, in, even in geography, which suffered a lot from the crisis take, for example, Southern Europe, Latin America or India, we would definitely be invested. So Of course, we not only be on looking at data centers and stuff like that, but it will also be, the traditional lebron strategy of looking at nice figures in good categories, you know, we discussed lighting, for example, lighting features.
We discussed a bit AV. Do I regret the increase of Maestro and the Kemper Fliking acquisitions we've done because, the year 2020 is a bit difficult because the COVID-nineteen, no, I don't. I think that long term zones are very interesting acquisitions. They have reinforced a lot zoloco grip on the U. S.
Market. They have brought us leadership position, very nice margin, very nice flow, those were very, very good acquisitions to make. So we're not only focused on, let's say, faster growing field of activities or, or geographies, which are increasingly similar to the crisis, but we'll remain very, very focused on looking at the nice figures. May I also add that The day, we will be willing to resume more actively acquisition strategy. We do have, of course, the balance sheet to do so You may have noticed that our financial leverage, so the ratio between the net debt and EBITDA is 1.9 at the end of September, which exactly the same that at the end of September 2019.
So it's a reasonable leverage, which allow us to do this if you wanted to do so. We have a significant cash on our balance sheet, EUR 2,700,000,000 of cash on our balance sheet. So no, we have a new obstacle, if I may say, that would prevent the growth from resuming It's a vision strategy and today we will do so. It will be a high quality vision. So targeted at the small to medium sized targets.
So good details in increasing the good details complementary to the goal.
Thank you.
Thank you. Next question from Jonathan Mose from Exane. Go ahead.
Hi, good morning. Thanks for fitting me at the end here. On the cost savings, I imagine when you enacted that, 55,000,000 program, you probably thought we're doubting that the world would recover quite as fast as it has in Q3. And while I appreciate some of that maybe ten repent of demand from Q2, etcetera. It is interesting that headcount has come down by 9% this year and now revenue is back to flat.
Do you feel that maybe some of that those cuts need to be reversed or actually was this an opportunity to restructure the business more aggressively. And in fact, you can still supply the level of revenue you've bounced back to in Q3 with this renewed cost base? Or actually are we going to have to start rehiring particularly in places maybe like the U. S. Going forward where will turn out that the cuts were a little too deep and the long term impact to end markets was not quite as bad as maybe you feared it would be in early Q2.
Well, clearly, some of those cost savings are not sustainable forever. And some could even be reversed when you are taking, for example, days off, which provide significant savings on a given month or a given quarter. So next year, you, of course, have a pleasure for comparison, which is deferred. So I wouldn't take for granted that, all those savings which we have made are sustained as well and which should flow into 2021 and through 2022 P and L. Some of them are one off.
Again, covers, a part of covers, salary cuts and some of them could even be reversed. And again, the reason of the midterm model of labor is, remains a 20% EBIT and a 22% EBIT. So I don't know if you can answer your question, but no.
Just to be not exactly, I suppose what I meant was sales are flat year on year. Headcount is down 9%.
Flat is I mean, sales are flat Q3. And headcounts are down 9% over 9 months. So the minus 9 of headcount has to be compared to the minus 10 in like for ourselves, So we have had the ability to decrease our sales. So this is a big number of people almost as much as for you. Sales, but so if you want to be even more precise, the minus 9 in terms of headcounts as to be compared with about minus 11% in volume.
These are combined to be made And GZ Minerals9 also include, of course, some direct labor, which is somehow proportional to top line. So
But going forward, the minus 9 has to be compared with the fact that sales are flat now. So do we need to bring people back on? If sales are going now that we're actually recovering, as much as we are. And I appreciate for might be a bit weaker, but truly where we are today is better than when you thought you
would be 6 months ago. Number 1, and I think I made it clear, but I don't believe that this plus 0.1% which we recorded in Q3 is sustainable of the Q4. So I don't expect on sales to be flat in Q4. I expect our sales to go down in Q4. Number 1, number 2, part of the minus 9% in the headcount is somehow viable.
So take, take, for example, direct factory workers, the day you do a plus 1, you have to hire back a number of people. And that's actually what we did with temporary workers in a number of European countries where it's approved in Q3 because in some countries, the demand that was up again 2, 3, 4, 5%. And we have to hire back some direct workers even though we do it mostly with stamps because of lack of visibility. Number 3. So number 3, you don't lower we haven't lowered structurally your cost will our cost base by 8%, they are, should you kindly recover depending on the pace of the recovery, there are a number of people that we will have to hire back in order to the group.
So no, I wouldn't take for granted that we have lower structurally our headcount and our cost base by 8% to 9% and that it will have a mechanical, a very impact on profitability going forward. Part of that is not sustainable. Part of that is linked to the decrease in volume. Part of that will have to be reversed, so then it can be will be better.
Thank It looks like we don't have any more question back to you for the conclusion.
Well, thank you very much, ladies and gentlemen, for taking the time to go to our terotation. I will not highlight again what we released this morning. Should you have more posters Please don't hesitate to call, Ronan, Sammy, for myself, we'd be happy to answer. And I look forward to meeting you discussing with you the demos to come. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for participation. You may now disconnect your lines.