Good morning, ladies and gentlemen, and welcome to today's glucon 2020 first half results conference call. All participants are in a listen only mode. Later, there will be a question and answer session. For your information, this conference call is being recorded. At this time, I would like to turn the call over to to CEO, Mr.
Venla Kokar and CFO, Frank Limary. Gentlemen, please go ahead.
Thank you. Everybody. This is Benoit speaking. Frank Lemarie, Ronon Marc, and myself, I'm happy to welcome you to the Louvreon 2020 H1 result conference call and webcast. Before we start, I hope that all of you, your relatives and your colleagues are going well and are in good health.
Let me first 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 long website. Please also note that this conference call is recorded and webcasted on our website. I will start with a few opening remarks, following which Frank and I will comment into more details of first half results. So I begin on page 4 of the deck with the 3 main takeaways of today's release.
First, against a backdrop of an unprecedented crisis, Luke Home mobilized for all of its stakeholders in a balanced manner, Second takeaway is that our performance showed good resistance in the first half of twenty twenty in a very deteriorated environment where net sales fell by 12.2% and the adjusted operating margin stood at 17.5% reflecting the many measures to adapt to as LeGrande is actively continuing the deployment of its model in a still uncertain environment. Let's now move to Page 6 and start with another view of Fluorome Organization for all of its stakeholders. I mean, the health and economic crisis, LUKOR's first priority was to protect employees and partners by deploying very early, the most stringent health protocols possible and new ways of working. The second priority was to actively support customers in pursuing their business. For that, the group kept nearly all of its logistics and production centers open while maintaining customer support and services wherever it operates.
Now on Page 7, Laurent also continued to show solidarity to local communities in the fights against the impacts of the health crisis with many initiatives from donating equipment to helping produce ventilators and supporting communities that are the more exposed the most exposory. Finally, in the spirit of responsibility and given the efforts the crisis requires, Lugron has made a balanced appeal to all stakeholders from management to employees, but also partners, shareholders, civil society and government authorities. Let's now move to Page 9, with an overview of sales. So in a very deteriorated environment, sales fell by minus 12.2 percent in total for the first half of twenty twenty. This trend resulted from an organic decline of minus 15.2 percent that was particularly marked in the 2nd quarter across our main markets, which was offset by an increase in the scope of consolidation of, plus 3.6%.
Based on acquisitions already completed and the likely dates of consolidation, the scope of consolidation should come to around plus 3% in fiscal year 2020. The impact of FX was negligible over the period. If we apply the exchange rates of the month of June 2020 to the last 6 months of the year, The theoretical impact of exchange rate fluctuations should come to around minus 1.5% for 2020 sales as a whole. Let me now go into more details, regarding the like for like evolution of sales by geographic zone. And I'm referring to pages 10 to 12 of the slideshow.
So starting in Europe, where organic sales were down by minus 16.7 percent in the first half of twenty twenty. In Europe's Metro countries, sales declined by 19.7%, including minus 31.8% in the 2nd quarter alone. Business was down in almost all countries due to the impact of the health crisis, compounded by one of factors relating to destocking by distributors. This decline was more marked in France, Italy and Spain, the hardest hit markets by the pandemic in the area. In Europe's new economies, sales were up plus 2.2% from the first half of twenty nineteen, and down minus 5.2% in Q2 alone.
This comes from a slight decline in Eastern Europe, and arrive in sales in Turkey, thanks to ongoing projects. In this deteriorated context in Europe, the offerings of the Elliott program, but also the ones linked to assisted living data centers and DIY stores showed good resistance in a number of countries. Moving now to North And Central America, sales recorded an organic decline of minus 11.2% in H1 2020. In the U. S, sales were down minus 10.1% compared with the first half of twenty nineteen with minus 15.6% in Q2 alone.
The 6 months increase in sales of products for data centers, including best ways and PDUs, was not enough to offset declining sales observed in other ranges. Let me now move to the last zone with rest of the world where sales recorded -19.9 percent organic decline in the first half of twenty twenty. In Asia Pacific, sales retreated minus 16.9 percent as they decrease in most countries, including in China and India, while recording a slight increase in Australia. In Q2 alone, sales were down in Asia Pacific, minus 13.7% with contrast from one market to another, that included business halved in India and a marked rise in China. In South America, net sales fell by minus 29.3 percent in H1 with a minus 47.8 percent drop in Q2 due to the worsening epidemic.
In Africa and the Middle East, sales were down minus 19% in H1, including -25.2 percent in Q2 alone. Let me now pass the mic to Frank for an overview of our financial performance.
Thank you, Benoit. Good morning to all of you. I hope that you are holding well. Let's start with profitability on Page 13. As you can see, in the first half of twenty twenty, the adjusted operating profit came to $497,000,000, I.
E. Minus 25% from the same period of last year. Moving on Page 14, the H1 2020 adjusted operating margin came to 17.5%, meaning 3 points lower than in the first half of twenty nineteen. This includes a plus 0.4 points accretive impact of acquisition. Therefore, before acquisition, adjusted operating margin was at 17.1% of sales.
Given the steep and sell in decline in business volume, This limited decrease reflects the group's quick action in implementing adaptation measures, More specifically, these results first from an efficient management of sales and purchase prices 2nd, from a significant adjustment in cost and expenses with double digit decline from first half of twenty nineteen, and partially due to one off initiatives. And third, from an increase in other income and expenses, in particular, restructuring costs, reflecting the rollout of structural adaptation measures. Moving now to net profit on Page 15. This was down minus 31.2 percent from first half of last year. This decline is mostly explained by a decrease in operating profit, followed by an eligible trail in net financial results.
This was in part offset by a decrease in the absolute value of corporate income tax
with a tax rate, tax rate, almost unchanged.
Moving now to the cash generation on page 16. On the left hand side, you can see less minus 2.5 points from the first half of twenty nineteen. Additionally, Working capital requirement came to 10.7 percent of the last 12 months' sales, down minus 0.5 points from H1 2019. You can see On the right hand side of the slide, that normalized free cash flow stood at 470,000,000 I. E.
Down minus 8.7 percent from last year at 16.6 percent of group sales. We are going now to the last item of the financial 17. The group's balance sheet at June 30, 2020 was very solid. As first, cash and cash equivalents stood at $2,700,000,000 and second, net debt was $3,100,000,000 with a ratio to EBITDA very close to the level of H1 2019, and an extended maturity, thanks to the successful issue of a bond in May. These were the main points on how 2020 first has financial performance that I wanted to share with you.
They reflect the good resistance of the performance in the first half. Notably, thanks to the many initiatives you taken rapidly to adapt to the consequences of the crisis.
I gave now Mike the mic to Benoit, Thank you, Frank. Let's move now to the last part of this presentation with the continued deployment of the Rio Grande Bodeo. Let's first start with Page 19 with a few words on perfectives. The outlook for the global health situation and the world economy remains tough too early and predictable. In this context and subject to a favorable trend in the global health situation, Net sales in the second half of the year should see a sequential improvement compared with the second quarter.
Now moving to Page 20, we would like to emphasize that DESPice is uncertain context and relying on its fundamentals. Lebon is continuing to actively deploy its value creating model. 5 key areas are considered. The first key area is detailed on Page 21 to 24. Where you will see that the group is extending and promising its product catalog, including items driven by structural prints linked to society, the environment and technologies.
Page 21, with a few examples of offerings providing high energy efficiency, for both residential and non residential buildings, such as Rivia with Atapu, the industry leading connected electrical panel that we have just launched, but also the digital lighting management or the care mode UPS system, which reduces energy consumption and improve buildings' carbon footprint. On the next page, on Page 22, you can see some examples of our deep and innovative catalog for data centers. Going from best ways to PDUs and cabinets, first meeting every requirement for all kinds of data centers. Moving to Slide 23, the group's offering also help enrich and secure the office space at work or at home as they make it more connected, efficient, modular and safer. On Slide 24, We also show here how our catalog meets the needs for assisted living improved comfort at home, but also for critical spaces such as healthcare buildings.
Overall, and as demonstrated, our offerings are perfectly positioned to meet the major changes the building industry is facing. Now on Page 25, lebron is also focusing on 3 other important fundamentals of Espodeo. First, by maintaining its drive for innovation, with many new products launched in the first half of twenty twenty, and a sustained momentum sales is dedicated to R&D. 2nd, we pursue our discipline M and A strategy by actively docking newly acquired companies and by maintaining close contacts with the leaders that would potentially join the group when conditions are right. 3rd, we are deploying many structural initiatives to adjust our cost base and strengthen our efficiency and agility notably by rationalizing our footprint across the globe and through digitalization.
Now in Page 26, and this will be the last point of this presentation. You know that CSR is an inherent part of the gross model, and we confirmed our responsible commitment throughout the first half of the year. For example, we are accelerating the fight against climate change with the first commitment starting in 2022 align with the Paris agreement target of, the 1.5 2nd, we are pursuing initiatives for diversity as a workplace and maintaining the highest standards for Google events with the nomination of an independent chairwoman since July 1, 2020 and with a shortening of direct to stem of Office to 3 years. That's it for this release. Now Frank, and of course, I are ready to answer to the questions you may have.
Thank you.
Thank you, We have one first question from Madam Daniela Costa from Goldman Sachs. Madam, please go ahead.
Hi, good morning, everyone. Hope you're all well. Actually I have three questions. I'll ask them maybe one at a time. But the first question I wanted to follow-up on your comment regarding some of the structural changes that you are doing in the business, if you could give us a little bit more detail on whether you're already like very lean and optimized on your cost base before.
Are these basically to stand still along with your around 20% sort of through cycle. Margin or do you see this has incremental actions?
Hello, Nadilah. I hope you are fine too. So yes, we believe there are a number of structural changes that we can still do and are currently doing to our business, I can remind you the number of the figure we gave in the press release. As far as restructuring expenses are concerned. On a yearly basis, we usually have let's say between 1000000 to 1000000 of restructuring expenses, 5, that's the average of the last 4 or 5 years.
In H1 alone, we had restructuring expenses of EUR 40,000,000, which were well balanced between Q1 and Q2. It was about EUR 80,000,000 are at $22,000,000 in Q2. So it means that, yes, we have still a lot of ideas as far structural changes are concerned. Maybe give you a few examples. It can, it can relate to the way we are organized And for example, we have moved from 7 Bu's business units to 4 in a matter of a few weeks.
It can relate to a number of processes. We are trying to optimize and strengthen, it can relate to our footprint. I can again give you a number. Since the beginning of the year, we have either closed or announced the closing of 7 sites worldwide across the different continents, which is more or less twice the yearly pace we usually have. If you look at the past, let's say, 10 years, we are usually closing three to four sites a year, and we have already close or announce the closing of 7 sites.
So yes, there are still a lot of changes that we can structure our changes that we can do. When it comes to the second part of your question, you will have that is that even though we have suspended our 2020 guidance given the uncertainty. And I may say a word about those uncertainties, we haven't suspended our mid term model and our mid term guidance, which is shooting for a 20% EBIT margin across the cycle.
Thank you. And my second point actually is a follow-up for today's, which relates to the second half, I mean, I guess as you said, sequential improvement versus Q2 is hoping we don't have the same sudden drops in sales. Should we think about the second half has a bit more normalized on in terms of margin, perspective? Obviously, with the seasonality that we normally have year in Q4. But shall we think that it's a more normalized environment, do you think, for March?
Well, it's I would love to answer to this question. What we have hinted in the press release is, of course, a floor. So when we said that H2, sales performance should be better than Q2, we see that as a floor Now, we will be the same better or a lot better. It's still a big question mark. And you perfectly know, that the top line evolution has a significant impact on margin.
So there is some there are clearly some uncertainties on H2. I can remind you that we still have half of our sales approximately, which are made in countries which are not yet reached the peak of the epidemic, take U. S. Plus South America, plus India, It's approximately close to half of our sales. And in those countries, we have not yet reached the peak of the epidemic, not to mention risk of the second wave.
So there is a huge uncertainty as far as the, health situation in economic situation is concerned. We are not pessimistic. We are cautious. We are doing the things which are necessary in order to cope with the uncertainty. Putting in place a number of short term and midterm measures, but it's difficult for me to commit to anything in terms of top line and as of results to commit to anything in terms of bottom line.
Sure. Thank you. And then in terms of the working capital progression, I guess, you had sales decreasing in the first half, but there was still working capital consumption. I guess should we expect that now as usual in a sales declining environment, we will see a reversal and can you cut still structurally maybe more inventories or, sort of, how should I think about working capital and cash going forward for the rest of the year?
So maybe let's be describing what happened in H1 as far as the working capital is concerned. So Number 1, our working capital requirements, in H1 2020 stood at if my numbers are correct, the 10.7 percent of the last 12 months sales, which we believe is not a bad performance. And you have several things playing. Number 1, we have a little bit more inventory than at the end of the year. The level of inventory to self is about 14.8%.
It was, I think, 12.9% at the end of 2019. It was 14.4% at the end of 1st semester 2019. So, slightly less inventory than at the end of H1 2019, but more inventory than at the end of full year 2019. And this was a strategy. Number 1, we clearly told you at the end of twenty that the level of inventory was very low.
And number 2, we also said in Q1 that we would do whatever it takes to, continue to provide a good survey to our customers, including by having a little bit more inventory, if So what that's what we did in H1. We deliberately decided to put a bit more inventory on some selected products because we wanted to continue providing good service to The other items of the operating working capital are well under control, including receivables, with no issue coming from this. Now, we also have a negative impact coming from non operating working capital items. So all those items, which can have a sort of erratic evolution from 1 quarter to another. So to make a long story short, the working capital requirements is is well under control with a little bit more inventory and receive both well under control and other items, a little bit on the negative side.
Well, when it comes to H2, unfortunately, Daniel, I will do more as the same answer as for the EBIT margin. It will a lot depend on devolution for sales and the mix, geographical mix of our sales, the mix of customers and so on. So unfortunately, I had no guidance to give you for H2 except that, midterm, we are sticking to our model, which is to have a ratio of free cash flow to sales between 30% 40%. Again, we have not suspended our midterm guidance, our midterm model, Now what can happen on a given short term quarter, depends on many affected factors that I'm not all of them on the other floor.
Just one clarification. I understand you mentioned you have no visibility for the whole of 2H, but you mentioned you've stepped up inventories towards the back end of the first half should we read into that that at least the beginning of July is better than what June 2Q has been? No,
you shouldn't read neither that knows in the top quartile. It is just that, have to realize that the month of April, as we said, was down minus 41%, which means that in certain geographies, big geographies for LeGrande, France, Italy, and a few others says we're down as much as 60%, 70% on this given month. And at that time, we knew that, things would improve And indeed, when looking at the group level, April was minus 41, but May June was only if I may say minus 14, when you are moving from minus, 41 to minus 14. And in some countries, from minus 60, 70 to to better numbers. It is a stress you put on your factories and it's a stress you put on your service level.
And we have set up as a top priority to, to be able to serve our customers because, we believe that those period of time are periods during which we can gain market shares if you stake close to your customers and are providing good service to them. So as a result, we have decided to put more inventories in order to cope with these acceleration, let's say, between the minus 41 and minus 14. So don't read anything relative to July. It's just in order to provide a good service, in a quarter where, by definition, seems a bit better, because the deepest month for anything.
Question is from Madam Supriya Subramanian from UBS.
Just two from my end, which are a bit of a follow on from the last question in terms of could you share a little bit more sort of granularity around the trend through the quarter, in terms of growth trends through the quarter and what were the exit rates or maybe early July rates that you were looking at and, a little bit more around each of the regions and what's bearing the being, let's say, Europe or North America and, rest of the world. And my second one, is related to the cost savings program or restructuring program. You did mention that there are certain temporary measures that you have taken as well in the quarter. How much of this do you expect to reverse, going into the second half and would be sort of longer term structural cost saving measures that you're taking be enough to offset, let's say, the reversal of the temporary savings. And if there is if at all possible to provide any quantification of this?
Thank you.
I understand that you would love to understand within the quarter and going into July, if we have a trend to give you, but in our business, really a weekly or a monthly number do not be anything. 1st weekly, we don't have a weekly consolidation. We are not the distributor, so I'm not able to tell you what the last week consolidated sales compared to the week before. Number 2, if you zoom on a monthly number, it can be impacted by so many factors that are not relevant take, for example, the number of days, take a stocking or destocking from the distributors. So the fact that we gave in Q1 the April sales was more to hint that Q2 going to be a very difficult quarter rather than the start of a new exercise.
We would be to give you monthly numbers. We believe that the monthly numbers in our business might give you, just the wrong indications of what's going on. So this being said, what I can tell you, zooming geographies by geographies Europe, clearly, the months of April, it it's not a surprise to you, was the hardest hit by the locked on measures. And most of the month of April was closed in many geographies with the situation being even more difficult in Southern Europe where the lockdown measures were the trickiest. So France, Italy, Spain, and the situation was a bit better as we said in Northern Europe and in Eastern Europe.
And obviously, the European situation got progressively better in May June, along with the progressive ease of the load of measures. So the key driver behind the performance within the months of the Q2 was below the measures, strict and almost across the continent in April, a progressive lift in May. As far as And for the whole quarter, as we said, Southern Europe was a lot more affected than Northern Europe, which maturing a lot for Le Mans. And to give you a flavor of our exposure, 2000 and Northern Europe, Southern Europe, let's say, France, Italy, Spain, represent approximately or represents it last year, approximately 25% of our sales worldwide, So it's a big exposure to the 3 countries, especially France and Italy, and it's approximately four times more than the exposure, we have to not in Europe. So these ones for Europe, North And Central America As you could see in the press release and especially in the U.
S, the situation was a bit less negative, if I may say, and the deep that we had was not as deep as the one we experienced in France, Italy and Spain. And there were even a number of businesses which were either up, like data centers over the semester or only slightly down life, for example, the residential piece of our business, typically borrowing devices, already was better than commercial in H1 or, the products dedicated to energy efficiency, like, for example, the DLM system that we put in the press release. So those topics that behave the better than the rest, but again, it's difficult to see a trend within the quarter. And the rest of the world, it's a very mixed situation. And, well, obviously, the most dramatic situation, in Q2 is in Latin America and in India and in those 2 areas, which represent cumulated 10% of our sales.
So it's a significant part of our sales. Sales were down by about 50%. But again, with a strong correlation between the level of sales and the local measures. And most of the Latin American countries take Chile, take Peru, we're under a very strict lockdown, same for India, So again, to make a long story short, the situation is very different from one zone to another. And within those, we have really make the difference between Countries and businesses, but I wouldn't extrapolate a trend within the quarter except that the month of April was by far the most difficult ones with minus 41% whether whereas May June was minus 14%.
As far as your second question is concerned, yes, we had on H1, especially in Q2, a number of one off, well, some were positives, some were negative, amongst the positive one offs, well, travel expenses were almost 0 in Q2, obviously, everybody could cover. We didn't have any contention or meetings. We did ask our people to take the number of day off in France, for example, and you cannot do that over 12 or 24 months. In some selected geographies, we did some furlough, for example, So some of those measures are not all of them replicable over H2. Now it's not a negative message.
We are challenging to you. We believe that at the same time, we progressively have a number of structural measures that could positively impact our P and L, starting from H2 and going into 2021. So the strategy was clear. It's to, do as much short term savings as we can, still preserving a number of topics, for example, R and D X in Q2. So for example, R and D expenses are only slightly down in Q2, and in H1 in general, We're doing a bit of pricing, but to merge and so on.
And in H2 and in 2021, we expect to have the benefit of more choice selling. It's the way we have managed our P and L so far.
Okay. I see. Great. And just a quick question, sorry. Just could you share more see exposure to data center as an end market as a percentage of sales?
Approximately 10%. Why do I say approximately because we have a the high flow data, which are products, which are only going to data centers, like Bestway, for example, or PDUs. And for those products, Well, we know that each time we set a PDU, it's a set which is made to data centers, But we also have a number of products. Take, for example, cable tray, switch gear, floor boxes that fuel those. Which can either be sold to data centers or to other verticals, office space, retail and so on.
For those products, we have to estimate how much of them are sold to data centers. So the existing percent should be seen as an estimate and not as very accurate number. We are tracking month's payments.
Thank you, Mada. Next question is from Mr. Gail Dupree from Deutsche Bank. Sir, go ahead.
Good morning, everybody. Thanks for taking my questions. Can I try 2, please? The first one is really a follow-up on the working cap it looked like you've been less strict on inventories and payables than usual, and then some of your peers in Q2. So Can you just help me reconcile the sort of upper end contradiction there seems to be between you relatively conservative guidance for sales in H2 and this sort of buildup of inventory.
The second question I have is on the impact of acquisitions in Q2. So there was apparently an creative effect of about 100 bps in Q2 alone. So where did that come from?
Well, I wouldn't say that our management of working capital has been lose or that we have changed our Otosh, we have, as usual, a strict management of working capital. But again, remember that, We have clearly told you at the end of 2019 as well as at the end of Q1 2020 that our level of inventory was at a historical low and that you should expect it to increase. So it shouldn't come as a surprise that it effectively increased. And at the same time, as I said, we have set as a priority to serve our customers and even if at the expense of having a little bit more impact. To a remote working.
We share the difficulty of remote working, I think all of it, have some experience like this. So again, so no, it's not that we are building up inventory or that it's really that we are coming from a low level of inventory at the end of 2019 and of Q1. And number 2, we really wanted to serve our customers Again, if you compare our level of inventory to sales from H1 2019 to H1 2020, it is slightly, slightly improving. As far as the second question is concerned, it is too indeed that we have an negative impact of the acquisitions on our P and L. You said 100 bps in Q2.
So it's 40 bps in H1. When it is coming from 2 things there, number 1, the fact that the group's margin is not at the sort of customary, 20%. So as a result, it's a little bit easier for the acquisition to be accepted. Number 2, the acquisition that we have consolidated in H1, especially the case for universal electric, are doing very well in terms of both top line and in terms of bottom line. And you remember, Universal, this business of a best way for data centers, mostly in the U S, but also selling increasingly outside of the U S.
So number 1, the group margin excellent acquisitions, which is lower than the usual 20%. And number 2, a very good performance of the of the company that we are consolidating. Now the question is should you impact should you expect to have the same positive impact for H2. Well, of course, I cannot comment on the goods margin, excellent acquisitions, but be aware of 2 things. Number 1, that it's not guaranteed that the performance in H2 of the acquired and consolidated companies will be as good as the one in H1, which we believe is not necessarily sustainable.
So be careful about that. And number 2, as far specifically, as universal is concerned, you have a technical effect, universal is consolidated over 6 months in H1. It will be consolidated over 3 months for fiscal year 2020. Because the wave was consolidated last year. So it's a good news for H1, but don't extrapolate necessarily this number for the for the full year 2020.
Okay. Understood. Can I just have a follow-up on the inventory equation? Was there any positive impact on margins in Q2 coming from the rise in finished goods?
No, it was extremely marginal. So marginal. Marginal impact, you shouldn't shouldn't embed that into the model. It has almost no impact.
Okay. Thanks very much.
Maybe it's also the opportunity for me say a word on free cash flow because, of course, working capital is highly related to free cash flow. So you could see that our free cash flow, not normalized free cash flow sell is going down by 31%. So a couple of things that you should have in mind. So number 1, which is extremely important. The basis for comparison for, non normalized free cash flow was extremely demanding In H1 2019, our sales was up 8% and our free cash flow was up 62.5% So bear that in mind.
That's why we are, we think that you'd rather look at the normalized free cash flow number 1. Number 2, even if you look at the non normalized free cash flow, the free cash flow to sales, is at 9.1%, which is the 2nd best year in the last fashion. So be careful when looking at the free cash flow, because minus 31% might lead you to think that it's not a good performance, but at the end, it's coming exclusively from the basis for comparison. We believe that the non normalized free cash flow as well as the normalized free cash flow are quite healthy H1.
Thank you, sir. Next question is from madam Luciani from Morgan Stanley.
Good morning, gentlemen, and thanks for taking my question. I guess, I just have a couple of follow-up at this stage. One is, I was hoping you can maybe give us a little bit more details on how the European margin has evolved because obviously, the top line decline is quite pronounced, but this is also the case to some extent in the rest of the world. But the drop we are seeing year on year on the margin is quite spectacular in Europe. So was there anything specific in your cost base that you couldn't adapt as well as you have in the rest of the world, for instance, and how should we think about a step up?
How quickly do you think you can step that up?
Well, if this point did that your operating margins are going down more than the average of the group, maybe give you I can maybe give you a few numbers to start with and then I will then comment. So our we said that our EBIT margin excluding acquisitions, well, that was down for H1 by 3.40 bps. Compared to last year, moving from 20.5% to 17.1%. So this is for the group. If we split that for each of the 3 zones, Europe, again, excluding acquisitions, was down, 540 bps.
Local North Central America was down 310 bps and rest of the world was up 100 bps. So indeed, you have a Europe decrease in margin, which is higher than the average of the group. There are 3 main reasons for that, you see. So first reason is that the drop in sales was deeper than elsewhere. And not only the drop in sales were deeper swear, but we had, again, in some geographies, on a give advice, month of April, some countries, which were down 60, 70% this context, adjusting your cost base is, of course, difficult.
Number 2, we clearly have a negative mix, impact between the countries. And you know that, countries like France and Italy, for example, are nicely profitable countries, and they were down more than the rest of Europe and down more than the rest of the world. Another I mean, the 3rd explanation, we've been very careful in protecting our R and D capabilities because we're seeing that it's a must in the leconned with Escodel, and we should be able to, launch a number of new products and continue to consume products and benefit from the rebound whenever it comes. I can give you, to exemplify that to numbers, our expenses for the whole group in H1. So production expenses and SG and A went down like for like by close to 11%.
Minus 7%. Within those expenses, R and D expenses were only were almost flat. 2nd H1 2019 was down by a group level by 8%, minus 8%. Our R and D people was almost flat. So we have delivered strategy.
It's a bit what I was saying about inventory have a telebase strategy of preserving our R&D capabilities. And the fact is that Europe is very big base for us for R&D. So we have indeed protected as much as we could in the ID category. So those three reasons, since going down more than elsewhere, mix between countries and R and D explain the reason why, the margin dropped by 4 40 bps where the group margin was done three forty pieces? A word maybe on the LMC and rest of the world where LCA is close to the group's average.
So nothing specifically to say. Rest of the word, be be careful that the increase in margin increase in gross margin is a bit technical. It's coming from the fact that, the groups, I mean, those manufacture for all those under the group. So it's a bit artificially boosted by that, but the let's say business gross margin is going down and not going up. Now, And on top of that, for the rest of the world, you have a one timer, which we explained in Q1, because the revenue that we sold the building in Chile for EUR 15,000,000 and it's intact, impacted the positive EBIT.
So for us, the evolution in margin in Europe is not a concern. So it was expected, actually, and the 3 impacts were expected. Well, going into H2, which is your which is your question, on the 3 topics, it's a question mark. How much will sales evolve question mark? What will the country mix be, question mark?
Well, as far as R and D expenses are concerned, we would still expect to preserve that, but we have in front of that, the number of structural initiatives that we are leading in Europe and which should help our cost base. So save as for your colleagues. I'm not able to give you a clear guidance on H2 for the European margin because it depends on many inputs that we don't have.
Okay. Thank you very much. My second question, I was hoping if you could comment a little bit on the trends you've seen in North America. By kind of big segment for you in terms of activity, non resi or commercial residential and so on. And also what you are seeing now on data center, because we are hearing some noise about maybe a bit of a slowdown in this area of the business as we go into the second half of the year.
And I know it's a North American business for you.
So we clearly see in the US that in H1, the heavy piece of the business was a lot more supportive than the non resi. And we have a couple of crazy product ranges, which were only very slightly down, for example, well, being said, you know, our exposure in the U. S, you know, that close to 80% of our sales are made on non resi and slightly more than 20% on resi. But yes, there is a clear different business resi, which was more positively oriented and non resi, which was more, more difficult, except data centers, which for Leuvreux was up in the U. S.
In H1, And we haven't seen a deceleration in data centers, well, it is also true that we are focusing we are probably also gaining market share in data centers in the U. S. If I look at the other businesses, so basically you have 3 categories. You have data centers, which are up, then you have, the traditional Legrand Business and then especially the resi part, which is 1 digit down. You have energy efficiency products, which is 1 digit down.
And then you have a couple of businesses, which are bringing down more than which are double digit down, which are basically lysine. We're nothing structural, who we confirm that we are very happy with our lighting fixtures positions, but it is a fact that some of our lighting units are operating in places, which were most difficult in terms of contamination. And as a result, we did have to close some factories. It was a bit difficult to operate and there are a number of businesses where we have for example, a little bit of backlog, backlog, and AV is also being down double digits. And again, it's no signature is coming from the fact that many customers were closed and bought.
So this is the back there that I sent her up to a high show slightly down and set same for energy HV and T and that's in futures and NAV down double digit.
Thank you. And my last question would be if you could give us the bridge between the raw material impact versus the price in the half year and in the future possibly?
Yes. So in H1, our pricing was up +1 percent. And the inflation of raw materials and components was about -1.6%. So we had indeed, as you could compute, the slight benefit coming from the difference between selling price and and considering price.
You, madam. Next question is from Mr. Andreas Bouyguesy from JPMorgan. Sir, please go ahead.
Yes, good morning. Thanks for your time. My first question is a follow-up to the discussion around the profitability in Q2 or H1 overall. Maybe you could help us understand the a bit better. In terms of the temporary benefits, if you could quantify those, that you had in the quarter, which would allow us to assess your profitability a little bit better compared to some of the competitors that have shown more margin resilience, but maybe have also relied much more on temporary measures.
So that will be helpful On the earlier question as well on the M and A benefit on the basis points, you mentioned universal. Should that basically become a negative in Q3 given the consolidation of universal last year in Q3 that was for 6 months and didn't the net out more consolidation in Q2 this year, which was 3 months versus 6 months in Q2 last year, also have a material impact on that temporary 100 basis point positive. So that's just to better understand your margin performance in Q2. And the second question is on the end market exposure, maybe you could help us understand a bit more if you could put your non residential exposure into into categories that are more longer term negatively affected by the virus, hotels, non food retail office, things like that relative to other areas. Maybe you could give us some indication of how big basically the impaired end markets are in terms of post the virus?
Thank you.
Your two questions in Q4. So the temporary benefit and sort of sustainable margin for H1, comparison with peers, impact of, consolidation in Q3 that we'll leave these one to Frank and end market exposure. So starting with the first one, it's difficult to quantify, but it hasn't had a huge impact on our margin want to make things clear. Also, more as you have also a number of 1 off negatives, I can give you one example, for example, India, in India, you have, we had absolutely no ability as per Zulu, to do a fairly short term unemployment for the off. So we had to pay full time on people for 2 months during the lockdown, even though you have, especially in April, almost no sales.
So I would have exaggerate the impact of the positive went up in H1. And again, it didn't mean that we are negative for H2 and our ability to manage your cost. You know, the Desjard model, we have country managers, which are highly incentivized on the achievement of their financial performance contract, which are given, a lot of tools in order to manage their cost. So no quantification, but don't sort of exaggerate the impact of those positive one off on our accounts. Comparison with peers.
Well, it's not my job to compare the Lebon performance with our peers. It's yours. I will give you maybe a sort of a couple of methodological hints, if you may allow me. Number 1, you have to compare Apple with Apple and not Apple with banana. So I remind you that our EBIT margin is It includes, of course, all expenses related to COVID-nineteen.
It includes all possible impairment, of goodwill, brands and whatsoever. It includes all of the structuring expenses, everything. So when you compare a lower performance with peers, you should should do it on a comparative basis. 2nd, second, maybe a compiler. You should also take into account defense in level of margins between the companies.
Logan is a 17.5% EBIT margin in H1. Most of the listed peers you would consider, I guess, in your comparison, our company is around 10%. ABB, it's 9, nationality11, So bear in mind when you are doing the comparison of those 2 metallurgical, let's say, teams that I issue, on the asset and EBIT, which is all in. And number 2, the global cost structure of the various companies. Now move to the 4th question, I will then turn to Frank for, the question on the consolidation techniques.
Where as far as end market exposure, broadly speaking, and with sort of rough numbers, because as I said, of the time, we don't precisely where our products are going to. We can split the legrand sales between 20% which would be residential newbuild. Where we believe midterm, there's some potential because in a number of countries, the case for emerging countries, for example, but this is also the case for big countries like France, for example. There is a lack of buildings. So meter, we believe that This residential new build should support or top line even though on a given quarter or given year, it can be a bit that 20% of our sales is going to residential renovation.
And that's one of the areas where we believe COVID-nineteen could have, if I may say, a positive impact because on many, many people have stayed at home for weeks and our if not months. And have discovered that they couldn't communicate. They couldn't be they couldn't hear much word. They couldn't be a remotely trained. Because it didn't have a good network.
So that's they needed to equip a full home to have a nice office, blah blah blah. So all that could be let's say, prompted by the post COVID-nineteen situation. So this works already 20% new 20% renovation. Then we have about 10% of our sales going to data centers, as I said, which we believe are upward trend for quite a long time. Then we have 20% going to other commercial building new Well, you have it's a mixed bag of many things.
You have office space, retail, hospitality, education, a few others. Well, this piece, you may argue that there will be less need for square meters for offices, for example, which might be true. Even though we're socially distancing, you might need some space. At the same time, you have a number of applicants, which will be boosted by the the values on public plans, education could be one of them or health. Then you have 20% commercial evaluation, And that's where, for example, the European Innovation in the wave possibly help at Mount Generali speaking, the need for more energy efficient building could be a good booster.
And then you heard the remaining 10% is a mix of industrial buildings, infrastructure, and many other things. So 40% I see hyphenewhyphenovation, 10% at the center, 40% commercial hyphenew hyphenovation, and 10% in the screen infrastructure. Except the few verticals, which I mentioned in my speech ID, data center, area, energy efficiency and DIY. It's difficult for Q2 to give you a precise trend between resi and resi commercial data center and so on. Just because the key driver behind the performance was more, let's say, the economy and the sanitary situation, especially the magnitude of the lockdown measures, rather than rather than whether it's really what was better than commercial or Okay.
I'm turning to you maybe for the M and A piece.
Yes, good morning. So about the M and A So first just to remind the numbers, on H1, the dilution is the gap between the attrition is plus 40 and it's plus 100 on Q2 alone. So there are several factors. The first one, as mentioned by Benoit, is that we do not compare to the traditional 20% legrand average. The second is a very strong performance at universal, And the third one, as you hint, would be a mechanical impact being that on Q2 alone alone, the net adds move, for example, a dilutive company is not in the acquisition impact when universal is.
And if we project ourselves on the full year basis, universal accounts currently for 6 months out of 6 in the acquisition impact, when it will impact only for 1 quarter in the acquisition impact, of the year, the rest of the Unileville will be in the AOI, including acquisition. So that's the mechanical path. And then what about our to compute an acquisition impact in H2 or Q3, of course, universal will play negatively on Q3 alone. But then the question mark is, which profitability of Legrand you should compare, and we have no guidance on that. Is it clear some business reason about Unile, some mechanical impact between Netatbo and Unile?
And the basis of the baseline of LeGrande, which is not the same.
Thank you very much for all your answers. That was very clear.
Thank you,
sir. Next question is from Mr. Andre Duigny from Credit Suisse. Sir, Ed.
Good morning. Thanks so much for taking my questions. I firstly wanted to follow-up on the structural measures you're undertaking. And ask whether you could ask whether you could give any indication on whether this kind of elevated level of restructuring activity will carry on into the second half or at least Q3.
Well, it's, it's, of course, difficult to give you a number for Q3 and Q3 because it depends on many factors, including on the date of the announcement of our measures, in H2, we expect additional restructuring measures to be announced and to be booked in H2, there are a number of plants in which we are working. Clearly, the yearly restructuring expenses will be higher than the 4 medians we are booking in we are booking in H1. Now I cannot give you a number. Would it be twice as much as that or will H2 numbers being a half of what we have booked in H1. I'm not able to give you a number because it depends on depends on many factors, which are, which are, which are not yet announced now.
And as far as far as the payback of those measures are concerned and what you could expect going forward, the payback is different from from measures to measures. Take, for example, the U. S. You usually have in the U. S.
A very short payback when you are doing this kind of recurring, and for footprint. So for closing the site, It has a much longer feedback, which can be 3 or 4 years. So, it's difficult to give you one number of associated savings for 2 or for 2021 because the payback of that measures is very different.
Thank you, and thanks for anticipating my payback question. Could you just help us, with the number of sites that you have in total globally? And apologies if it's something else.
Yes, it's We have about 130 sites worldwide. And as I said, the average pace on which we are closing sites is 3 to 4 usually per year, because we are adding also sites every year with acquisitions. And we are we are currently doubling the pace, at least doubling the pace.
Thank you. And if I just may venture into this kind of thinking about the potentially new margin from these measures you're undertaking, would the concept of thinking kind of a three to four size being closed as to generate recurring efficiency that usually deals with inflation together with the pricing that you achieve It is normal then should we think about the 3 to 4 extra that you've done and whatever you do in the second half? As the driver of potentially higher margin for LeGrand going forward compared to the past?
No, I think, really, that's what I said at the beginning of the call. We have not suspended our midterm guidance, which is about 20% of it. And, I think that, that mid term, the 20% EBIT or return is the right EBIT margin that for the group, at the same time create value for its shareholders. And keeping its ability to invest in new products, service to customers and so on. So I wouldn't I wouldn't embed into the models, the fact that we are shooting mid term for a higher margin than 20%.
Also, more hours, don't forget that we intend to resume active via physicians, and we have a lot of good ideas going forward for the quarters to come and the years to come as far as patients are concerned. Acquisitions are usually dilutive on group's earnings. They are not in H1, but if you look at the past 10 years on average, 0 to 40 bps of yearly that you shared is what we usually have when we acquired companies. I wouldn't embed in my model that new model that, that's the goal we should go to at least 2% EBIT.
Thank you. That's very clear. And I wanted to ask about pricing trends as well. Obviously, Q1 was very healthy and solid at 1%. But maybe if you could talk just broadly about what you're seeing in terms of pricing trends for different product categories that you participate in, that would be great.
Well, we are there are 2 things. Pricing, I mean, selling price and processing price. As far as selling price is concerned, we are confident on the fact that the full year 2020 will show a positive setting price intact. And we are working hard and our countries are working hard to to manage smartly price. So you should expect to see price increases or price increasing in FY 2020.
We don't expect the reversal of the trail you saw in H1. By the way, does it mean that we are not careful at keeping and developing a competitive position. No, all the contrary. So to achieve these plus 1% price increase, in H1, it is a mix of countries and product families in which we are increasing prices more than that. And countries or product families where we decrease prices, So again, we were very focused in H1, of course, on protecting our margins, but also on doing whatever it takes for us to leverage this period to grow our market share.
And as a result, we didn't hesitate, if needed, to partially being aggressive on pricing. But overall, FY 2020, we should see price increase As far as purchase price is concerned, then it is a bit more complicated. Yes, we have seen an improvement of purchase price between Q1 and Q2. Q1 purchase price was minus 1.1. Q2 purchase price was minus 2.3.
So we have seen an improvement. But going forward, big question mark, and there are many things which are not under control. Take, for example, the copper price, the copper price for many reasons, including a potential shortage in Chile, is now back to $6500. The silver price is back to the 3 crisis level. So it's a mixed bag of many things, and you could have the economic situation with impact, the potential shortage with impact, bots.
So to make a long story short, confidence on the fact that there will be no reversal of H1 trend on pricing and that we will do positive pricing for the full year and for X2. And more question mark on the purchasing price because it is not in our hands.
Very clear. Thank you. And final thing, I wanted to follow-up on just on that comment you made on North America gains in Smarter share gains in data center segment. Could you give us a bit more color on this? Is it any particular customer category in the kind of largest scale or more specified, dedicated data centers?
Well, no specific, not specifically on a type of customers, because we are present data centers on all type of customers, the so called the superior 8, the edge data centers and so on. But it is true that in terms of product remedies, the 2 product remedies in which we have good evolution market shares are the one listed in the press release. So best way for data centers and smart videos. And with those product families having a very good performance, then it tends to pull, the other product families, such as such as connectivity and so in other words, share gains in those 2 portfolios. Now in terms of verticals, difficult to set up a trend, except maybe that on the market itself, hyperscale data centers are doing better than colocation.
But otherwise, it's more a matter of market trend other than the levoire market share gains.
Thank you. Thank you very much for your time.
Thank you, sir. Next question is from Mr. Abby Stoleffy from Societe Generale.
Yes, hi, good morning. So I just had a clarification question on the restructuring charges for Northern Central America, because it looks like it it was 1,000,000 for H1 overall and million you'd already booked in Q1. So I guess there might be a gain or some kind
of offset. So I was
just looking for the underlying restructuring charges perhaps in Q2? And then kind of in the context of the comments you made on structural initiatives to adapt the cost base across the group, just wondering if you could kind of give us some insight into some of the things you're doing specifically in North America in terms of site consolidation process improvements, etcetera?
Well, in fact, the issue question is, the fact that North America booked early, the number of restructuring charges, it is also coming from the fact that, it's a bit easier geographies where it's a bit easier and faster to launch restructuring, restructuring plans, and adaptation plans. The U. S. Is part of them. In the U.
S, you can decide a plan and now sheet very quickly. And as the U. S, part is made of it's made of two things. You have a very quick adaptation plan, which was launched as early as Q1 and which had an impact including in Q2, which will have an impact on the coming quarters. And on top of that, you have on top of that, a number of footprint analysis, which are currently being led and which could lead potentially to additional restructuring charges.
Well, second question, examples, well, we have close the site in Turkey. We have closed a small site in Sweden. We have closed the site in Brazil. We have closed the site in India. And we have a number of other of those initiatives coming in the coming quarters.
So it's a very traditional your adaptation where you are adjusting your footprint, reducing the number of people, revisiting your processes and stuff like that.
Okay.
Great. And then just a follow-up really on data centers in the U. S. Following on your comment to the hyperscale, Eton as well. So this week, you were seeing a return of larger investment in the hyperscale data centers.
So it sounds like you're seeing that as well, but it be fair to say you kind of expect that kind of area to accelerate into H2 as well?
Well, you have to add to our customers. So I have absolutely no clue. And again, even on that does the same rational as elsewhere apply. We have very limited visibility on what our customer is going to order. So, though, I have absolutely no visibility.
I cannot answer this question. What I can tell you is that mid term, there was a question I think it was from UC saying on data center. Midterm, we are strongly convinced that data center is a very good place to be, and we have heavily invested to be a good player within player on trade. So we have new draft that mid term, it's a very good place to be. Number 2, number 1, number 2, we are covering All type of telecenters, so hyperscale, Edge, corporates, colocation and so on.
So whether one piece is going faster than the other, at the end for us, it's more or less the same because we have a good coverage of of all type of data centers and number 3, we are we as a result of those 2 topics, we had in H1, a good performance in the U. S. In Europe and rest of the world.
Thank you, We have a next question from Mr. Martin Wilke from Citi. Sir, please go ahead.
Thanks. It's Martin from Citi Just a couple of questions on your acquisition pipeline, just to get a sense as to whether or not the crisis has either accelerated or slowed down the possibility of making deals? Has the backdrop significantly changed? And then related to that, obviously, we've seen multiples for listed companies, to increase a lot, this year. Are you finding that acquisitions are still reasonably price, are you lowering your hurdle rates given the back profit interest rates just to get some sort of sense as to how do you see valuations on potential deals?
Thanks.
Well, the pace in our freight has slowed down. But this is not a surprise. This is always the same situation in crisis times. And this one crisis is a bit special. So typically, we have been focusing more on our day to day performance, restructuring plans, preparing all the things for where the market will recover rather than spending time chasing opportunities.
And on the seller side, a seller usually do not sell in such crisis period. They're waiting for better times to come. So that was by definition, there was a sort of slowdown in acquisitions. Does it mean that we have stopped contacting targets or filling the pipeline? No.
And we have given the clear instruction to country managers to keep entertaining very good relationship with 10, 15, 20 targets they have locally. So that whenever the target and ourselves will fill appropriate, we'll be able to resume quickly, very active acquisition policy. And I have myself, keeps in touch with the few owners. So we have the pipeline, which is as full as before. We have the midterm strategy to continue to be very active on acquisitions as before it teaches that for a couple of months, we're a bit cautious because of the situation and so are the so are the targets?
Well, as far as, pricing of deals are concerned, let's wait for us to do a bit more deals before commenting on the price. Think the price of the deal is the price you pay at the time you use Tykely. So I'm not able to Yes, to answer your questions, what I can tell you is that the deals we have done, take take, for example, in the past, 6 to 12 months' adverse, which were consistent with the celebratory story. What will it be going forward? We'll see.
We've gone through a couple of crises historically, and we have not seen multiple inflating inflating a lot. And we have always been able to stick to a model, I. E. Accretion on EPS from year 1 accretion in here from your side. So willingness to do more acquisitions, cautiousness because of the we should, but we will resume at some point.
And as far as multiples have concerned, let's wait for us to try some more deals before committing. Okay.
Thank you very
much. To listen as a way, the fact that we have not done a deal since a focal point which is only a it's only 4 months back. It's not 2 years back. It's not coming from the fact that There are a lot of targets asking us to buy them, but the multiples wouldn't fit It is more that we are and they are focusing on dealing with the crisis rather than entering into a process
Okay. That's very clear. Thank you.
Thank you. So our next question is from Mr. William Mackie from Kepler Cheuvreux.
Yes, good morning to you all. I hope you're well. A couple of questions, please. Are looking at the gross margin development in the second quarter, there's nearly, I think, a 200 basis point drop And when I look at the geographies, it seems that there was a 400 basis point drop between Q1 and Q2 in Europe. Which was about the same year on year as well.
So a significant drop in the gross margin in Europe less so in North America, but at almost 200 percent, 200 basis points, Q1 to Q2. So Can you perhaps walk through what was happening in respect of perhaps mix relating to country or product which resulted in such a change in the gross margin. That's the first point. The second comes back to the market environment. And perhaps can you in any way share an assessment of where you think, distributor stock levels are.
I think in the past, you've discussed the sell in versus sell out ratios that you're seeing in France or Italy. And perhaps you could talk to that, subject and where you think we are after such a period of volatility where we are in in respect of inventory levels through the supply chain? Thank you.
Okay. Let me first address your first question, which is why did the European gross margin dropped more than groups. And it is true actually that I said earlier that our EBIT level excluding acquisitions went down by 340 bps. And out of the 340 bps, 60 bps, are coming from gross margin. And the drop in the European gross margin, like for like, it's approximately twice as much as is 60 bps.
So what's margin in Europe is dropping twice as much in H1 than the group? Where, you find the explanation, which I basically gave when I explained why the EBIT margin went down more in Europe than elsewhere. Number 1, drop in sales was stronger than you that Q2 in Europe was down 28.2 percent. Well, we are an industrial company. So when you have we had ability to adjust down our expenses.
We did a lot of measures in order to cost to save costs, but at some point, we also have some fixed costs, which cannot be adjusted in a matter of days. And I remember you that the drop in sales was a very student. So, it was more difficult to adapt in the order next year, just because the drop in sales was a lot steeper in the order next year. And number 2, you also have within Europe, the negative mix impact coming from the fact that France and Italy and Spain, let's say, domestic profitable countries, where we're down more than the average of the European countries. So, same reason that the drop in gross margin, which I believe was somehow limited in Europe, in the context of such a strong drop in sales, it's coming from the 2 factors, strong drop in sales and mix between the countries.
As far as the second question is concerned, it was yes, as I said, I would say, I would say, I would say, it's always difficult to measure because our distributors usually do not communicate their exact stock label to us, which is perfectly intimate. It's their working capital management, not ours. What we can see is that in Western Europe, especially and in countries like France and Italy, there was significant destocking in April. So starting actually late late March, which is not a surprise and which is very consistent with what we have seen in the in periods of of, of difficult economic situation and which actually is confirmed by what have publicly claimed the number of our distributors. Now again, I'm not able to quantify it, and it didn't come as a surprise to LeGrande because a very legitimate behavior in such a pair of crisis.
But again, in LeGrand being one of the most distributed brands in this industry, if not the most distributed brands in the industry is suffering more than other players from this, from this
Can I have a follow-up relating to your Connected Products program Elliot? In the past, you have separated that out and tracked performance. Can you speak to the development of the sales of the connected products rather than normal products or unconnected. And also specifically, how is Natapmo developed in this climate?
Well, we have not actually separated those numbers on a half year basis, we communicate to that for the yearly basis. What I can tell you is that, both ADIET as a whole and net debt move specifically are doing significantly better than the average of the group. I can at least share a number with you or net add more, which was interesting. Of course, we are tracking a net debt more top and bottom line, but the most important number we are tracking at net debt more is what we call the activations. How many products are effectively connected by the people.
So you buy and say connected switch, At this time, you enter your email address and that you connect it to the network, poof, it rings a bell in our system. And that's what we are tracking because is really the business performance of NetAPT. Well, interestingly, NetAPT activation went down only 5 weeks during the european lockdown, only 5 weeks and are up since and are up year to date. So it's not necessarily indicative of the sense we're going to do in the next 2 months. Keep you a flavor of the fact that even in the difficult times, if there's a, a, a small and nice company like net at is able to grow its business presence, if not always it sells, its business presence, most its customer, which is revenues.
We'll give you more updates, I think, for the full year 2020.
We have a next question for Wazee Hizvi from RBC Capital.
Hi, good morning. Just one left from me, if I could. I was interested to hear how you're thinking about product development in R and D focus? And I mean, would you do things like, would you consider accelerating smart home and datacom products maybe at the expense of slowing down investment in maybe some of the more challenged areas like hospitality and retail? Or are you treating this as a very one off situation?
And you're not going change your longer term product planning and development?
Well, we are Clearly, but it is not the new footprint of doing at Le Mans. We are clearly looking at our portfolio of products and pipeline of new products and making sure that they fit with our geographical priorities and business priorities. So, you know, we have 1000 of people and then, and 1000 of SKUs, which are the review of our potential development, and we are adjusting that to what we see, potentially in the next 5 years as being the most interesting segments to be. So take connected products. Of course, we are progressively investing more on connected products and to non connected products because we believe that those are products, which which do have some potential, takes energy efficiency.
We are allocating an infusing part of our R and D efforts to energy efficiency products. But again, this is not a revolution compared to the way we are proceeding before the COVID-nineteen crisis. Every year, we are making sure that we are adjusting our IND portfolio to the most attractive market segments in the next 5 to 10 years. So are we doing for our pipeline of acquisitions, by the way? Which is a very sort of active pipeline, and we are making sure every year that that we have enough interesting targets and segments, which are of interest to the law segments, which are which we see as priorities.
Thank you.
We have no further questions, sir. Back to you for the conclusion.
Well, thank you very much for taking the time to attend this call. And to those of you who are lucky enough to take a set of break, I wish you a good and relaxing break. Because H2 is going to be, get an interesting semester. Thank you very much, and I hope to talk to you soon. Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.