Good morning, ladies and gentlemen, and welcome to today's webcast 2019 Full Year Results Conference Call. All participants are in listen only mode and afterwards there will be a question and answer session. For your information, this conference is being recorded. At this time, I would like to end the call over to CEO, Benoit Coeur and CFO, Franklin Marie. Sir, please go ahead.
Thank you. Hello, everybody. Thank you for attending this conference call, Frank Lemarie, Ronon, Marc and myself are happy to welcome you. The Logon 2019 full year results conference call and webcast. Let me first remind you that we have published today our press release or financial statements and a slideshow to which we will refer.
Those documents are available on the LeBlanc website. Please note that this conference call is recorded and webcasted on our website. So let me start, first, with a few opening remarks following which Frank and I will comment into more details of 2019 full year results. I begin on Page 4 with the 4 main takeaways of days release. 1st, Le Goure reports a strong top line growth with sales up plus 10% in total, reflectings group's positions development both organically and through acquisitions.
2nd takeaway is that all our 2019 targets are fully met. Organic growth in sales was percent above the midpoint of our 2019 target of 0 to +4 percent, adjusted operating margin before acquisitions reached 20.4 percent within the 19.9 percent to 20.7 percent range set in February. And finally, the achievement 113%. 3rd, in addition to this very good integrated performance, Legrand delivered in 2019, the growth of its net profit attributable to the group of +8 percent and a normalized free cash flow up plus 13%. Overall, this strong growth in all KPIs in 2019, fully in line its medium term business model reflects local commitment and ability to create lasting value for all its stakeholders.
The 4th takeaway is that in 2019, Legrand Po issued many initiatives aimed at strengthening its profitable profile leading positions. The group reiterated its focused ambition as a strategic player in connected buildings, through steady deployment of the Elliott program, sales of connected products have risen by plus 29% in 2019, including plus 10% organic growth, reflecting the success of both IoT products and the docking of Netatmo. Momentum was also very good for both innovation and acquisition driven growth. As far as innovation is concerned, we have delivered dynamic flow of new products, including, of course, connected offering. On M and A, L'Oreal has announced 3 acquisitions of leading players in 2019, universal electric operation and Konnect track in the U.
S. And Jurgosmartech in China, totaling annual sales of more than 100 1,000,000. Lastly, LeGrande is actively pursuing initiatives aimed at improving its performance including in particular, rollout of the Legrandwei Program, digitalization of its organization and optimization of its industrial footprint. Now moving February, LeGrand medium term model. Let's come back to it looking now at our KPIs over the last 2 years.
As you can see on this slide, the average increase in net sales was close to +10 percent, the adjusted operating margin above 20 percent and the average growth of both normalized free cash flow and earnings per share was above plus 15%. Together with the non financial performance ahead of schedule, the group's 2 year achievements fully reflect the term that stems from its medium term business model for value creation. After this introduction, let's start with an overview of sales on Page 7. So as I said, we recorded the total rising sales of plus 10.4% in 2019. The strong growth resulted first from a plus 2.6 percent organic growth, driven by similar rises in both mature countries and new economies, all three geographical zones being on the right.
More specifically, in the fourth quarter 2019 alone, and despite a challenging basis for comparison, Organic growth in sales stood at +3.4 percent with a solid performance in new economies, plus 5.1 percent, driven by Eastern Europe, Turkey, Africa and China. On the other hand, rising sales in Metro countries in Q4 2019 was a healthy plus 2.7%, driven notably by good showings across Europe and in the U. S. Acquisition driven growth, which is a group's 2nd cost driver, contributed plus 5.3% sales growth in 2019 based on acquisitions already completed and their likely dates of consolidation Advis and Vivint growth should contribute around +1 percent to 2020 sales growth. Lastly, Forex impact was favorable at +2.2 percent in 2019.
Now if we apply to the last 11 months of 2020, the average Forex rates observed in Jan, then annual Forex effect for 2020 would be about plus 0.5%. This, of course, as usual, theoretical calculation and time will tell the actual ForEx impact on sales for the full year. Let me now go into more details regarding the like for like evolution of sales by geographical zone, which are all positive I'm referring to Page 8 to 10 of the slideshow. So let's start with Europe. Organic gross in sales was plus 3.3% in 2019.
Europe Metro Countries sales grew +2.9 percent in 2019, driven by good showings in Italy, UK, Benelux, Switzerland and in Southern Europe. Sales rose also in France. In Europe And New Economies, organic growth in sales stood at a solid+6 percent with Eastern Europe turning in a particular good showing. This is a very sustained growth recorded in Europe, in the 4th quarter alone plus 5.1 percent benefited from some one off factors notably in Turkey and Eastern Europe, which sets a demanding basis for comparison for 2020. Moving now to North And Central America, where sales were up plus 2.5% on an organic basis.
This increase was fueled by the U. S. Where like for like sales rose plus 2.9 percent in 2019, with solid growth in user interface cable management and best ways for data centers, rounded out by writing sales, lighting comments and solutions. Like for like sales also rose in Canada, but Hickrati in Mexico. Overall, sales evolution in Q4 confirmed steady underlying growth over the year.
It should be noted that that 2020 sales of North And Central America are expected to be impacted negatively for around minus 2 percent of 20 19 sales as a group will not be posturing a U. S. Retail contract that no longer meets Legrand profitability criteria. Let me now move to the last zone with rest of the world where sales were up plus 1.4% on a like for like basis. In Asia Pacific, sales were up plus 2.4%, driven by good showings in India and China.
These were this was, sorry, partly compensated by declining sales in Australia as well as in certain countries in Southeast Asia. In South America, organic growth in sales flat in Brazil and mixed trends for the rest of the area. In Africa, Middle East, sales retreated by 0.5 and like for like. In the Middle East, the decline in sales was marked, reflecting the region's difficult environment. This was partly compensated by strong growth recorded in many African countries.
In 2020, the rest of the world zone should remain marked by an uncertain environment in several regions. Let me now pass the mic Frank, for an overview of our solid financial performance and strong value creation.
You, Benoit, and good morning to all of you. Let's start with profitability on Page 12, where you see that 2019 adjusted operating profit is up healthy plus 9.4 percent, driven by growth in sales and operating performance. Moving to page 13, 2019 adjusted operating margin before acquisitions came to 20.4% showing a rise of plus 0.2 points on 2018. Against the backdrop of rising US tariffs, fully offset, this improvement reflects efficient management of pricing, good operating performance over the year and a solid control of administrative and selling expenses. Including the previously announced minus 00.4 points division from acquisitions, adjusted operating margin came to 20%.
Moving now to the net profit attributable to the group on Page 14. It was up +8.2 percent in 2019. The solid growth resulted mainly from the increase in operating profit, partly offset by unfavorable change in net financial expenses and the FX result, as well as higher corporate tax in value. This deserves 2 additional comments. First, on financial charges, they have increased by about EUR 12,000,000 in 2019 due mainly to the implementation of IFRS 16 from January 1.
2nd, on corporate tax, the increase in value is due to higher profit before tax. When corporate tax rate decreased from 2018, benefiting, sorry, from favorable 1 off impact. Moving now to the last feature of the financial performance with cash generation on Page 15. You know that the right reading of free cash flow generation should be done on a normalized basis You can see on the right hand side of the slide that normalized free cash flow was up plus 13% compared with 2018 reaching 15.2 percent of sales. Some additional information on the left hand side of the slide, First, cash flow from operations increased plus 11% in 2019 and stood at more than 18% of sales.
2nd, working capital requirement came to 8.1 percent of sales in 2019, down 1.1 points from 2018. This decrease was primarily due to a positive trend in operating working capital. 3rd, exceeding 1000000000 free cash flow was up nearly +40percent@15.8percent of sales. These were the key topics on Legrand 2019 performance of value creation. Now I give back the mic to Benoit.
Thank you, Frank. Let me now conclude the review of our 2019 performance with our CSR achievements on Page 16 to 19. Leroy launched in May 2019. It's 4 or CSA road map structured around 3 focal areas, I. E, business ecosystem, people the environment and 10 key challenges that contribute to the UN Sustainable Development Goals.
On Page 17, Here also, Legrand Performance was good, in 2019, with an achievement rate for our 20 nineteen-twenty 21 CSA road map of 113 percent, plashing it ahead of schedule and demonstrating the group's commitment to creating sustainable value, pages, 18 19. As you can see here, le active on CSR in 2019, tackling climate issues, while increasing inclusivity and health and safety at the workplace, all while developing its involvement into local communities. 2 slides to conclude in 2019 to on Page 20 to remind you that all 2019 targets were fully met. 2nd, on Page 21, Legrand will propose to the general meeting of shareholders to approve the payment of a per share dividend, up plus 6% versus 2018 dividend of. Let's now move to the 4th part of the presentation on Page 23 to see how LeGrande is strengthening its profitable cost profile through 4 key themes.
I will be somewhat, very fast on this part, but of course, I will be happy to answer any questions you may have and come back to any specific or any specific point. So first, as announced in June last this year, LeGrande is stepping up, I mean, last year, actually, June is stepping up its development in the field of connected buildings. As you can see on page, 24% to 26% in 2019, sales of connected products were up 18. SAS already accounting for over 12% of total group revenues for the year This strong showing is in 19, reflecting the program's good momentum over the year. This was by the geographical deployment of user interfaces the launch of many new products, the successful docking of NetApp Move and an even more seamless digital customer appearance, notably through the on plus control app.
2nd, as you can see on Page 27 to 31, we continued to invest 4.8 percent of R And D on sales, keeping on at innovating with several new product launches, covering many of our product categories and including, of course, connected offering from our come. I will not go into much details for these offerings, but of course, we remain available to answer any questions you may have. Moving now to Page 32, 3rd theme acquisitions in 2019. Laurent acquired 3 leading players in their markets. 1st, Unit Astell Electric Corporation, undisputed American leader in Bestways for data centers.
Jobo Spark, the Chinese leader in connected hotel room systems and Quebec Track, an innovative U. S. Company specializing in overflow, power and data distribution. 10 acquisitions were first made in total in the past 2 years, enabling LeGrande to strengthen its positions in promising markets in 6 different countries. Last team on Page 33, on improving performance momentum.
Legrand continued policy for performance improvement with on the one hand, the act deployment of leganwei now extended to all functions after successful implementation at industrial sites. And on the other hand, with the digitalization of both front and back office organizations. The group also kept on actively optimizing its industrial footprint particularly by rationalizing the configuration and seeing its carbon emissions. Coming now on Page 35 to the last topic of this earnings release with our targets for 2020. In 2020, Legrand will pursue its strategy of profitable and sustainable growth based on current macroeconomic projections, which are uncertain on the whole.
For 2020. And excluding any major changes in the economic environment, LeGrand has set as targets. On the one hand, organic evolution in sales in 2020 of between minus 1% and plus 3%. And on the other hand, adjusted operating margin before acquisitions, I. E.
At 2019 crop of operations of between 19.6 percent 20.4 percent of sales. Will also pursue, sorry, strategy of value creating acquisitions and subject to finalization of opportunities currently under in 20. Lecron will moreover actively continue to deploy its demanding CSR road map for 2019, 2021. This is it regarding our 2020 targets. And now Franco and myself are ready to open
first question from Andre Kukhnik from Credit Suisse. Please go ahead.
Yes, good morning. Thanks so much for taking my questions. Could we start with talking about pricing on how it developed in 2019 just to get the levels right? And also, whether you're planning anything special for 2020 or whether we should expect normal pricing actions?
Yes, sure. Hello. So, the pricing total pricing in 2019 was up 1.8% and with a with a pricing, which was smoother in Q4, because in Q4 alone, it was, plus 1.1%. We shouldn't be a surprise actually because from the very beginning of the year, we told you that part of the pricing was also coming from the tariff imposed by the US on imports from China. And as you remember, the tariff on China started in Q3 last year.
So as a result, we had a little bit less tariff to compensate for in Q4 and a little bit less pricing for that. So total pricing for the year was 1.8%, including percent for Q4 alone. Now going into 2020, it's always the same story. Pricing at LeGrand is a very dynamic story. We don't set, let's say, a tariff increase of X or Y for the full year.
We adjust price seeing on a country by country basis, on a case by case basis, depending on many factors, depending, of course, on the strategy to remain competitive depending on the evolution of the cost of components and raw materials, depending on potential tariff imposed or deleted on such or such imports. So we are not setting a precise target for pricing in 20 20. What I can tell you is that, the Le Cordon model will still apply, and you remember the model, which is that, we have the ability to increase prices whenever needed. It's part of our business model, but of course, it depends on the cost of the various inputs. Which is, which is still unknown at this time of the year.
So there will be some price increases, in 2020 and in 2019, the figures are those, which are commented, and you could notice that the pricing was very dynamic in 2019.
Got it. Thank you. I appreciate that. And on my second question was more on relationship of the growth between digital and connected products versus the rest of the group. I'd really like to spend some time just to discuss on how incremental that is to the group as opposed to being kind of just a development to sustain the levels of growth that we have seen already.
Looking at 2019, given the pricing component that you just described, an Elliott growing 10% like for like kind of driving a point of growth, it implies not very much kind of grow for a small negative for the rest of the portfolio, while I think end markets on balance were positive for you during 2019. So just wanted to hear how you're thinking about this and how we should think about it for 20202021, whether we should be relying on earlier than connected devices to drive growth or that's actually incremental?
Well, let's make it clear that, our growth on connected products is not holding cement out to the group. Let me take an example. When you are selling, connected emergency lighting unit or a connected wiring devices, it means that you will not sell by definition a non connected one. So sometimes the connected products you are selling is, sold instead of a competitor's product and then it's pure incremental. Sometimes it is sold instead of one of your non connected products.
So I wouldn't, embed it in my computation if I were you the fact that these 10% growth on a slightly more than 10% of our group sales is purely incremental. It is sometimes done at the expense of non connected products. So some people call that cannibalization. We call that mix. This is a mix effect that we have, had at Legrand for years.
Instead of selling a non connected product, we set a connected one. Instead of selling a white piece of plastic, as a cover plate of our switches, we are selling a well designed finish and so on and so forth. So this is mix And as any mix effect, this is not purely cemental.
Right, right. And now I mean, some of for annual question for me, but if I may just ask that again, now that Elio is getting to kind of nearly $1,000,000,000 of sales, can we think about it holistically and say that ASP for connected devices is X times of ASP of the non connected equivalents? Do we now have kind of enough data and the experience there to to call that or is it still kind of very much case by case?
Well, I understand that, it's somehow difficult to model, but there's not a simple answer to this question. I can take sometimes the added value and added pricing of connecting a product, will that represent 2% or 3% of the price of the product. Let's take, for example, a big UPS, 3 phase big UPS, Well, connecting these UPS, is just adding a module, which will, which will cost or which you will price a couple of percent more of an unconnected product. 2nd example, we launched in France, at the beginning of the year, connected emergency lighting unit, you know, those exit signs that you have in all commercial buildings that are guiding the people outside of the building should to debit a fire or a problem. We took the decision to sell those connected emergency light unit at the same price as non connected emergency light unit because we really wanted to make connectivity popular, and we think that the benefit Le Mans will get from launching disconnected products is not in getting more pricing from the product, but it's gaining market share from its competitors.
So those are two examples where the added pricing or added, let's say, yeah, added pricing to then collect the products is either 0 or minimal. At the same time, when you are setting a connected door entry product, it is priced 30%, 40% more than a non connected one. And when you are selling a connected wiring devices, it is sold depending on the range and the product and so on, 5 to 10 times more than an unconnected, warring devices. So there's not a clear question to these, to your key answer, sorry, to your question, except the fact that it's, extremely important for us to keep growing fast on connected products, not only because it can add, pricing value, mix but also it is a way also to gain market share and to build franchise, if I may say, by being the first one to sales of those products. So it's extremely important, but it's difficult to factor or to give you one single number saying on average a connected product is priced X or Y more than a non connected one.
It really depends on the product for me.
I appreciate that. And that's really helpful to have those examples. And very finally, on your data sense exposure, could you tell us how much you grew there in Q4 and in 2019 overall?
Well, so, as a reminder, data center is approximately on a pro form a basis, so 10% of I say approximately because, it is sometimes, there are some product that are purely only sold into data centers, for example, PDUs or best way for data centers, but there are other products that are not only sold in data centers. It could be switchgear, for example, or it could be cable trace. So sometimes, since we're not selling direct to all of those customers, we have to estimate how much of those sales are made in 0 that vertical. But on average, approximately 10% of our sales, It really depends, the product family, overall, if we look at, for example, best way for data centers, So the universal electric, universal electric sales, it grew very fast. In 2019.
We also had a positive, gross in, in PDUs with close to let's say mid single digit organic growth, which is, which is good. It is also more good that we had a demanding basis for comparison, We saw good gross momentum for fiber connectors starting from a small base So overall, it really depends on the trial family. What I can tell you is that, overall, we confirmed that the data centers, represent a very attractive vertical that we keep pushing hard to develop our sales And that mid term, we should have a sustained growth in sales in this vertical.
Thank you very much for your time. Thank
you. Next question from Lucy Carriers from Morgan Stanley. Please go ahead.
Hi, good morning gentlemen. Thanks for taking my question. The first one, I was just curious if you could maybe comment on the the potential impact you see from the current situation in China with the coronavirus, I know China is not necessarily a huge advantage of yourself, but I was curious if you could maybe comment on potential disruption to your supply chain on some of the components. Or whether you have actually some manufacturing activity in China either from 3rd party manufacturers or of your own manufacturing, but sporting to other countries?
Yes. Hello, Lucy. So this is obviously a very serious topic and and this is addressed and tracked in detail and from the beginning at group level. So first, our first priority to make things clear has been to ensure that our 5800 employees were safe and protected. So good thing is that, we got confirmation that all of our employees all across China, including in Wuhan and in the Hubei region where we have forty people actually are fine and none of them of their volatiles are infected by the virus, which is a very good news.
And of course, we are taking, all necessary measures to save war the health of our local teams. So it's a number of measures implemented in China, several temperature control checkpoints per day, the infection of public places, such as the contents, for example, mandatory worrying of masks and so on and so forth. This is the first priority. It's a very good news. 2nd, well, you know that China is not unfortunately, it's a big market for us.
It represents close to 4% of group sales. So if the sales were to be negatively impacted in China for some months, So impact on our business would be limited. Now third point, of course, China is a significant supplier for the group. It's difficult to assess the precise impact, if I may say, because you have the product that we to, locally, and you know that, for example, we manufacture some product locally for the U. S.
You have the products you are sourcing there. The other components that you are sourcing in China, there are components that your suppliers are sourcing in China. There are components that are going to other countries that you support. So it's very difficult to assess a precise impact. There are too many actors and factors.
Obviously, if the situation was to last for long, we might, of course, face some shortages in a couple of products, and we are trying to mitigate this risk as much as possible. So we are building safety stock whenever needed. We are booking some city in the ships, we are looking is sourcing, either within the group or outside the group, we are doing many things. But of course, if the situation were to last long, we would somehow be impacted as everybody, if I may say, because China is an important supplier for for everybody. So that's what, what we can, we can say at the time, just maybe a last word, our factories are progressively restarting.
So the first factories were reopened, Monday some important ones where he opened also yesterday on Wednesday. And the last one to he opened, will be next Monday And you know, the way it works in China before reopening, you have a very stringent inspection from local authorities that is double checking that everything has been put in place to avoid issues. So in this very fast evolving situation, this is, I believe, the all what we can we can tell you today.
Okay. Thank you very much. My second question was around M And A. So first of all, I was curious if you could give us based on the M and A announced so far, what you would expect for M and A dilution on the profitability for 2020? And then this is actually, if I remember well, the first time, you are giving actually an M and A guidance for 2020 on deals, which might not have been announced at the moment.
So I'm guessing you're quite close to to come to a positive outcome on those pipeline. But can you maybe help us to then understand what you see as the more global M and A dilution impact if we think about that 4% M and A that you are talking about at the minimum for 2020
Yes, Lucy. So, to make things clear, I think it was in the press release, but it makes crystal clear. So we have a carryover impact in 2020 Jobo And Universal Electric of +1 percent. And indeed, we are seeing the press release that, we will we aim at a total increase of at least +4 percent, in 2020. So it means that we have, let's say, go get of three points between the carryover of one point and this target of at least plus 4%.
So let me start with your second question. Yes, it is a first time we are guiding for M and A. Clearly, this is because we have a number of discussions going on, which are well advanced. And in which we are quite confident that we will come to a favorable conclusion. In other words, don't expect us to give you every year on M And A, but this one is a bit specific.
We have a number of very advanced discussions, let's say, As far as dilution is concerned, the dilution on the carryover impact of 1% is negligible. So you can take into account that it's a 0 dilution, if I may say, a few bps, when it was the other, but you can, you can say it's 0 dilution as far as the potential dilution, should we, meet our target of 4% M and A. It's difficult to tell you one number you see because we have a number of discussions going on. It depends on which one will materialize Well, if you look at the past 10 years, you know, that on average, dilution has been between 0 and minus 40 bps, let's say, So it will definitely be within this range. Would it be closer to 0 or to the average or a little bit more than that?
It's difficult to say at this this time of the cycle.
Okay. Thank you. And just, I was curious if you could help us to understand some of the one off effects you had in Europe in the fourth quarter that you were mentioning, are you able to quantify this so we would know basically with the or the benefit of that that we might not be finding again in 2020?
Yes, it's it's very difficult to quantify because when you have a big project, of course, it's exceptional, but somehow it's also part of your business. I can tell you that it's coming from 2 things. Another one, very strong basis for comparison in Turkey. You remember that the crisis started in Turkey, did a lot Q4 2018. So the basis for comparison was quite an easy one in Turkey.
And the second reason were a number of significant projects, that we got in a few countries in Eastern Europe So we have, for example, some of them in Czech Republic in Romania and in Hungary. So it's a it's more, you know, either based for comparison or, or, or specific projects. Are there been any, you know, exceptional, restocking in December from some of our customers. We don't feel so. But it's extremely difficult to assess, as you know.
So it's more coming from basic for comparison and big projects.
Okay. Thank you very much.
Thank you. Next question from Gaelle DuBray from Deutsche Bank. Please go ahead.
Good morning, everybody. Thanks for taking the questions. So I've got 2. The first one is about the U. S.
Where you've grown, well, extremely fast over the past 5, 6 years. And I guess you've grown some that it's been a little bit difficult for us to keep track of the transformation there. So could you give us a bit more granularity on your operations in the U. S? How much is lighting control?
How much is in the white space for data centers? How much is cable management, user interface and so on and so forth? And And that'd be great if you could talk a little bit about the trends for each of these very specific segments at the moment. So that's question number 1. The second one is a very simple question.
From a strategic perspective, I mean, everything's been great in 2019 in particular cash flows, but today, what's your biggest concern at the moment, Thank you.
Okay, let me struggle to address those two questions. So, what I can give you, well, you know, we are not giving, including for competitive reasons, the preside breakdown for sales by country and by business entities. This being said, You know, you've been tracking the graph for quite some time. So if you add up the sales I mean, the announcement we made on the various acquisitions, Maestrone, Fair Workday, Carita, and so on, you can have a good feel of that, but we are not making information public. What I can tell you is that in the U S, we are doing slightly more, slightly less than a quarter of our sales.
In residential. So I think the last numbers are 23% and 77% in commercial and industrial, but mostly commercial. So it includes, of course, data centers, but it also include commercial buildings, universities, schools, you know, hospitals and so on and so forth. Well, as far as the other, the big enough for sales, it's, then it's, of course, confidential information. We can also tell you the market position.
So we are, number 1 in PDUs, for data center, number 1 in best way for data centers. We are number 1 in cable management products, the plastic, floor boxes, cable tray, and so on, we are number 2 in the wiring devices. We have a good position in, in home systems. We are number 1 in audio video distribution. So I know it's not fully answering your question, but, we have a number of good positions in the US, which have been built through acquisitions.
Well, as far as the strategic issue is concerned, Frankly speaking, I'm going to be a bit disappointing for you guys, but I don't feel that we have any strategic issue at the moment. It's the way we want to go. And the means to go there, I extremely fear, you know, the growth driven strategy organic growth driven by R And D Innovation, Elliott and so on, complementary acquisitions, financial discipline, the CSA or approach. And so I don't feel that we have any strategic issue. The main risk that we have, but it has been the case for years, if not for decades at LeGrande.
The main risk we have is definitely the economy. And we could demonstrate, in 2018, that when the economy is supportive, we're able to grow fast, both organically and through acquisitions. But of course, if the economy slow down in such a search region, we are impacted I don't feel we are facing any strategic issue. And actually, this has been confirmed by the evolution of our market shares, which which are which is good by our customers, which are giving us a good feedback. That's it.
Okay. Well, thanks for this. Just back to the U. S, I think that's the first time I hear from, from LeGrande. That you would not be pursuing a contract with 1 of the retailers or at least stop the contract and that can have apparently a pretty big impact on the top line.
So what's behind that decision, I guess profitability obviously is a criteria, but what was going wrong specifically in that contract? And And is there any reason to believe that there is a slight change in the strategic approach and that we could see more of these decisions going forward?
No, not at all. It's not a change in our approach. And actually, the fact that you sometimes win, sometimes lose or decide not to pursue a contract has been part of our day to day business forever. We are making it public because this one is material, at the zone level. So we don't want you to be surprised.
So that's the reason why we make it public. But otherwise, we have gained and lost some of those contracts for decades. If we do specifically on this case, is a DIY customer, one of the biggest in the U S, and discussing with him the terms and conditions of this contract, was no longer acceptable to LeGrande, and we are not in this trade and not to make money. So we have decided to not to pursue it it's a very specific situation, number 1, because it's our biggest, DIY customer, worldwide. Boy, it's 1% of our sales.
It's not a little bit less than 1%. So it's not measured, but it's one of is the biggest customer, number 1. And because it is in the U S, where, the brand, not only for the brand, but for everybody, the brand is less driver in the in the DIY market, that in many other countries. So I don't believe that this could occur, in any other country, than in the U. S, because in those countries, we have many more things that plays that duration ship you have or the objective that your customers have.
So that's why we are making it public, but, but again, it's regularly happening, that we gain some contracts and we are happy because they are bringing profit and margin to the mall. We are dropping some contract, which are not profitable enough. And sometimes recovering the customer after 2 years, once he had that it has not been a good bet for him to get rid of Lebon. So it is part of our day to day life. And maybe to finish, I wouldn't like you to come back home with the idea that the DIY is not a very interesting channel.
It is a very interesting channel. And we had we had been gaining share in the DIY chain for a very long time. It represents a slightly bigger share of our sales today than it used to be 10 years back. So it's a very interesting channel to be in, but it happens that sometimes you're winning customers and sometimes you don't.
Okay. Thanks very much. Thank
you. Next question from Alastair Leslie from Societe Generale. Please go ahead. Hi, good morning.
I was hoping you can expand a little bit more on the scope and ambition of the Legrand way program. I'm really wondering what the opportunities might be to kind of accelerate cost cutting measures. And particularly in the context of SG and A costs, the 27% of sales are still quite high. Restructuring costs of 0.5% of sales, which by industrial standards are quite low. And I look at the share of front office employees as well, that appears to have sort of plateaued around 20% of the group total kind of moved up from 15% back in 2004.
So I was just wondering if there's an opportunity to kind of further redeploy kind of back office staff into more commercial roles as kind of part of a sort of digitalization initiative? Within the organization as well? Thank you.
Well, I'll say a word on the Legrand Way, maybe just before we say that, the word on the level of SG and A, well, number 1, you could see in 2019, was also the case in 2018 that the SG and A level is well under control, and that we are, doing leverage on our SG and A expenses. So it's not like if you were spending for the sake of spending, I think our SG and A level is well under control. Number 2, as far as our overall level of SG And A, be careful not to compare bananas in April, if I may say Yes, we may have a higher level of SG And A than some other companies, but at the same time, we have higher growth, higher pricing power. We are in more countries. We have more more products.
We are spending a lot more in R&D. Don't forget that, we are spending close to, I mean, 4.8% last year in R&D, which which tends to be 2 times higher than our competitors. So, the fact that we have compared to a number of other industrial companies, a higher level of SG and A doesn't mean that that we are not the cost cautious or putting our cost under control. It means that we are investing more than others into innovation into commercial aggressiveness, into, pricing power and to many other So you should really look at the Logromo there as a whole, not assuming only as SG and A, but taking a top line, a gross margin, SG and A and other cancers at all. As far as the Legrandwei program is concerned, so, LeGrand Way, it's the sort of, booklet of good practices, that we implement in our units.
So it started with, industrial facilities. So it is like a little bit like the old Toyota Progal, if you may say, So it's part of it. It's lean, but it's not only lean approach. It is also about cost productivity, level of service, so quality he has and safety. So it's a 360 degrees program.
We started to implement it in our factories, it's not completed yet. So we still have a number of factories where we have to hold out the complete program. We also start to hold it out in our R and D departments and what we are doing it doing now, it's trying to put it in different departments, including seeing sales and so on. Should we expect, is it a big cost cutting program where you should expect to see a strong drop in SG And A in the years to come, no, the answer is no. It's the implementation of good practices, again, not only for seeing at cost control and productivity, but also at the quality level of service, health, safety, so on and so forth.
So it's part of the main initiatives we are putting in place to keep improving, Laurent model. But again, so one message I would like to channel to you at least there is that, don't believe that, LeGrande is you, you know, not cost cautious as far as the SG and A level is concerned. It's something we are tracking very, very closely, but we feel that it's needed by the Le Romodale to have a certain level of SG And A to invest in gross innovation and so on and so forth. Good example of, for, let's say, if I am missing for strong, good practices in terms of management is, for example, the level of inventory. You could notice this year that we have a level of inventory, which is quite low.
So don't forget, don't worry. We keep improving the Legrande model in all aspects, capital employed cost at
That's great. Thank you very clear. I was just wondering if I could have a follow-up question just on the organic sales guidance 2020. I think a lot of the organic growth in 2019 came from pricing. And I guess it looks like that's going to be more neutral this year, just given the easing inflationary headwinds from tariffs and raw materials, etcetera.
So I guess your guidance for this year would imply maybe a acceleration in volume growth in 2020. And that's really despite, I guess, you get a negative impact on sales from pulling out the U. S. Retail contract So just wondering if that's the kind of correct way of interpreting the kind of guide whether you're a bit more confident about some of your end markets now with perhaps easier comps than you had coming out of 2018? And then maybe if you could also comment on some of the markets in terms of where you see the greatest growth potential?
Thank you.
Well, it depends, I stay on which, if you are more on the low end of the guidance, on the high end of the guidance, is the high end of the guidance, yes, it implies an acceleration in volume. If you are in the low end of the guidance, no, of course, it doesn't. So really depends on where we will be at the end of the year. And we always have the same discussion at this time of the year. The reason why we are providing, range and not the precise number, fact that we have a lot of uncertainties at this time of the year, and not only to mention the virus in China, but if you look at the other uncertainties, there are many things.
The U. S. China dispute is not over. You have the situation in the Gulf. You have time of elections in the U.
S. And we know that the year of elections, it's always the credit was going to happen. You have a GDP numbers that were quite low in Q4 in France and Italy, which are 2 important markets for us. So no, so the reason why we're giving, ranges is obviously, as usual, the fact that we have to leave with all of those uncertainties. Now looking at the market, in 2020.
We remain, of course, cautious. We did, I think, a very, very good year in Europe. Clearly above our competitors, above our peers. Now, as I said, when you look at the IMF numbers, forecast for Europe. Some of them are not very supportive.
And again, looking at the economy in France and Italy in Q4, not very, very good. So we remain very cautious. As far as the U. S. Are concerned, we told you, that from midyear, we felt that the market was a smoother.
We told you that as early as our release of the 9 months number. And actually, it was smoother. And, I think our performance in Q4 was clearly above our peers. The very good performance, but it stills the market remain less supportive in H2 than in H1 in the years, in the previous years. What would it be, in 2020?
Are we not doing, again, the presidential election might somehow have an impact? Well, as far as the rest of the world is concerned, China is a requested mark for everybody, I think. India, you could see that the macro numbers are bit less supportive than it used to be. Brazil, a question mark, you have spurts, which are even more difficult to read such as Liberdon, even if it is 0.1% of our sales, well, it's perhaps a Liberdon, but Chile, beer, and so on. So again, at this time, we'll try to give you more insight, you know, in April and in May when we will release our Q1 number or in July, but at this time of the year, it is extremely difficult to give you more precise feeling about the markets.
Also, more as we have these sanitary issue going on, which adds to the 2020 uncertainties.
Next question from Martin Wilkie
from Citi. Please go ahead.
Thank you. It's Martin from Citi. So I had a question on how you think about the perimeter of potential acquisitions and obviously you've broadened away from your historical low voltage scope you've been buying into areas like access control, audiovisual, installation, temperature control, all these kind of things. And just understand a bit more about how you think about the common underpinning of what you're buying historically, I think, we've always thought that you're selling to install this through distributors. Is that still sort of the underpinning of, of how you think about companies you want to buy?
And then related to that, obviously that model was very good for pricing power in low voltage and now that you have more of these non low voltage products, Do you think the pricing power of these areas you're moving into is just as good as what you've had in the past on the low voltage side?
Yes. I mean, it's what I want to be clear that all those entries into complementary fields of activities are not diversification. When we go into lighting features. When you go into data center, best way for data centers, audio video, and so on and so forth. And when we are progressively expanding our accessible market, which is now worth more than EUR 100,000,000,000, it is not a diversification.
So we are selling to the same customers and or selling as part of the same system. Can give you an Many examples, but when we buy UEC, which is doing best way for data centers, where it's exactly the same customers as the cabinets and racks or the connectivity that we have had as part of our catalogs, since our colleagues in 1998, right, more than 20 years. So Yes, it is interesting to enter into new fields of activities because, instead of operating on a market, which is worse €60,000,000,000, we are in a market, which is worth €100,000,000,000, let's say. So it makes our position more powerful vis a vis customers. It adds the weapons to grow.
We can create the cost and revenue synergies. So it's extremely interesting, but it's not a diversification. It's addition of complementary portfolio of products. As a result, and then actually, in our process, I can tell you that we are extremely careful not to diversify. And there are a number of attractive companies that are proposed to us by either advisors or by your people, which were not posturing because we believe that it would be a stretch that we don't want to do.
So as a result of that, there is no, let's say, significant big difference in business model between those new fields of activities and the old one. There's no, there are, of course, areas which require 10% of RNA 2 sales and some other, which require 1% of RNA 2 sales. But the difference is not between the new and the old. We have, old, I mean, product that has been part of our portfolio for 20 years. Where we spend 7 or 8 percent of our sales to R&D, and there are new product categories, which we have acquired in the past 5 years where we spend 1% of our sales to R and D.
So there's no, there's, of course, differences between, this and that product family But there's no significant difference, let's say, between the old, product family and, the old one and the new one. And it is true for the R and D intensity. It is true for the capital intensity. It is true for distribution channel. It is true for pricing power.
It is true for many, many for P and L structure and so on and so forth.
Okay. Thank you very much.
Thank you. Next question from Andres Willey from JP Morgan. Please go
Good morning. Thanks for the time. I got a question to follow-up on the earlier discussions of the DIY contract in the U. S. Just to clarify, the 2% is relative to the Americas sales, and that's part of the overall, obviously, for the overall guidance.
For the year, but also maybe you could indicate some benefit that could have to the profitability. And Is this a situation where the Le Cordon brand is going to be replaced by private label? And is that a general trend that you see in DIY or is that really a one off specific situation where to go for one brand, to another brand? And then the second question, a follow-up on the discussions on the U. S.
We just had maybe you could break down your organic growth performance for the U. S. In 2019 into, basically what the lighting fixtures business and what milestone did. So we have an idea what the rest of the business did in the year?
Well, as far as DIY customer, yes, of course, part of our it's part of our guidance. It will have no significant impact on profitability because the seasonal contract, which was approximately at the same level of profitability as the rest of MCA. So no material impact on profitability. And no, we were not replaced by a private label, replaced by another competitor, which, by the way, also had a more extensive range of pay than we had. So it probably also was part of the decision that was taken by the DIY customer.
Again, I would not like to exaggerate the importance of that. And again, I can tell you that I've been in this trade for 23 years now, and I have lost and gained many, many of those contracts. This is a purely part of the game. As far as, the growth of the various entities are concerned, cannot be too precise, but as far as our lighting, fixtures, business is concerned, we had a nice, growth in 2020. Which was satisfactory.
Don't forget that as far as our lighting position in the U. S. Concerned is very specific and we are not competing in the big lighting market against the BP guys. We are really addressing a specific niche of highly specified, architectural, high value lighting features. And as a result, this market and our market position is quite supportive and we've been growing nicely there.
Far as our Maison position is concerned, so now you know that we are not no longer reporting on Maison because, Maison was merged with other, units in the U S, in order to build a AV division in the U S, putting together a number of brands and milestones, but also Middle Atlantic, but also a number of residential brands. So we cannot give you the performance of milestone alone as far as the AV division was concerned, it was flat in the U. S. In 2019. Bear in mind that our 2018 sales was up, by close to 5%.
Which is above for AV, which is above the sort of midterm projections gave to the market at the time we bought my Stern, we told the market that my Stern was said to grow approximately 2% per year or to to 2% to 3% per year. So if you look at the growth of our AV division over 2 years, it is completely in line with this guidance. So a nice single digit, course in the lighting fixtures and flat for IV.
Thank you very much.
From William Mackie from Kepler Cheuvreux. Please go ahead.
A couple, please. You've broken out the growth in connected products very helpfully, but you've also discussed in the past the scope around digital infrastructure, which I believe you were willing to scope on an annual basis. I think last year, you described it as about 1,000,000,000 of sales. If you think of that group of business in 2019, could you discuss how it grew, and your expectations for the year ahead That would be the first question. The second is easy with respect to you said there were a number of exceptional items in the tax this year.
What is the official guidance for your tax for the full year? And the last is coming back to China. We we've had over the last 18 months, a number of discussions about the importance of China as a supply base, particularly into your North American operations. Clearly, there's a risk of disruption through the supply chain. Can you at least spend a little more time discussing the risk to the supply chains and for how long you can operate within the inventory levels and your businesses without needing seek or find alternative supplies from your current sourcing in the region?
Thank you.
Okay. I'll take the first and the third question. I will let Frank answer the second one on tax. Well, on digital infrastructure, we're not reporting sales, by product family or product categories, just because this is not the way we organize So we give this flavor for Elliott sales because we feel that it's a very important information to give to the market, but we are not organized to report neither an a daily basis nor on a yearly basis or sales by product family or reporting is a way we manage the company internally is really country based and not product based. So of course, we have analysis, product by product, but our internal reporting is not product based.
We don't, for example, have a PL by product. It is really country based. What I can only confirm, as I said, as being as it is clearly that the number of those product categories grew nicely and that we think it's a very important category to be. As far as a third question is concern, yes, definitely China is an important place to supply our products. And obviously, you could see that for the U.
S, and so the reason why we had a big, big dive impact in in 2019 that we could compensate. I don't have a clear answer to your question because it does not only depend on us, you have, the stock that we have, the stock that our customers have, the stock that we have, the stock that our suppliers have, you have the ability to restart the production. And again, we are currently restarting the production. My feeling is that, will be difficult for China to operate, to stop operations for weeks months I mean, the impact in the economy, would be too disruptive. So my feeling is that the efforts will be made by the Chinese authority of course, under a number of very strict controls, so that the manufacturing capabilities of suppliers could be resumed.
Quite quickly. So, and again, if we were to have a shortage of components, I believe that it would be the case for everybody and I tend to believe that we are probably less exposed than others to this. So I cannot give you a clearer quantification of that, but I can tell you that we are tracking these topic extremely carefully, with our own facility, with our people, with our suppliers, and the feeling I have is that there will be a lot of efforts made by the Chinese authorities to restart quite complete the manufacturing operations in China. It's a good thing, if I may say. I shouldn't impose his word, but the lack of the Chinese economy that it happened.
This outbreak happened at the time of the Chinese New Year where most of the facilities were anyway not planning where a lot of safety stocks have been made by various companies because the country was to stop for for day for 10 days. So again, if there was to be a shortage for a very long time, we would be impacted many and everybody would impacted, but I feel that everybody, everything is put in place so that it doesn't last for too long.
Perspective about tax rate. We are currently benefiting from one timer. It will also already the case in 2018, so 2018 tax rate was 28.1 percent, 2019 tax rate is 27.5 percent, still benefiting from some one timers, plus a smaller positive impact of a lower Indian tax rate. What about 2020? We don't expect significant changes in local tax rates.
You probably, as you mind, the decline of the French tax but it's not very material. So what we can say is that our tax rate for 2020 could be in a range between 20% to 30%.
Thank you. Next question from Jonathan Monk from Exane BNP Paribas.
Plus, I wasn't clear. I said between 28% 30%.
Sorry, we'll now take the question from Jonathan Mounce from Exane BNP Paribas. Please go ahead.
Hi, good morning. Thanks for taking my question. I wonder if you comment. So obviously, Schneider has announced an acquisition today in the building information modeling space. I mean, they see this key to their building product strategy.
There's quite a lot of product overlap between you and them in the low voltage space I wonder how sort of you feel about the evolution of this. Do you feel it's necessary to look in that direction in order to maintain or even take share in the product space by being earlier in the decision making process in terms of the construction of buildings, the design of buildings, that kind of thing? What's your thoughts on that?
No, obviously, it is a very important product to be part of good of the beam, but let's make it clear for us. I mean, beam is used by many specifiers, engineering companies to plan for the construction, maintenance, operations of a given building. So whenever they are using, BIM software, it's important for LeVron, to have what we call BIM objects to supply to them, So that when they are digitally mapping, if I may say the building, they can have a digital twin of the Legrand products. So we have a number of, of beam objects that we are already making available to our customers either directly or through a number of database, beam object and so on. Do we intend to own company specializing BIM, no, definitely we don't.
And of course, I'm not commenting on Schneider's strategy. Each company have its own as far as Leroy is concerned, we've always been very clear on the fact that, we don't want to do the work of our customers. So yes, we are supplying all information, which is needed by engineering companies using BIM, by engineering companies, using Otocad, by all distributors, selling online answer and so forth, but we do not intend to do a beam platform ourselves or to do to sell online to our customers of our customers or sales, for example.
Thank you.
Well, thank you very much for attending this call. I know, as usual, it's a very busy day for you. So thank you very much. And should you have further questions, please do not hesitate to contact Frank, Ronard or Salivensail, we'll be happy to answer you. Thank you very much.