Good morning, ladies and gentlemen, welcome to today's Legrand 2019 nine months 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 is being recorded. At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart, and CFO, Mr. Franck Lemery. Please go ahead.
Thank you. Hello, everybody. Franck Lemery, François Poisson, and myself are happy to welcome you to the Legrand 2019 first nine months results conference call. Let me first remind you that we have published today our press release, our financial statements, and a slideshow to which we will refer. Those documents are available on the Legrand website. Please note that this conference call is recorded and webcasted on our website. Let me start first with few opening remarks, following which Franck and I will comment into more details our 2019 nine-month results. I begin on page four of the deck with the four main takeaways from today's release. First, Legrand reports strong top-line growth, with sales up 10% in total. This is a very positive achievement, as we clearly continue to develop group positions, both organically and through acquisitions.
Second takeaway, this strong sales growth translates into robust value creation. As you can see on the slide, all main financial KPIs are on the rise by more or less +10% compared with nine months 2018. Adjusted operating profit increased +10%, net profit attributable to group was up +9%, and normalized free cash flow grew +12%. Third, momentum is very good for both innovation and acquisition-driven growth. As far as innovation is concerned, we have delivered over the first nine months of the year with dynamic flow of new products, including of course, connected offerings. On the M&A side, we are pleased to announce today the acquisition of two leading companies, Connectrac in the U.S. and Jobo Smartech in China.
Taking into account the purchase of Universal Electric Corporation early Q2, Legrand has thus announced three acquisitions since the beginning of the year, totaling annual sales of more than EUR 180 million. Lastly, based on our 2019 first nine months achievements, Legrand confirmed today its target for 2019. I will come back to this point later in this call. After this brief introduction, let's start with an overview of sales on page six. In total, sales rose +10.2% in the first nine months of 2019. This strong growth resulted first from a +2.3% organic growth compared with the first nine months of 2018, including 2.6% mature countries and 1.5% in new economies, all three geographical zones being on the rise. More specifically, in the third quarter of 2019 alone, organic growth in sales stood at +2.6%.
This reflects, on the one hand, the solid performance in mature economies, +3.3%, driven notably by good showings in Italy, the U.S., as well as in France, where, as you may remember, the basis of comparison of the third quarter of 2018 was favorable due to destocking by distributors at that time. The other hand, the rise in sales in new economies in Q3 was limited, +0.8%, driven by high single-digit growth in sales in China and India, affected by ongoing retreating business in the Middle East, declining sales in Turkey, due, as announced, to a particularly demanding basis of comparison, and retreating sales in Brazil. This was for organic growth.
Acquisition-driven growth, which is the group's second growth driver, contributed +5.2% in nine months 2018, and should contribute, based on acquisitions completed in 2018 and 2019, at the likely date of consolidation, around +5% in fiscal year 2019. Lastly, ForEx impact was favorable at +2.4% in the first nine months of the year. If we apply to Q4 the average ForEx rates observed in October 2019, the annual ForEx effect on sales for the whole of 2019 would be around +2%. This is, of course, and as usual, a theoretical computation. Let me now go into more details regarding the like-for-like evolution of sales by geographical zone, which are all positive. For that, I'm referring to page seven to nine of the slideshow. Starting with Europe, organic growth in sales was +2.7% in the first nine months of 2019.
In Europe's major countries, sales grew +2.8% in nine months, driven by good showings in Italy, Benelux, Southern Europe, as well as in the U.K. In France, sales were slightly up on a like-for-like basis. One should keep in mind that in France, Q4 2018 represents a challenging basis for comparison as it benefited from some restocking by distributors after the destocking experienced in Q3 2018. In Europe and new economies, organic growth in sales stood at +2.3% in nine months of 2019, fueled by very good showings in Eastern Europe. Sales in Turkey were down, stemming from, as announced, a particularly demanding basis of comparison. Let me now move to North and Central America, where sales were up +2.6% on a like-for-like basis in the first nine months of 2019.
This increase was fueled by the U.S., where sales grew +3.1% in nine months of 2019, with good showings in cable management, user interfaces, and revenue growth in lighting management. Over the first nine months of the year, sales were almost stable like-for-like in Canada and down in Mexico. Moving now to the last zone, rest of the world, where sales rose +1.1% on a like-for-like basis. In Asia Pacific, sales were up +2.3%, driven by good showings in India and China. This was partly compensated by declining sales in Australia. Organic growth in sales in Latin America was +0.3%, due notably to a slight rise in revenues in Brazil and a decrease in sales in Colombia. In Africa and Middle East, sales were down -2% like-for-like in nine months of 2019.
In the Middle East, where business is facing weaker business environment, the decline in sales was marked. This was partly compensated by rising sales in many African countries. Let me now pass the mic to Franck for a presentation of how our strong growth in sales converts into robust value creation.
Thank you, Benoît. Good morning to all of you. Let's start with profitability on page 11. As said earlier by Benoît, adjusted operating profit rose plus 10% to reach close to EUR 1 billion in the first nine months of the year. Moving to page 12, nine-month 2019 adjusted operating margin before acquisition, i.e., at 2018 scope of consolidation, came to 20.8% of sales. Adjusted operating margin before acquisition was thus up 0.3 points compared with the adjusted operating margin recorded in the first nine months of 2018. With markets uncertain on the whole and differentiated from one country to another, and with rising U.S. custom duty, we believe this is a good performance driven by efficient pricing as well as effective control of SG&A and other operating expenses.
One should also keep in mind that the group benefited from a favorable basis for comparison in the third quarter and will face a demanding basis for comparison in Q4. Including the 0.4 point dilution from acquisition, adjusted operating margin came to 20.4%. One side comment here on the impact of acquisition on adjusted operating margin. Taking acquisition completed in 2018 and 2019 into account, the dilution from acquisition on adjusted operating margin should be, as announced early February, about minus 0.4 points for the full year of 2019. Having now a look at net profit attributable to the group on page 13. It was up close to 9% from the first nine months of 2018. This solid growth resulted mainly from the increase in operating profit, partially offset by higher FX and financial results and higher corporate tax in value. This deserves two additional comments.
First, on financial charges, they have mechanically increased by about EUR 7 million in nine months 2019, due mainly to the implementation of IFRS 16 from January 1st. Excluding IFRS 16, financial charges would have been almost flat year-on-year. Second comment on corporate tax. The increase in value is due to higher profit before tax, when corporate tax rate benefited from a favorable one-off impact of about one point. Moving to the last picture of the financial performance with cash generation on page 14. As you know, the relevant reading of free cash flow generation on the quarter is on a normalized basis. You can see on the right-hand side of the slide that normalized free cash flow was up plus 12.3% in the first nine months of 2019. In more detail, on the left-hand side, you can see.
That cash flow from operation was very robust at plus 18% of sales. Working capital requirement as a percentage of sales was under control, increasing 0.5 points, as it was a bit affected by the impact of recent acquisition. That free cash flow stood at a solid 13.7% of sales. One should also keep in mind that Q4 2018 free cash flow generation was particularly strong and represents, accordingly, a demanding basis for comparison for Q4 2019. These were the key topics on Legrand 2019 first nine months' performance and valuation that I wanted to share with you. I now give the mic back to Benoît.
Thank you, Franck. Let's move now to the fourth part of the presentation on page 16, with Legrand's strong momentum in innovation and acquisition-driven growth. As you can see on page 17 to 19, we kept on actively innovating with several new product launches covering many of our product categories and of course, including connected offerings from our Eliot program. This includes, for example, Valena Next, a connected user interface range conceived with Netatmo for Belgium and Spain, Mosaic in France, Classia in Europe, Lyncus in India, and many others. We were also active in architectural lighting, energy distribution, connected emergency lighting in France, new connected door entry system with the Classe 100 X range successfully launched in Italy, audio video solutions, assisted living alarms, and digital infrastructures. Moving now to page 20 and 21.
You remember that in April, we completed the acquisition of Universal Electric Corporation, the undisputed number 1 in the U.S. for busways dedicated mainly to data centers. We are pleased to announce today two smaller new acquisitions. First, Connectrac, an innovative U.S. company specializing in on-floor power and data distribution. Connectrac products are designed to be very easy to install in both new and existing commercial buildings. By adding this business to our catalogs, we strengthen our positions in cable management in the U.S. The second deal is Jobo Smartech, the Chinese leader in connected hotel room management solutions. Jobo Smartech's offering will round out Legrand product ranges in China's hotel segment, a very dynamic market. Three deals closed this year, and we stay, of course, very active on the M&A front.
Coming now on page 23 to the last topic of this earnings release, i.e., our target for the full year. Taking into account achievements in the first nine months of 2019 and being base year comparison of the fourth quarter of 2018, to which I would add, as you know, the usual seasonality in Q4 performance, you are all aware. Legrand confirms its 2019 target for organic growth in sales of between 0% and +4%, and its 2019 target for adjusted operating margin before acquisitions, i.e., at 2018 scope of consolidation of between 19.9% and 20.7% of sales. Legrand will also pursue its strategy of value-creating acquisitions. This is it regarding our 2019 targets. One very last comment before we open the Q&A session.
I am pleased to announce that as of January 1st, 2020, François Poisson, who you all know, will take over new responsibilities within Legrand, and Ronan Marc will become our VP, Financing and IR. A few words on Ronan. Ronan joined Legrand about 20 years ago and has handled many financial and corporate duties within the group, including Country CFO in India and in Russia, M&A Officer, and Head of Internal Audit. I'm convinced that his strong knowledge of the group business and strategy will highly contribute to further foster the strong and trusted relationship Legrand has been entertaining with the financial community for decades. Of course, until December 31st this year, François remains fully in charge of Financing and IR. Franck, François, and myself are now ready to open to questions. Thank you.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. We have one first question from Mrs. Lucie Carrier from Morgan Stanley. Madame, please go ahead.
Oh, hi. Good morning, gentlemen. Thanks for taking my question. I have a couple. I'll go one at a time. The first one I was hoping you could maybe break down for us, the organic growth trend we've seen in the quarter based on price, volume, and working days, please, for the group, and if you can give us some indication by geographies as well, please.
Hello, Lucie. What do you want by geographies? I didn't get the end of your question.
I'm just trying to understand the dynamic between price, volume, and working days.
Yeah. Okay.
as part of the organic growth.
Over the first nine months of the year, the Legrand price was up +2%. The +2.3% organic growth was basically +2% of price and the rest being volume and mix. This is for the nine months. As far as the Q3 alone is concerned, pricing was up 1.4%. In both cases, Q3 and nine months, of course, it includes part of this pricing was dedicated to compensate for the rise in the U.S. tariff. We may say a word, if you want, on the U.S. tariff. This was for pricing/volume. As far as the number of days is concerned, well, it's always a very difficult question to answer for us because you have the theoretical computation and you have the practical computation.
If you take the theoretical computation, there was one day more in Q3 in a number of regions 2019 compared to Q3 2018. This is ex ante computation. Ex post, we don't believe that this number of days really played one way or the other in Q3, nor that it played one way or the other in nine months. I understand that it's a bit more important for distributors and for manufacturers. For us, we don't believe that it had a significant impact.
Okay. Thank you very much. My second question was more to understand some of the trend in the North American margin, and also at the level of the group, but specifically in North America. Would you say that you now have more than offset some of the headwinds, thanks to the price increase that you've had for the past 12 months? How we look further, how should we think about this dynamic between the pricing, the raw materials, and the tariffs, please?
Specifically on the U.S. tariff, let me maybe give you the numbers. In the first nine months of 2019, we had a rise in the U.S. custom duties of about EUR 38 million. That's what we have as an additional cost for our COGS in our accounts over nine months. Indeed, this was fully offset in LNA&C account by pricing mostly, but also by a number of adaptation initiatives. It was offset both in value and in margin. This is a very good performance, as this wasn't such an easy game to play to compensate for this tariff increase. If you look now at the whole of 2019, well, this is a fast evolving story, and from one day to another, it can change. You are much aware of the current talks between the U.S. and the Chinese administration.
We believe that the various tariff implementation could have a maximum impact of $55 million in the full of 2019, including the various lists, the list 3 which rose to 25% on June 15, the list 4 at 15% implemented since September 1st, a maximum impact of $55 million. Our commitment vis-à-vis the financial community hasn't changed. Our commitment is that we aim at compensate at least in value this increase in tariff by pricing and adaptation. Again, it can change very quickly. By the way, from what we understand, the current discussions are on the list 4. The current discussion, which may potentially lead to lift some of the tariff, are mostly on list 4. List 4 for Legrand, it's a total annual cost of maximum $3 million to $4 million. This wouldn't have, fortunately, a very big impact on the Legrand accounts.
This was for the tariff alone. Your question was a bit broader. You said it was also the impact on raw material at group level, where over nine months, the inflation of raw materials and components was about +2.6%, including 2.6 points of U.S. tariff. All of the increase we have in the raw material and component cost over nine months came from the U.S. tariff. Excluding the U.S. tariff, it would have been flat compared to the first nine months of 2018.
Thank you very much. Just maybe my last question, if I may, is around the trend in the North American business, because I appreciate the price momentum there must be quite large considering the tariff situation. It seems that we are continuing to somewhat decelerate in terms of volumes or volume growth. I was just hoping whether you could comment on what you are seeing in the North American business in terms of a market dynamic. As we head into 2020, are you expecting significant changes or requirements in terms of the energy code in some of the large states in the U.S.? I remember that in the past, it had benefited you.
First, what we saw in Q3, and it was experienced by many U.S. players, was a softer U.S. market in Q3. If you look at the release of many U.S. players, clearly, they are showing a flat plus gross in sales in Q3 compared to last year, and they have, a lot of them, revised down their outlook. Clearly, there was a softer U.S. market in Q3. In this context, our 3.3% like-for-like growth in Q3 is a good performance. A good relative performance compared to our peers and compared on the softer U.S. market. As far as 2020 is concerned, we will not give any clue or indication at this stage. We will be a lot more precise in February, you see, when we release our full year 2019 numbers.
Apologies to press, just on the energy code, sometimes those are released a bit ahead of time. I appreciate you cannot maybe comment on the market, but have you seen some regulatory requirements on a state-by-state basis around this energy code that could?
The energy code story, it is a story which has been lasting for 20 or 30 years, especially the Title 24 in the U.S. Year after year, you have new states entering, applying the energy codes. It is something which has been lasting for four years. It had no specific boosting impact on 2019, and I don't really see why it will have a specific boosting impact in 2020. This is not a new story. This is a developing story. Again, this is a state-by-state, version by version that it is implemented in the U.S.
All right. Thank you.
Thank you, madam. Next question is from Mr. Gael de-Bray from Deutsche Bank. Sir, please go ahead.
Good morning everybody. I have two questions, please. The first one is on the pricing dynamics. If we try to adjust for the price rises required to offset the custom duties in the U.S., it seems the underlying price rises in Q3 were pretty negligible in the quarter. Perhaps, 0.3% or 0.4% only. That shows a clear deceleration compared to the Q2 price rises. The second question is regarding the margin in Europe. I was surprised to see a small decline year-on-year for the fully adjusted margin in Europe this quarter, despite the much easier comps in France. If you could comment on this, that'd be great. Thanks very much.
Okay, Gael. Let me maybe give you the full picture for Q3. I said that Legrand pricing was up 1.4%, but I did not give the inflation of raw materials and components, which was up 0.6%, including about 2.7 points of U.S. tariff. Excluding the U.S. tariff, the price of raw materials and components was down. As a result, this is not surprising that we do a softer pricing than in H1, where the price of raw materials and components increased a lot more. As you know, we have a very dynamic pricing strategy. Our objective is not to apply a 2% or 3% pricing increase, whatever happens. If the price of raw material and components is going down, we have a softer pricing approach. Of course, competitive.
All in Q3, I can confirm that with this pricing on one side and the inflation of raw and components on the other side, the impact on the gross margin was positive. No specific issue on pricing. We just adapt quarter by quarter, month by month to what is happening on our cost structure, taking into account, of course, also a competitive environment. As far as the second question is concerned, the European margin, well, it's always difficult to give a precise analysis because as you know, Europe is a mixed bag of 40 countries with a profitability which can be very different from one country to another. If we look at the numbers, the European adjusted operating margin indeed went down by 80 basis points from nine months 2018 to nine months 2019.
It moved down from 23.4% in the nine months of 2019, down to 22.6% in the nine months of 2019. Don't forget, Gael, that it is including acquisitions. If we look excluding acquisitions, the margin was almost at the same level. It was down by 10 basis points, actually. Almost at the same level as last year. The acquisitions had a dilutive impact on the European margin. It was almost stable. This stability is a minus on gross margin, let's say, and a plus in other costs. This is the way we should read. Almost stable margin excluding acquisitions.
Okay. Very clear. Thanks very much.
Thank you, sir. Next question is from Mr. Andreas Willi from J.P. Morgan. Sir, please go ahead.
Yeah. Good morning. Thanks for your time. My first question is on the performance in France versus Italy, if you could shed some more light on that. You keep doing very well in Italy relative to GDP growth or maybe expectations. In France, growth is relatively weak, also relative to what other people say. What's the difference there in terms of your own commercial momentum, product introductions and so on, that Italy seems to continue to respond to that much better than France?
Let's take markets one by one. Starting with France. In France, the market is clearly not very supportive and hasn't been very supportive for a couple of semesters now. Again, looking at Legrand markets, for example, we are not active in the HVAC market, as you know, and the HVAC market in France has been growing double digits. We are not active in the cable market, and the cable market has been growing also, and the insulation market. Looking at Legrand market, and this is very much backed up by the professional wholesalers' data. The French market is up, is slightly positive in nine months. Slightly positive. That's what we are doing as far as sellout is concerned. That's also what we are doing in terms of selling. Our performance in France is very much in line with the performance of the market, so slightly up.
As far as Italy is concerned, the GDP numbers in Italy are indeed worse than in France. Take for example, the IMF. I think today the IMF is expecting zero GDP growth in 2019. This being said, the market is a bit more supportive in Italy, probably because it went down more than the French market in the previous years. The market is a little bit more supportive, growing a little bit faster than the French market. It is true indeed, that on this market, we are gaining market shares in energy distribution, in smart thermostat, in door entry, in user interfaces, and so on. When comparing France and Italy, you should bear in mind that the Italian market is slightly more supportive than the French one.
This being said, this is maybe for me also the opportunity to highlight that, in France, we have a base of comparison which was easier in Q3 because of last year's strong destocking, and which will become a lot more demanding in Q4 because there was a slight restocking from our distributors in Q4 last year. The base of comparison is somehow demanding. Same comments for Italy. We made a very strong finish in Q4 2018 in Italy, as you know. As a result for both countries, the Q4 going to be a demanding comp.
My second question on the tariffs price raw material. If we now see some of these tariffs lifted over the next periods, should China and the U.S. agree, what do you expect to happen on the pricing side? When historically, when your business had basically falling raw materials, you tended to keep some of that benefit after you've increased prices, like we have seen in Q3 this year where you make a positive margin between price and raw material. Would you expect the same kind of market behavior to happen on tariffs, where at least temporarily you will get basically a boost to margins as tariffs fall and pricing is more sticky? Is tariffs going to be different because your customers and distribution partners are all transparently see that and want that price increase immediately back?
Well, this is a fair question. First, coming back on what I was saying when commenting the tariff. The current talks, from what I understand, are on list 4, not list 1, 2, 3, and list 4, it's maximum $3 million-$4 million relief for Legrand. Unfortunately, this is mostly consumer units. It has not much to do with Legrand products. This being said, nobody knows what will happen next year, and indeed, some further talks could occur between the U.S. and China, and potentially some of the list 1, 2, 3 tariff could either be lifted or could go down. By the way, they could also go up. They could move two ways.
Well, I can tell you that our customers are tracking very closely this tariff issue, and clearly, if some of those tariffs were to be relieved, we would have to give the benefit back to the market. We were able to increase prices and compensate for the tariff increase, but clearly our customers will require us to give back the tariff decrease to the market. Don't expect any kind of significant benefit coming from a potential tariff relief.
Thank you very much.
Thank you, sir. Next question is from Alasdair Leslie from Societe Generale .
Yeah. Hi, good morning. Thanks for taking my questions. Really the ones around pricing U.S. tariffs have been asked, but maybe a couple of outstanding questions. Just firstly on Brazil, I think that's the first time in recent quarters that you've specifically called out weakness there. Not a surprise, I guess, but I think you were talking about an increase through H1. Wondering if you could give us a bit more insight into what you see there, sort of the scope of your activities. I think from memory it was your third largest emerging market after India and China. Maybe just a bit of a comment on the outlook as well. The second question was really regards to the Jobo Smartech acquisition.
It sort of seems like quite an interesting deal, only EUR 10 million of sales in what I imagine is a pretty huge market. Maybe, again, you can just elaborate a little bit more on what this brings you. Expand a bit on your current offering, which you kind of allude to on the slide deck and the strategy and kind of market opportunity there. Thanks.
Yeah. Brazil. It's about 2% of our sales only. It used to be a lot bigger, but we've gone through four or five years of difficult economic times in Brazil. The currency hasn't helped. Now it's only about 2% of our sales. Indeed, we thought in H1 that the situation was improving. Brazil was down double digit two years back. It was down single digit last year, and it was up in H1, and everybody expected that the Brazil situation would get better. When we commented sales in Brazil in H1, we clearly told you, be careful because we have very limited visibility in Brazil, and things can happen very quickly. What happened in Q3 was that sales were down double digit in Q3 on a like-for-like basis compared to last year. Will the situation be better in Q4?
How will it be going into 2020? Brazil is clearly one of those countries where you have always a huge uncertainty on what to predict and what to forecast. Yes, it was a bit of a disappointment. We expected Brazil to be in a better shape. Indeed, Q3 was strongly negative in Brazil. Again, it's only 2% of our sales. Second, as far as Jobo Smartech is concerned, well, as far as the products are concerned, it's really control units for hotels. Those touchpads, either off the wall or in the wall, that you have in a hotel room, and which allows you to command the lighting, shutter, temperature, and so on. This is highly complementary from our offering. We actually already had, as part of the portfolio, a product offering mostly made for European markets of such kind of products.
We were lacking of a market position and of specific Chinese technology for those products. We decided to acquire this company, which is bringing us two things. Number one, specific Chinese technology for hotel rooms. Number two, brand name and presence amongst Chinese hotel chain. It is small indeed, in terms of sales. In its specific niche, it is a leader. This has clearly been our strategy in China. It's not to go after all potential markets and chasing small market shares all across 100 product families. Our strategy in China has been to pick up, either organically or through acquisitions, businesses where we could be number one or number two. That's what we've been able to achieve in wiring devices.
That's what we achieved last year with the acquisition of Clever Shenzhen in smart PDUs, and that's what we are achieve with the acquisition of Jobo. Yes, indeed, we are still small in China. I'm quite confident on the fact that it will soon be our fifth largest market, and it's a profitable market for us, and we are growing nicely, both organically and through acquisition. It's a small but good addition to our Chinese footprint.
Right. Thank you.
Thank you, sir. Next question is from Martin Wilkie from . Sir, please go ahead.
Hi. Sorry, this is Gee on behalf of Martin. I just have one question on your M&A strategy. Just looking at the couple of acquisitions you made last quarter. Just wondering if you had a specific portfolio or a geographical target on your acquisition strategy going forward that you were specifically focusing on. Thank you.
Well, actually, we are indeed more focusing on the quality of the target itself than on a given geography. What we are looking for are targets which have number 1 or number 2 position in complementary niches, where we could grow our position somehow, regardless of the country. Whether in new economies, Europe or North and South America, if we find a very interesting target being a number 1 or number 2, complementary to Legrand, that we could do at a reasonable price, then we would look at it. It is true that we have made many deals in the U.S., but this was mainly coming from the fact that we were underrepresented in the U.S.
We are very happy of the deals we have made in Dubai, in Germany, in China, and we will continue to look at targets across the board in terms of geographies, in terms of product families.
Thank you.
Thank you, sir. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press zero one on your telephone keypad. We have another question from Mr. Andre Kukhnin from Credit Suisse. Sir, please.
One at a time. Firstly, can I just get your indication for raw materials versus price for Q4? Should we expect that to be any different versus Q3? Maybe just to extend that raw materials question, I know tariffs bit is very uncertain, but just if raw material prices were to prevail at the current rate, what would 2020 look like for you?
As far as Q4 expectations for pricing and raw materials, frankly speaking, I have no clue. It depends on so many things, not only on the price of raw materials themselves. It depends on what is going to happen in Chile, for example, for copper. It depends on the exchange rate also. Many metals are listed in U.S. dollar, so the price in euro will also depend on the U.S. dollar currency. It is really a big question mark as far as raw material price is concerned. It is also a situation for tariff, of course, which can move one way or the other very quickly. Since our dynamic pricing is somehow the result of our input cost, the same answer for pricing. Our pricing in Q4 will also depend on what's going to happen in raw materials and components, and tariff.
Fortunately, I cannot be more precise than that because this is a reality of our trade, i.e., that we have to adapt to what's happening, rather than planning for pricing fees in that month or this month. The only thing I can tell you about Q4, which we already said during this call, is the fact that it's, for the whole of the group, a demanding base for comparison, especially as far as margin is concerned. Maybe let me remind you of the numbers. As far as the top line is concerned, we had a Q4 at +5.2%, which was above the average of the year, and with, as I already said, very strong growth in France and in Italy. As far as adjusted operating margin is concerned, Q4 2019 was up 60 basis points, whereas the full year of 2018 was up only 20 basis points.
A little bit in terms of top line and more material in terms of margin. Q4 2018 is a demanding base for comparison. What will it be as far as tariff, raw material, components, and pricing is concerned? It's still a question mark.
Got it. Thank you, and thanks for the additional color on the comp as well. My second question was on your data center-related content. Could you give an indication of how much it grew in Q3 and maybe year to date?
Well, we are not giving this kind of granularity, especially in a quarterly basis, because it depends on many things. If you look at a given quarter, it also depends on the comp and so on. The fact that Universal Electric Corporation is doing very well, for example, since the beginning of the year. For example, the trend is a bit softer in PDUs because of the base for comparison. We had last year a big data center project. A data center project can very easily be at $2, $3, $4, $5 million US dollar. We don't have a consolidated number for the whole of our data center play to give you. We'll maybe give you a bit more color in full year 2019. This being said, whatever happens on a quarterly basis, it, of course, remains a very attractive segment for Legrand.
I remind you that it's about 10% of our sales, which is a very attractive segment. We now have the relevant offer, especially for the white space, where putting together cabinets, connectivity, busways, PDUs. We have really a high quality offer, which is very attractive for customers.
Got it. Thank you very much. My next question was just on France. We had quite a few kind of stocking variations there as you already flagged kind of into the end of last year and then earlier this year. I know you mentioned Q4 comp, but do you think that 2019 as a year overall, are we kind of ending up with a net kind of positive or negative effect on stocking in France? Just trying to think about these effects for 2020. Do we need to think about them as we draw 2020 numbers?
Well, if you find a way to predict stocking or destocking, please let me know. I would be highly interested to factor that into my budget process. 2018, I remind you the trend, very strong destocking in Q3 and a slight restocking in Q4. As far as 2019 is concerned, we can see a slight destocking over the nine months, which is very small, and I believe at the end it didn't have such a material impact. The destocking or restocking impact was more the one coming from 2018 than any material that we would have experienced in 2019. Going into 2020, for us it's completely impossible to predict. It's even impossible to predict what's going to be the behavior of our customers in Q4 2019. Unfortunately, this is a sort of uncertainty we have to live with.
Again, it can negatively impact or positively impact a month or a quarter. We believe as a long-term basis, this is something we have to live with, and it doesn't affect long-term or performance, neither the quality, of course, of our relationship with our customers.
Got it. Thank you. I obviously appreciate it's impossible to predict. The base effects is what I was wondering about, and you've given the answer on that. The final one, if I may, just really taking a big step back and looking at your kind of M&A appetite. In the past you gave very clear slides where you talked about your expectations of M&A kind of stepping up in the markets where organic growth had stepped up. I just wanted to check if your M&A appetite is changing at all, especially given that in North America you have seen the underlying volume growth rates now moderating and trending towards stable and arguably some lead indicators pointing to a more stable 2020 as well. Are you as active in M&A there, and is the appetite changing anywhere else in the world?
Well, the fact that in the past, in so-called difficult times you had less deals was a bit coming Less appetite on our side, it was a lot coming from the fact that sellers were a lot less interested to sell in difficult times than in good times. As far as our appetite is concerned, we are thinking long term. Of course we embed into our valuation, whatever is happening on the macro front. If we are in a market which is less supportive, well, we factor that into our business plan and as a consequence into our valuation. If there is a quality company which is for sale, even in difficult times, which is highly complementary to Legrand, which is a good leader and which would support the group long-term strategy, we will look at it even in difficult times.
To make a long story short, it's not much a matter of changing appetite for Legrand. It's more a matter that there may be at some point less people willing to sell if they feel that they can get a better price in 5 or 7 years. This being said, we still have a pipeline with a lot of opportunities. We still have a lot of discussions going on. It's highly likely that in the coming quarters, you will see more deals coming from Legrand. Again, with the usual uncertainty that people might not be always willing to sell, some of those deals might not go through because of valuation discussion and so on and so forth. We still have a very healthy pipeline and a lot of discussions going on.
Great. Thank you very much for your time.
Thank you, sir. Next question is from Mr. Wasi Rizvi from RBC Capital. Sir, please go ahead.
Hi, good morning. Thanks for taking my question. Just a follow-up, just to get some granularity on North America, actually, reasonably solid numbers you said, given some of the peers are reporting a pretty flattish growth. Just within your business, I'd be interested if you could give us some flavor as to what the different bits are doing. You talked a bit about digital infrastructure, but also maybe what the lighting business is doing, what lighting is doing versus maybe your core low voltage. In terms of prospects, I think you mentioned that your investor data, busways and PDUs and things give you a bit of insight into where the data center market projects are going. It does give you some level of visibility.
Could you tell us what you're seeing in that part of your business and what that makes you think the data center part of your business will do over the next kind of one or two quarters?
The second question, my answer going to be very short because, yes, we are usually selling busways before we are selling PDUs, but they are sort of depending on the topology of data center. You can hardly take busway as a leading indicator for data center business going forward. Unfortunately, we don't have a lot more visibility in data centers compared to our other businesses. As far as the first question is concerned, lighting management is doing well, so it's growing. Low single digits, if I may say, but it's growing. User interface is also doing well. AV is quite flat.
AV, again, it's a sort of merger between the Milestone AV Technologies and Middle Atlantic Products, but it's not a surprise, and it was factored into our budget because last year it had a mid-single digit growth above the sort of long-term market growth of 2% to 3%. If you take the 2 years, it is completely in line with the long-term market growth trend. This year, indeed, it is quite flattish. As far as data center, I answered. Universal Electric Corporation is doing very well and PDUs on the softer side, but we don't see that as a competitive problem. It's more some of the big data centers where PDUs are consumed, which materialized last year, did not materialize this year. This is as usual, given the large portfolio products we have, a mixed bag of a lot of different situations.
Okay. Thanks. That's helpful.
Thank you, sir. Next question is from Mr. William Mackie from Kepler Cheuvreux. Sir, please go ahead.
Yes, good morning, gentlemen. A couple of questions around development of the business segment and product portfolio. Firstly, on digital infrastructure, in the past you've aggregated that number at the group level, and demonstrated the ambitions for growth. Can you give us or provide some insight into the rate of growth of the digital infrastructure business across the group, rather than just within the geographic segments against that baseline of revenues, which you described at around $1.2 billion last year? The second question really relates to your product launch strategy. I seem to have an impression you have a wave of product introductions, particularly in Europe, that come through in Q3 and Q4 this year, particularly around the IoT product capability or the portfolio with the IoT product capabilities. Can you give us a sense of how your IoT product-enabled portfolio is developing against that 10% midterm growth target?
Perhaps specifically, I know you don't want to break many things out, how the Netatmo business is developing against the initial business plans. Thank you.
Well, you have to have in mind that our reporting approach is a geographical one. That's why we are also reporting geographically to the market. We are not organized by BUs having their own P&L by product families and by sort. It's another way we are organized. We organized by country and by zones. Typically, when we mention, for example, the business we are doing in data centers or the business we are doing in the Eliot products and so on, this is the agglomeration or the addition of a number of different product families, that we are not always doing on a quarterly basis, and obviously not commenting on a quarterly basis.
We can give you a flavor, but we do not comment just because this is not the way we're organized, and it's not the way we report to the market on precise trend by product family. Otherwise, we would have to take the 100 product families we have and get into the details of each product family and each country. Unfortunately, I cannot answer your question on digital infrastructure, except by reminding the numbers we gave the last investor day, which is that, we did the €1.2 billion in 2018 compared to €2.2 billion in 2008. About 20% of our sales compared to 5% in 2008. Again, we are not commenting on quarterly trend by product family because we are not organized to do so. Organization is by country.
As far as product launches are concerned, well, this is an active year as far as product launches is concerned, not more active than last year. If you look at the number of launches, we already had significant launches last year. It is true indeed, that on a given quarter, a launch can positively or negatively, if you have basis for comparison, impact a given geography. The impact is not huge on a yearly basis. Except of course, the gain in market share it helps you to achieve. Take for example, France. We clearly said that the Q2 performance in France was somehow being boosted by the launch of new products, namely two, the new connected emergency lighting unit and the new Mosaic. On a full year basis, these sort of one-off positive impact is not so material. Again, we are launching a number of new products.
Same comment for Eliot as the one I was making for digital infrastructure, i.e., we are not publishing and commenting on the nine months figures by product family. As far as Netatmo is concerned, well, not much to say except that we are completely in line with our docking plan. I remind you that the midterm target we have for Netatmo is threefold. Number one, to sustain a strong growth in top line. Number two, to progressively lift the EBIT margin from zero to high single digit. Number three, to leverage Netatmo to accelerate our growth in Eliot. Well, even though we are only nine months into the docking of Netatmo, I can confirm that we are completely in line as far as the three targets are concerned.
Thank you very much. Have a good day.
Thank you, sir. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press 01 on your telephone keypad. We have another question from Mr. Andreas Willi from JP Morgan. Sir, please go ahead.
Yeah, thanks for the follow-up. On the guidance, which you often tighten at the Q3 results and haven't this year, was it implying an unusually wide range for Q4? I just wanted to check whether this is just because you didn't feel that you need to change the guidance because we are somewhere on track, or is there anything specific you signal about Q4 beyond the tough comps that you already mentioned by not tightening the guidance a bit and removing the lower end, particularly on organic growth?
Yeah, I wouldn't say that it's a sort of normal practice for Legrand to tighten or change the guidance in Q3. It really depends on what we have delivered as far as results are concerned, and the sort of state of the market. Don't read the fact that we're not taking the guidance as a change in practice. Well, you know the two components of our performance for the full year and for Q4. Number one, when I look at nine months 2019 performance, it fits very well with our targets. We are doing a +2.3 organic growth compared to 0-4. We are almost right in the middle of the guidance. As far as adjusted operating margin before acquisitions, it's up 30 bps. It's close to the average of the guidance, which is -30 to +50.
Having in mind that the basis for comparison Q3 has this performance. As far as our performance is concerned, it's very consistent with the guidance. As far as what we see for Q4 is concerned. Number 1, you have the demanding base for comparison, which we already described a little bit in top line and a bit more in bottom line. Second, there is even more uncertainty than before, one way or the other. Not only you have the discussions between China and the U.S., you have the Brexit, which can happen at any time. You have Turkey, which is a difficult situation. Now you have countries like Lebanon or Chile that are in difficult conditions. You have the war in the Turkish border. You have many things that can happen, and given the uncertainty, we think that it's extremely adaptive.
Given the performance we have done so far, it's very suitable not to change the guidance.
Thank you very much.
Thank you, sir. We have another question from Mrs. Lucie Carrier from Morgan Stanley. Madam, please go ahead.
Thank you. Thanks for taking my follow-up. I was just hoping if you could comment on the trends in France, notably around the renovation market, because I know for you it's quite a large market, and we've heard from some players in the construction market that it was now that the new start had been tailing down. There were maybe also some more workforce available for renovation. What do you see there precisely?
We are not seeing much change. What it is indeed that, both for new and for renovation, you have a number of sub-segments that are growing nicely. Again, I was mentioning insulation because a French player clearly stated that the insulation sub-segment was growing fast. As far as renovation is concerned, we still see a very flat plus trend. We haven't seen any sort of acceleration, neither deceleration. The order books of our contractors are still significant. No, we haven't seen any change in trends.
Thank you.
Thank you, Madam. Next question is from Jonathan Mounsey from Exane BNP Paribas. Sir, please go ahead.
Hi. Good morning. Thanks for taking my question. Regarding the tariffs, I guess, obviously, there's two ways to deal with these. One, raise prices as you've been doing. Another maybe slower, longer term would be to adjust where you're buying your components and sub-assemblies from. Given that the tariffs have now been ongoing for well over a year, are we seeing progress there? Are you still on a wait and see approach, hoping the tariffs go away? Are you actively looking to change how you source your products? If so, is there a tailwind going into 2020 potentially as you find other ways to mitigate the tariffs than simply putting prices up?
Well, there are two kind of adaptation measures that you can take. Number 1, very short-term change in your supply chain, where, for example, instead of sourcing some products from a Chinese supplier, you would source from somebody else in Vietnam or elsewhere. Those short-term moves were done very rapidly after the implementation of the tariff. To make things clear, they represent a small part of our response to the tariff issue. A large part of the response was pricing, because this has always been the Legrand model, and it was, of course, easier to implement. You cannot always switch from a Chinese supplier to somewhere else. The second piece of the reaction is potentially moving some manufacturing from China to elsewhere.
This kind of decision cannot be taken only because of a tariff issue, because tariffs are things that can move very quickly, and industrial footprint decisions are decisions that are taken for 5 to 10 years, not decisions that are taken for two years. We are actively looking at our footprint, actively analyzing alternative manufacturing places, especially in Southeast Asia. Any move that we would do there would be based on long-term footprint strategy more than short-term tariff issues. That's what we've been doing forever. We closed last year a site in China, for example, in Shenzhen. We closed a site in India, closed a site in Turkey. We are very actively doing this kind of footprint optimization. Again, not specifically as an answer to the tariff issue, but more as a footprint optimization.
Thank you.
Thank you, sir. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press 01 on your telephone keypad. We have no other questions, sir. Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have no other questions, sir. Back to you for the conclusion.
Well, thank you very much for your time in attending this call. Should you have further questions when digging into the numbers, please do not hesitate, as usual, to call François and Sammy, and have a good day. Thank you very much.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.