Ladies and gentlemen, good morning, and welcome to today's Global Group 2019 First Quarter Results Conference Call. All participants are on 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.
Benoit Carratt and CFO, Mr. Frank Limary. Sir, please go ahead.
Thank you. Hello, everybody. Franco Lemarie, Francois Francois, and myself are happy to welcome you to the L'Oreal 2019 Q1 results conference call. Let me first remind you that we have published to the press release of financial statements and the slide show to which we will refer. Those documents are available on the Logon website.
Please also note that this conference call is recorded and webcasted on our website. Let me start with few opening remarks, following which Frank and I will comment into more details of 2019 Q1 results. I'm starting on Page 4 of the deck with the 4 main takeaway from today's release. The first takeaway is that all main financial KPIs are on the right in Q1 2019 compared to Q1 2018. Total gross in sales were more than plus 7% Adjusted operating profit increased about +5 percent and net profit attributable to group was up more than +8 percent.
2nd takeaway, we have pursued our innovation and acquisition strategy by launching many new products, including new connected offerings as part of the Elliott program, and by completing the acquisition of Unimasal Electric Corporation, the undistributed U. S. Leader in persuasive We also continued deployment of our initiatives aimed at strengthening the group's development model. 3rd, we are launching today our 4th CSA road map 2019, 2021, which is built around 3 focal areas, business ecosystem, people and the environment, with ambitious targets contributing to the UN Sustainable Development Goals. Lastly, based on its first quarter 2019 performance, Laurent confirmed today its targets for 2019.
I will come back to this point later in this call. After these brief highlights, let's start with an overview of sales on Page 6. So total sales rose plus 7.3 percent in the first quarter of 2019. This good showing comes first from a solid plus 2.9 organic growth. Legrand first cost driver.
All three geographical zones are on the rise like for like. Acquisition driven growth, which is a group's 2nd growth driver, contributed plus 1.9% in Q1 2019, based on acquisitions completed in 2018 2019 and their likely consolidation dates, The scope of consolidation should come to close to +5 percent in fiscal year 2019. Finally, ForEx impact was favorable at +.3 percent for the period. If we apply to the last 9 months of the year, the average ForEx rates observed in March 2019, Then the annual Forex effect for 2019 would be nearly +2 percent. This is, of course, as usual, a computation and time will tell what will the actual ForEx impact on sales be for the full year.
Let me now go into more details regarding the like for like evolution of sales by reporting segments. And for that, please refer to Page 7, 8, and 9 of the slideshow. Starting with Europe, organic growth in sales was +2.3 percent in Q1 twenty nineteen. In Europe's major countries, sales grew +1.7 percent, This increase was mainly driven by sustained growth in sales in Italy, supported by the steep price in sales of connected products, as well as in Germany, Greece, Portugal and the UK. The French market remained lackluster overall, and Le Cron sales in France retreated due to destocking by some distributors.
In Europe's new economies goes to that plus 5.7% with strong growth in Russia, Turkey, Hungary and the Czech Republic. Let me now move to North And Central America, where sales were up plus 2.4%, on an organic basis. This increase was driven by the U. S, where sales grew plus 3.3 percent like for like, with good showings in lighting control, smart PDUs for data centers, cable management and user interfaces. Revenues were nearly stable in Mexico compared to Q1 2018 and retreated in Canada.
Let me now move to the rest of the world where sales rose plus 4.9% on a like for like basis, In Asia Pacific, sales were up plus 6.2% with double digit growth in India and Thailand and healthy showings in China. In Latin America, organic growth was +.1 percent. And in Africa, Middle East, sales rose organically plus 3.3%. Many African countries recorded very strong rising sales and sales retreated in the UAE and in Saudi Arabia. Let me now pass the mic to Frank for an overview of our financial performance.
Thank you, Benoit. Good morning to all of you. Let's start with profitability on Page 10. As said, Q1 2019 adjusted operating profit is up +5.1percent to reach 1,000,000. Moving to page 11, Q1 2019 adjusted operating margin IFO acquisition at 2018 scope of consolidation came to 19.8% including a favorable impact of around plus 00.1 points linked to the implementation of the IFRS 16 standard.
The 0.3 points decline compared with Q1 2018 adjusted operating margin Essentially reflects a demanding basis for comparison and a decline in gross margin linked in particular to the rise in raw material and component prices. Nevertheless, the rise was fully compensated in value consistently with La Grange model. I would like to highlight here seeing an adaptation initiative in our North And Central America accounts. Including the 0.1. Dilution from acquisition, adjusted operating margin came to 19.7%.
Taking acquisition completed in 2018 2019 into account, the dilution from acquisition should be around minus 0.4 points for the full year 2019. Moving now to the net profitable sorry, so the net profit attributable report to the group on Page 12, it was up plus 8.6% from the first quarter of 2018. Most of the increase came from the rise in operating profit, completed by a favorable change in FX results and a 2 point decrease in tax rate due to favorable 1 off factors. Moving finally to the last indicator of the financial performance on Page 13. 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 over a plus 9% in the first quarter of 2019, to represent 15.5% of sales. Additionally, on the left hand side, you can see first that cash flow from operations increased close to 10%, reaching 17.6% of sales. TC's 0.4 points above Q1 2018 level. As for free cash flow, it stood at 3.9% of sales as working capital requirement represented 12% on the last 12 months sales at March 31, 2019. This was mainly due to a temporary rise in nonoperating working capital requirements.
This were all the elements I wanted to share with you regarding the first quarter 2019 for our financial performance. Let me now give the mic back to Benoit. Thank
you, Frank. Let's move now to the second part of this presentation. I. E. The pursuit of LeBlanc Innovation And Appreciate as well as of operational initiatives.
As you can see on Page 15 of the deck, we were active again on the innovation front, launching sample products covering many of our product categories including smart offerings from our Elliott program. You can see, of course, user interface solutions on the left side of the slide and notably Valina Live connected rains recently launched in Belgium and Spain. We are also pushing offerings for digital infrastructures with fiber optic assets, including an LSA3 program for example, but also an all new tree mode MCS range within UPS systems, up Stacterial lighting features under the fine light and Pinnacle brands and the rich digital connected residential alarm units for Assisted Living. Moving now to Page 16, we have completed in April, the acquisition of Universal Electric Corporation, the undistributed number one in the U. S.
For Perseways, I. E, electrical power distribution systems based on metal bus bar. Univerts' offerings are mainly sold under the Starline brand and have long been known for is of installation and use, making it a true benchmark for the market. They will ideally round out, sorry, Laurent front runner positions in data centers in the U. S.
Finally, on Page 17, you have a few examples of ongoing initiatives that Florent is posturing and that have been presenting in February. These initiatives include, for example, the organization of the group's point of this into 3 regions, which has been fully up and running since the end of 2018, the optimization of industrial footprint, for example, in Turkey and in Saudi, and the targeted digitalization of our front office and our operations. I would like now to move to our 3rd part on Page 19 dedicated to our CSA initiatives. Indeed, the group has launched today its 4th CSL road map, which covers 3 years from 2019 to 2021. It is brewed around 3 focal areas, business ecosystem, people and the environment.
These areas are broken down into 10 key challenges that contribute to the UN sustainable development goals, and it has been defined through a materiality survey that involved more than 3600 group stakeholders. Within the frame of this road map, Logan has also set itself ambitious targets for 2030 aimed at deriving 80 percent of group sales from sustainable products, increasing the number of women in management and achieve a gender balanced workforce and reducing its scalpel footprint through a 30% decrease in CO2 emissions directly linked to our operations. The full package of information on the CSF road map is available on the legrand.com website. Coming now on Page 21, the last topic of this earnings release, I. E, our targets for the full year.
Based on its first quarter 2019 performance, Lugron confirms its 2019 target for organic growth in sales of between 0% and +4 percent and its 2019 target for adjusted operating margin before acquisitions at 2018 scope of consolidation of between 9 0.9% 20.7% of sales. Please note that this range embeds an estimated favorable impact of around 0.1 points linked to the implementation of IFRS 16 standard. Laurent will also pursue its strategy of value creating acquisitions. Francois and myself are now ready to open two questions. Thank you.
We have a first question from Andre Kukhnin from Credit Suisse. Please go ahead.
Start with the couple of obvious ones. On France, destock, could you please help us with quantifying the size and maybe what impact that made on profitability is significant. And on France, just more broadly, has your outlook on end market changed at all? Since, Q4 results, some of your peers have commented a bit more positively, while you call it still like last year. So just wanted to get your latest thinking.
I'll start with that please. Thanks.
Hello, Andre. Well, To give you a bit more color on France, we have our sales are slightly down, not to the magnitude of our Q3 performance, but still they are slightly down. To be compared with, sellout, which are slightly up to give you all of magnitude or set out in France are close to +1. And, and, as I said, in our flight, decreasing. So it's a difference between sell out and say, obviously, it is a destocking.
So the destocking was not as strong, as it was in Q3, but some of that happened. And by the way, it's not a big surprise because you remember that we delivered a very strong Q4 in France And we said at the times that part of the Q4 performance and part of our Q4 key compared to the French market was coming from the fact that some of our distributors have restocked a bit. So this Q1 destocking did not come as a surprise to us. Well, what impact does it have on profitability? Obviously, given the level of the French margin, it didn't help.
The European margin. Now we'll probably comment a bit later the profitability, profitability topic in Q1 is more coming broadly from a discrepancy between setting price and the price of raw material and components broadly rather than specific see an issue in France. Last, going forward, well, as usual, we have no clue We've kept telling the market that the French market hasn't been supportive for quite some quarters, and set out, which are slightly up, market, which is only very slightly up, for us, is a typical for lackluster market. So for at least, we don't really see a reason why the market would become significantly supportive than it used to be. Also, more, as on the economic front, you could see that the incentives in the IMF has done really a bit the GDP expectations for France.
So market, which hasn't been supportive for a couple of quarters now. And we don't really expect that to change, in the in the quarters to come. Does that answer your questions?
Absolutely. Thank you. And you've touched on the second one in terms of more broader profitability question. You explained in the past that offsetting the absolute value of raw material and tariff inflation with price increases still leaves you with a margin headwind. We're going to calculate that margin headwind to be about 20 in Q1 twenty nineteen, the just purely from the effect of raising price to offset raw materials, but sales base increases with that as well.
Is that kind of does that concur with what you have or should we calibrate that number?
Well, let me give you a bit more numbers, maybe to calculate that. So, overall, in Q1, our pricing was up by 2.3%. And the inflation of raw materials and components was about +4.5 percent, including 2.6 points coming from the U. S. Tariff.
So excluding the U. S. Tariff, the increase in price of raw material and components whilst I've seen like +1.9 percent. So those are, the numbers. Obviously, you have everything you need to compute the impact hasn't done the margin, but clearly, this is an important driver behind the small decrease in profitability at 2018, 2018 perimeter.
Now number 1, Our commitment has always been to compensate in value, and we did we did compensate in value in Q1, the increase in raw material price and price of components, even though it had a negative impact on the margin. Number 2, the good news is that zooming on the U. S, the tariff was fully compensated and you know that it was a and it remains a challenge for Le Mans. Number 3, we remain very confident on the fact that the Locron traditional model of adjusting, selling price depending on the price of the inputs, including raw materials and components, is obviously still working. And going forward in the quarters to come, if there weren't to be a decrease in the raw material price and components, we have already notified the number of geographies and a number of productivities in which we could, if needed, do additional pricing.
So we are very confident on the fact that our model, of course, is still running very well. So this is the main driver behind the profitability evolution between Q1 2018Q1 2019 to which I would like to add also that the Q1 in terms of reserves was demanding basis for comparison. You can do the math yourself, but obviously this is a quarter, which was a bit a bit demanding.
Thank you. That's very useful. Just last one from me, probably the usual one as well. On growth guidance, it is slightly surprising you didn't raise the bottom end at that 0% given Q1 performance. And I know obvious deterioration in the market's least for the near term, I know it's a kind of a range of outcomes, but just in terms of that bottom end at 0, what are those kind of risks that you see out there for the rest of the year that could turn your revenue growth down later in the year for that scenario to materialize?
Well, we released a Q1, which is very consistent with our guidance, our guidance of 0.02+4 percent and we delivered plus 2.9 percent. And what we said, 2 months back when we released our full year results, 2018 results remain valid, it is a year where we have a lot of uncertainty. The recent IMF downgrades in a number of markets have sort of backed up the fact that, 2019 is going to be an uncertain year. You know, the long model, we have no order book. So given what we have seen so far, both in our performance and in our end markets, we see no reason to change our guidance.
If you get it, Q1 is very consistent with the guidance. Okay.
That's very clear. So if I had to interpret it, it's not something that kind of emerged that you see in front of you that, that is a risk. It's more of, an element of conservatism, given that we still have got three quarters together.
That's not at all what I said. It's not an element of content. We have only a 3 3 months of performance behind us. So we have 9 months in front of us and, and there are, as it's a usual uncertainty, on a number of markets, so now it's a Again, if you were to have a market significantly, some of our markets deteriorating a negative impact from Brexit, deceleration in Italy and so on and so forth, we'd be definitely closer to 0. If, for whatever reason, the markets were to be a more supportive And even sometimes rebondying because it's the 4th.
So what we said in February remains true, we have own one quarter behind us. It's very difficult to give you more precise guidance on what the markets will deliver and will do, from now to the end of the year.
Great. I appreciate this. Thank you very much.
Thank you. Next question from Jeff Willie from JP Morgan.
Yes, good morning. Thanks for your time. My first question is on the U. S. Performance in terms of organic growth.
Which was or the North American 1 in general, which was weaker than I would have expected also given that's probably the area where you've had the big benefit from price and therefore, volume growth looks pretty weak. Most of your peers have reported strong results in general and the general kind of electrical construction exposed U. S. Market. Maybe you could elaborate a bit on the drivers by business.
You highlighted some of the areas that did well. So there must be other areas that had negative year on year performance on volume particularly? And the follow-up question to the pricing discussion earlier, was it the mechanical impact on margins is clear, but I'm still a bit surprised given to the given compared to the historic performance of Luca in terms of timely offsetting of overall material price inflation, also given that many of your input costs in terms of the base metals have actually come down a bit compared to where they were a year ago. Should we expect some tailwinds as the year progresses, just as copper, silver and some of the other materials, may not increase anymore or be down slightly and you keep increasing or having the carryover effect from price?
Okay. On the first question, number 1, you always have to be, is extremely careful when comparing, the performance of one player to the other, because all companies have a very different scope of products. You call that lower hedge, but within lower hedge, if you look at the especially North American market, we are competitive positioning, which is very different from the one of hiton, Schneider, HUBEL, HUBEL, equity and the like. So you always have to be very, to be very careful when comparing the Now looking, this being said, looking at what all those guys have reported, And you could also include the distributors, both professional and DIY, it seems like the U. S.
Market in Q1 grew in value, more or less in line with GDP, I. E. Somewhere between 3% 4% or 3 3.5%. This is very consistent with the numbers released by most of the company that I have mentioned, with our plus 3.3 percent growth we are in line with the market growth. We are not significantly gaining market share, but we are in line with the market growth overall.
So we don't see that as a disappointing performance. We see that as a performance, which is in line with the market. And by the way, and again, I'm referring to the release of some of those companies. Most of the companies have increased significantly than selling price in the U. S, in order to compensate for the negative impact coming from the tariff So with 3.3%, we are broadly in line with the market and with minimum volume growth given the fact that, we have, had a significant pricing impact in the U.
S. Again, we are more than line with the market what the market is doing. So you could always claim that the legrand should win market share everywhere, but we are not doing we are in line with the market. As far as your second question is concerned, the pricing versus raw material and price and components. Again, our tactical has always been to compensate in value when raw material price and components is going up, and to, have a positive impact on margin when raw material price per branch is going down is a little more modest.
That's what we've been able to demonstrate in the years to the in the previous previous years. And this is what happened in Q1. So the there's no composition in margins. There's a negative impact on our margin, but it is compensated in value. Going forward, it's always difficult to understand what the raw material, and the component price will do.
Also, more as not only you have the impact of the raw material price sales, but you have also the FX, which has an impact. Looking at Q1, for example, a number of metals price went down, but especially when consumed in euros, the number of other raw materials went up, more components went up. It's your case for a number of plastics, it's your case for packaging, for example, This is a case for a number of components, which represents, I remind you biggest part of our supplies. And a piece of part of that was impacted by the dollar euro currency. So going forward, it's in your scenario, you have to embed not only the price of raw material, but also the very fixed.
It is true that the number of, economists are expecting the price of Prominent And Components to ease a bit what will it be? We don't know what matters I think for you is that on a yearly basis, this is something we'll keep monitoring closely, and we have the ability to keep adjusting or selling price in order to mitigate the impact of, all material price and components and then component price into accounts. So again, not a lot of visibility going forward, but the ability to adjust on a yearly basis, on a given quarter, of course, you can sometimes, have a bit of polish such as we had in Q1 last year, coming from pricing, you can sometimes have a bit of matters, coming from all material and components what really matters is the way it is balanced on a yearly basis. Thank you very much. Thank
you. Next question from Gail Dubre from Deutsche Bank. Please go ahead.
Yes, thanks very much and good morning everybody. My first question is, I mean, would you say you were surprised by the rise in raw material and component costs over the quarter? And in which geographies do you feel you need and still have the ability to raise pricing further in particular. So that's question number 1. Question number 2 is about the sort of margin volatility we've seen now in the past 3 quarters.
So I'd like to better understand perhaps the reasons behind? And in particular, do you think there was some try spending now required after the strong cuts in cost you made in Q4. And, the last one is about the basis of comparison you highlighted for Q1. Would you say it's going to be the same as demanding as it was in Q1 in the second quarter?
Hello, Gail. So, first question, well, we were not surprised by the rising raw material and copper ends, but there are a number of inputs to that, which, by the way, are not known at the time you start the quarter, typically, for example, well, so usdollars/ euro the foreign exchange rate wasn't known in January, and this is a very important, very significant input for the raw material and the components we are consuming in our accounts. Now again, I have to remind you, guys, that adjusting or selling price is not something which is completely make and incurred. And we just don't decide overnight that you're going to increase price by 1% here and 3% there. This is something which is extremely, progressive in which you are to think a lot to make sure that the corporate wise, it is not a potential issue.
So we don't decide overnight, Jan first, that you can increase the price by 2, by 3%. So policy work, well, we have identified, as I said, the number of geographies where it was worse doing a bit more, a bit more pricing. I cannot elaborate a lot more than that because this is a highly competitive information. And, we are not much commenting on pricing per regions, but the action plans are there? Well, as far as the margin volatility is concerned, I wouldn't call a minus 30 bps to be such a strong and high volatility.
I haven't I don't believe there's been any significant can't catch down, if I may say, to use your onwards impact, you can, for example, look at our SG and A a lot of the, savings we did in Q4 where SG and A related, and our SG and A in Q1 twenty didn't had positive impact on our profitability, our SG and A are growing not as fast as ourselves. So we have had some, leverage impact on our SG and A. So no significant cash down. It is just the fact that, from one quarter to another, many things can happen in terms of pricing, in terms of mix of geographies, and so on and so forth. And by the way, this is a volatility.
We've always had a flaw, by definition, As far as the basis of comparison is concerned, you remember the sort of specific profile of 2018, which is quite a difficult, if I may say, Q3. So to make a long story short, the belief of our comparison is should be a lot easier in Q3 and a bit more demanding in Q1, Q2, Q4. Is a, but it's a mechanical impact of the fact that, our operating margin, Olin, was up 20 bps in 2018 compared to 2017. And these, plus 20 bps was, let's say, between +20 +40 bps for Q1, Q2 and Q4 and was minus 110 for Q3, for Q3. So paid for own comparison should be, should be easier in Q3.
Okay. Thank you, Benoit.
Thank you. Next question from Lucy Kaye from Morgan Stanley. Please go ahead.
Hi, good morning gentlemen. Thanks for taking my question. The first one, I was hoping if you could give us a bit more color on your business of Connected Sales it has been growing in the quarter? If you could give us the indication on organic growth, that would be helpful. And in which area you have been kind of on which area of your business are you expanding currently in connected?
The first question.
Well, you see, as you know, we're not giving any specific insight our numbers, on our connected sales by, on a quarterly basis. So I will not And on top of that, you were invited to attend an Investor Day on June 12th. I hope you'll be able to come, and you'll have a lot more color on the Elliott strategy, numbers, and many, many things at the time.
Thank you. So I will come to the Investor Day, But just, I mean, okay, so if you're not able to kind of give us a number, I would still be curious to have a sense of whether this has accelerated, decelerated versus what you had seen last year. The reason for that is because if we are looking at your volume versus price in the first quarter, it looks like your volume was up only 0.6% as you said, that price was up 2.3%. And so I think it would be helpful for us to understand why the volume momentum is so low? Is it because the, I would say, the classic offering has been declining or is it because Connect sales maybe haven't delivered, as much as usual, also considering that Connected Sales usually have a higher price points than the standard offering?
It's the same question, same answer. Maybe just, so, again, we've nothing to be hidden or not to be commented, but just we are reporting on the agent process and half year basis or even yearly basis, not on a quarterly basis. As far as the volume growth is concerned, again, it is very stand with our guidance. We guided, we told the market 2 things. When we released our numbers, we said, we're going to grow our sales between 0% +4 percent, number 1.
Number 2, there will be significant pricing anyway. Because for example, there will be a very significant impact on our COGS coming from the U. S. Tariffs. So the fact that so they hope 2+4 percent in base, significant pricing while all of it, completely included in our guidance.
And that's what we've delivered in Q1. So there shouldn't be any surprise to the fact that, we are not going very fast in volume. It was completely expected, and this is coming from the fact that the markets are number of markets are a lot less supportive than they used to be in 20 in 2018. Number of European markets are, are under a bit more pressure. And top of that, we have a Brazil, France, we've already commented, the U.
S, again, referring to what I was saying earlier, our, let's say, peers, if I may say, or the other companies in the electrical segments have clearly indicated that the market was growing 3 to percent and that they were doing significant pricing. I. E. The U. S.
Market is only going slightly in volume So number 1, Q1 performance, volume price, value is consistent with our guidance. Number 2, the fact that the markets are not growing fast in volume is not a big surprise to
Thank you. My second question was more follow-up on the question from Gail earlier around the base of comparison. So you said easier in the 3rd quarter, tougher second quarter 4th quarter. I'm guessing that was for the profitability or was that for profitability and sales or just to understand just to understand a little bit better the rest of the year in terms of the base comparison because from a sales standpoint, the first quarter was one of the easiest comps have in the year, especially in the U. S, for example.
And then if we think about typically the seasonality you have in the margin, historically, you've had a 1st half, which was seasonally stronger than the second half of the year from a profitability standpoint. So I think I just would like to understand a little bit more the different base of comparison if you were only talking about margin or if it was margin and sales?
No, I was only talking about margin and So very simple math, which, which is not worse than a bill price, right, that was doing a bit earlier to say that our, adjusted operating margin in 2018 was up 20 bps compared to 2017. So we moved from 20% to 20.2 percent, so plus 20 bps and this plus 20 was plus 40 in Q1, plus 50 in Q3 to minus 90% in Q3 and plus 16% in Q4. So my only comment was referring to the fact that in terms of profitability, we had this profile for the year 2018 with a very soft Q3 and a stronger Q1, Q2 and Q4. As far as, sales are concerned, We know that we have, for the full year, a difficult basis for comparison in a couple of geographies, especially the case in Italy, and in rest of Europe. But otherwise, I wouldn't say that Q1 is neither easy nor difficult in terms of, in terms of base for comparison.
Far.
Thank you. And just my last question was more one of accounting. You had 10 bps of IFRS 16 benefits in the first quarter. Is that expected to stay the same during the year or should we expect variation in that?
Well, we expect it to be, to be broadly the same, for the full year. So it shouldn't have, shouldn't be neither lower nor bigger. So you can take the plus 10 bps for the full year. Thank you.
Thank you. Next question from Alastair Leslie from Societe Generale. Please go ahead.
Yes, thank you. Hi, good morning. Most of my questions have been answered, but I was wondering on one on new product launches. You've talked about that quite a lot in the Q1 release. Did you see the full benefit maybe from those launches already in terms of the growth in the first quarter?
It's not necessarily about visible from the deadline numbers, but maybe that's down to tough comps or perhaps the underlying markets were even a bit weaker. Or should we think about that benefit ramping up in the second quarter? And linked to that, does there seem to be more emphasis on innovation, again, in the release? Was there any impact on the margins either from higher strategic investment or perhaps launch costs as well? Thank you.
That's my first question.
No, we were just wanting to put a slide on innovation in the Q1 release to, remind everybody how important it is to the Le Goure strategy and the fact that even though the markets are a bit less supportive than they were last year. We keep investing in new products, but this is not a new piece of our strategy, very consistent with what we've been doing in the previous quarters and years. So, and none of the products that were launched in Q1 are of such magnitude that it will have a significant boost in our expenses nor negative or positive impact on profitability. And again, if you look at our SG and A in Q1, which includes commercial expenses to launch new products. They are not, they are contributing positively to our to our profitability.
So nothing new except the fact that as usual, even in times, which are a little bit more difficult, we are investing on us now. If I maybe you can take the opportunity to make a loss or comment, or plus 2.9% performance organic growth in Q1 is a fairly good performance. I mean, if you are comparing with the number of other releases. And if you are taking the same, you know, angle, I. E, current number of days and then and the current geographical parameters.
This is a pretty solid performance and again, very in line with our, with our guidance. What is changing compared to what we could say 2 months back was the fact that FX seems to be a bit more supportive now, hence, the plus 2% positive impact coming from FX that we are computing based on the exchange rate of the first quarter. And number 2, with Universal Electric being acquired, Now we are shooting for a perimeter, intact of close to +5 percent for the full year. So those two things are a slight change, if I may say, compared to our February release. As far as organic growth is concerned, our Q1 performance is very much in line with our guidance.
Thank you. And if I could just sort of follow a question, maybe pick out one of those areas in the U. S. Where you are still seeing some volume growth you've called out lighting control, again, in the U. S.
As a driver. Can you kind of update us on your lighting control act season in that region. You've obviously made a number of acquisitions there a couple of years ago. How have those kind of been integrated? Are you kind of satisfied with the with the growth in that area has kind of lived up to expectations.
And I know you tend to focus on niches where energy codes can kind of drive demand. I think there's a new version of Title 24 in California coming up in 2020. Anything there that can perhaps move the needle for you? Thank you.
We call that lighting. So it includes the lighting controls. It includes architecture, lighting fixtures. So not only the control piece, grew mid single digit in Q1. So the growth was it was accretive to the U.
S. Goals and 2 NCA goals. So it is quite a good performance. And including, actually, the Canal company, which, as you know, joined Laurent at the end of last year. So the lighting and lighting control piece is growing nicely and accretive to our growth.
And we believe that there is significant potential coming from this piece, either prompted by some code changes or just by fact that there are a number of, and also corporates that are eager to, to energy savings, So yes, we believe this part is substantial. Now how much will it grow in 2019 2020 and beyond? Obviously, we don't know, but so far in Q1, it has grown a little bit faster than the rest of our operations in the U. S.
Great. Thank you. And just perhaps a final keeping question, if I may. Just, I was wondering if you could comment on the phasing of the M and A dilution you expect perhaps for the balance of the year I mean, given the impacts of NatAPmo, is there any great seasonality there perhaps skewed towards Q4 or should we really kind of expect that?
Actually, so we guided when we released our numbers in February, we said that the dilution should be minus 40 bps for the full year. And it is true indeed that in Q1, the dilution was only -10 bps But not all the acquisitions we made last year were consolidated. And for example, net add more which was supposed to bring, if I may say, half of the dilution minus 20 bps, is not yet consolidated in our P and L in Q1. So you don't have, yet the dilution coming from NetETMO. There are actually 4 companies that are not yet consolidated net that move, Netflix, Tricall, the small company we've the New Zealand.
And obviously, you didn't sell electric because the closing of the transaction was April 1st. So it was even post close And those 4 companies are expected to be consolidated in the months to come. And as a result, the dilution should be around minus 40 bps for the full year. So the fact that it's below it's only minus 10 bps does not mean anything in terms of seasonality. It just means that not all acquisitions are consolidated yet.
Exactly. No, I kind of appreciated that time there wasn't in there. I was just wondering going forward, a, just in the time there come in Q2 for the full quarter? And then also is there any seasonality in the time that perhaps the profitability skew towards Q4 to think about that phasing. Are we going to see uniformly a kind of 50 basis point M and A darling shift?
Yes, Paul. I can't, yes, tell you what will precisely consolidated in Q2 because it also depends on the state of readiness of some of the acquisitions, especially the last ones, of course, But, but you can, you can assume that there is no significant or material seasonality. So you shouldn't have a quarter, which would be a lot more or less dilutive than the others. What really is the key input is really the schedule of consolidation, which is not yet completely, validated, especially for Universal Electric.
Great, thanks. Thank you.
Thank you. Next question from Ben Zikarish from Goldman Sachs. Go ahead.
Good morning. Thanks for taking my question. Most of them have been answered, but I did want to ask about the temporary rise in the non operating working capital requirement that you mentioned. I mean, if you could provide any color around, what it is driven by and perhaps when we should expect a reversal and perhaps magnitude that would be much appreciated.
Well, so first question, Be careful when looking at the Q1, working capital and free cash flow and you know that Q1 is a bit of not very relevant in terms of quarter. For example, if you take the non normalized free cash flow, which was last year something like 700 or 1,000,000 Q1 is only 60,000,000. So Q1 is traditionally a very small quarter in terms of free cash flow, in terms of So it's very non typical in terms of working capital. So in other words, you shouldn't, extrapolate really what's happening in Q1. Now it is true that working capital as a percentage of sales in Q1 was 12%, which is three points above the level of end of March 2018?
Well, you have a lot of that is coming from non operating working capital, mainly taxes, actually, and which are things that are not, in our control, which are beyond our control. So it explains a lot of the change. And as far as concern, well, you have some mechanical impact from FX. You have some mechanical impact also from acquisitions. The fact that you have some acquisitions in the balance sheet.
So I hear you have their working capital accounted in the balance sheet, but you don't have them yet. The P and L. So mechanically, it has a negative impact on the ratio and the number of other things. So there's nothing, let's say, material happening, it's just mostly technical or related to the nonoperating working capital.
Thank you. That's very clear. And maybe just one more, if I may, about some of the new economies in Europe, if you have any kind of expectation in terms of how, you expect some of the growth there that would be appreciated as well?
Well, I can hear listening to your questions that you're not expecting much guidance from us. I think as soon as I put it's always a really difficult exercise for us to forecast. Well, we still believe, as I said, that the the rest of the year going to be uncertain, we looked at some of the IMF downgrades, which were sometimes In countries like Germany or Italy, for example, the downgrades of IMF between Jan and April were as strong as fifty basis points. We also listened to a number of analysts saying, macroeconomy saying that, the U. S.
Market should remain somehow supportive. All that is very consistent with what we had in mind at the time we build again. So uncertain markets, some of them deteriorating, some of them holding steady. And the mix of all that let us to deliver the quarter we delivered and to confirm our guidance. So unfortunately, not much guidance.
I can give you on the buckets themselves. Because as usual, we have no order book and very little visibility.
Thank you. Next question, once again, from James Willey from JP Morgan. Please go ahead.
Yes, thanks for the additional time. On the French stocking, is that something you think has completed? We've heard that kind of Sony Par is changing how they are organized in France and basically doing that has a negative impact on their an additional impact in Q2. And on the M and A dilution, you said earlier that we shouldn't expect big variations between the remaining three quarters. But if you consolidate net optimal for 6 months, during Q2, shouldn't that have an additional impact then?
I'll start with the second question. Yes, of course. My point was that we shouldn't, expect impact coming from seasonality of the acquisitions. We should obviously expect impact from the schedule of consolidation. So, if we consolidate 6 months in 1 quarter, obviously it will have an impact.
And whether we consolidate the universal electric over 6 or 9 months. Obviously, we'll have an impact. So the schedule of consolidation will have an impact, but not the sales IT of acquisition. That was my answer. That was my point.
As far as the first question is concerned, I would love to be able to answer you but I had absolutely no clue. You, you, I mean, you and your colleagues raised the same question at the end of Q3, and I told you the same answer. And what happened was that there was some sort of restocking in Q4. So it is highly as predictable on the Lagrange side, we are not part of the decision making process of our distributors. What we have to do, of course, is to adapt, especially our industrial facilities, which are not conceived to will have ups and downs in demand from 1 week to another, and to try to mitigate the impact it can have on our accounts.
So this is our strategy, but we have absolutely no clue about the precise inventory level for distributors and what they want to do in terms of strategies. This is their goal, their strategy, their way to manage their working capital. The very important thing for us is that obviously, destocking or restocking can have punctuality impact, what have impact on 1 quarter, what is most important for us, and what we are really looking at very carefully and actually incentivizing a lot of salespeople on is a sellout because a sellout is really the measure of our, competitive position in the market and how it's evolving and the market share we can gain, wins, new customers, we can end. So most of our KPIs are geared at sellout market share success of a new product, focus, of course, we can, try to grab into that product family, rather that on the sell in because the sell in again and the inventory management for distributors is pure.
Thank you. First question, another question from Wizzley Wizzby from RBC Capital Markets.
Hi, good morning, yes. Thanks for taking my question. I just had one follow-up. And I'm looking at the year on year margin movement by region. It looks like the it's all come from Europe.
Could you help me understand how that splits between the rise in raw material costs, the geographic mix within that region? And then the acquisition particularly given the larger acquisition impact is still to come in the rest of the year. Just help me understand that margin movement year on year.
Well, in Europe, they did not have much acquisition impact because most of the acquisitions that were consolidated are not, are not in Europe. Slight, slight say acquisition impact, but that'll be one. And what happened in Europe is exactly what happened elsewhere, or what happened at the for the whole of the group, I. E. Gross margin, which is under pressure and which is coming especially from the rise in raw material and component price over the quarter in euros.
And that's the area where what I commented earlier about the impact of the foreign exchange rate on the consumption of raw material and components happened. So negative evolution gross margin coming from that and also coming from the fact that the sales in France, prepaid and French sales are profitable. So to avoid any misunderstanding, our French margins of the margins we are delivering of the French domestic markets are held at a very good level, but just a pure mix effect, the fact that Europe is going and with France, decreasing has also a negative impact on the gross margin. And this is, so most of the let's say, margin, all of the margin decline in Europe is coming from the gross margin. And the base for for comparison.
So nothing specific to Europe. The comments we made for the full group are also valid for Europe.
Got it. Thank you.
Thank you. Next question from Brian Phillips from Jefferies. Please go ahead.
Yes, good morning. Graham Phillips from Jefferies. Could you just please remind us with your change in disclosure, so moving Europe away from the countries now to just one big region. Why you've sort of reduced disclosure? And if you are actually intending perhaps to increase disclosure elsewhere, maybe to compensate And again, I know you're reluctant to give how things like Elliott sales are going, but obviously, we are looking for trying to understand the drivers of the company in terms of product areas.
And of course, it's a bit of a retrograde step to reduce the disclosure in terms terms of for regions?
Well,
the one we are not reducing disclosure. We used to disclose sales with 5 regions. We are now disclosing sales with 3 regions plus a number of subregion, if I may say. Are disclosing sales evolution for Asia, Africa, Latin America, for Metro Europe, for emerging Europe. So this is more disclosure than less disclosure.
Again, why have we done that? It's not for the sake of changing the disclosure, it because we have adjusted the organization. We had 5 zones. We are now hard and we are running the company with 3 zones. And I can elaborate you want.
The reason why we did that, it was mostly because we wanted to have a lot more, share of good practices, a number of other topics, France, Italy and the rest of Europe. So we are not disclosing less. We are disclosing more as far as other concern. Number 1. Number 2, I don't believe that all companies are disclosing quarterly results.
We do. And you have a full set of accounts, on the quarterly So I wouldn't like you to come out from this call with this idea that the goal has reduced reporting and reduced exposure. We are disclosing quarterly results with a full set of results, full balance its P and L, cash flow statement, notes, blah, blah, blah, blah, blah, and instead of giving sales evolution with 5 geographical segments, we are doing with 7, if you add Asia and so on and so forth. Now Again, we have an investor day with, while we discuss Elliott, in a month and a half time, you have the ability to raise any questions you want on ADJOT and we'll try to address all of them if you wish. I don't feel that it's if it was a material explanation of the performance in Q1, I would, of course, give more insight, but we are not bound to communicate on a yes, on a quarterly basis, although more as Evolution in new product sales are more relevant, I believe, on a yearly basis and on a quarterly basis.
Okay. Thank you. And so what you're still keeping, you're going to still keep Elliot disclosure on an annual basis, although thought you'd intimated earlier, you might move 6 months?
We haven't taken any commitments on the frequency of the Egypt release. And I don't believe I have ever committed to release Egypt numbers on a quarterly basis.
Okay, all right. Thanks very much.
We don't have any more questions back to you for the conclusion, sir.
Well, thank you very much for your presence at this conference call. And, have a good Have a good rest of the week. Thank you very much.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.