Good morning, ladies and gentlemen, and welcome to today's Leggate 2018 Full Year Results Conference Call. All participants are in listen only mode. Later, there will be a question and answer session. For your permission, this conference is being recorded. At this time, I would like to hand the call over to CEO Benoit Poir, and CFO, Frank Lemery.
Sir, please go ahead.
Thank you. Hello, everybody. Frank Lemry, Francois Francois and myself are happy to welcome you to the Legrand 2018 full year result conference call and webcast. Let me first remind you that we have published today our press release financial statements and a slideshow to which we will refer. So those documents are available on the Logan website.
Please note that this conference call is recorded and webcasted on our website. Let me start first with a few opening remarks, following which Frank and I will comment into more details our 2018 full year results and share with you more midterm considerations. I'm starting on Page 45 of the deck, with the 3 main takeaways of today's release. The first takeaway is that all financial KPIs are recording strong growth in 2018, showing significant value creation. More precisely, sales and adjusted operating profit were up high single digit, net income attributable to group grew over 23% and normalized free cash flow was up more than 21%.
So second takeaway, is that all our 2018 targets are fully met. Organic growth in sales was up +4.9 percent above the high end of our 2018 target. Adjusted operating margin before acquisitions reached 22, 20.2 percent of sales within the 20 to 20.5 percent range set in February last year. And finally, the achievement rate of our 2014, 2018 CSA road map reached 122%. This very good integrated performance reflects Logan's ability to create lasting value for all of its stakeholders, thanks to a clear strategy, a robust business model, and the commitment of its teams.
The 3rd takeaway is that in 2018, Laurent undertook many initiatives to strengthen its sustainable and profitable growth profile, building on proven fundamentals. Laurent first intends to step up the development of Elliott, thanks to the accretion of NetATMo, to boost its organic expansion by pursuing growth initiatives to pursue its strategy of bolt on acquisitions, to optimize continued performance and to launch its 4th CSA road map for the period 2019, 2021. As a result, Legrand confirms its medium term value creating model. I will come back on those key topics in more details during my presentation. After this brief introduction, let me first start with another view of our sales on Page 7.
So we recorded a total rising sales of +8.6 percent that should even be read, plus 13%, excluding an unfavorable Forex impact. So first Gross driver, which is contributing well, is organic growth, reaching +4.9 percent in 2018, driven by healthy rises like for like in both new economies where sales were up plus 6.2% and in major countries where sales were up plus 4.3%. Acquisition driven growth, which is a group's second growth driver, contributed plus 7.8 percent to sales growth in 2018. Based on acquisitions already completed and their likely consolidation dates. Acquisition driven growth should contribute around +3 percent to 2019 sales growth.
Last ForEx impact, as expected, was unfavorable at minus 3.9% in 2018. Now if we apply to the last 11 months of 2019, the average forex rates observed in January, then annual Forex effect for 2019 would be around +1 percent. This is, of course, as usual, a theoretical calculation and time will tell what will be the actual ForEx impact and sale for the full year. Let me now go into more details regarding the like for like evolution of sales by reporting segment. And for that, I'm referring to Page 89 of the slideshow.
In France, organic growth in sales was up plus 1.1% in 2018. Our market has remained lackluster overall since the beginning of the year. And as you know, the 3rd quarter was impacted by marked destocking by distribution. In this context, lecon performance in 2018 was good and resulted from healthy momentum in Energy Distribution And Digital Infrastructure. Activity was also sustained in user interfaces, thanks notably to the very favorable response to our new ranges Celian with Netatmo and DUCI.
These favorable trends were partially offset by a decline in sales in bulk headlights installation components and cable management. In Italy, like for like sales growth was plus 6 point 2% in 2018. This very good performance was supported by the success of the launch of the leaving now new user interface range as well as the good showings of connected products. It is worth noting that in this respect, 2018 represents a demanding basis of comparison for 2019, in particular, in H1. In the rest of Europe, sales were 17.
Fueled by commercial initiatives, revenues were up double digit in Eastern Europe, including Russia, Romania and Hungary, as well as in Turkey. Here also, these very healthy performances represent high basis of comparison for 2019. Gross in sales was also a strong number of major countries, including Spain, Germany, the Netherlands, Portugal and Greece. And finally, in the UK, sales grew moderately. Moving now to North And Central America, where sales were up plus 4.2% on an organic basis.
More specifically, sales in the U. S. Were up +5.2 percent in 2018, driven by the success of offerings for wire mesh, for intelligent PDUs lighting control solutions as well as for milestones audio video products. Sales rose very slightly in Canada, but were down in Mexico. Let me now move to the rest of the world where sales were up plus 4.9% on a like for like basis.
We reported very healthy performances in India, China and South Korea, but also in several African countries. Sales showed moderate growth in Australia and a decline in Malaysia. Business trends were mixed in Latin America, with sales nearly steady in Brazil and declining in Colombia. Finally, sales were down in both the United Arab Emirates and demerase and in Saudi Arabia. So make a long story short, overall, our like for like growth in sales was healthy in 2018 and fairly consistent among each main geographical zone, Since Europe, including France and Italy, was up plus 5.5%.
North And Central America was up +4.2 percent, and rest of the world was up plus 4.9%. 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 where you see that 2018 adjusted operating profit is up healthy 9.7%, driven by growth in sales and operating performance. Moving on Page 11. 2018 adjusted operating margin before acquisition came to 20.2% showing a rise of 0.2 points on 2017, which reflects good operating performance overall. You can see on the slide that after acquisition 2018 adjusted operating margin also stood at 20.2%.
The impact of acquisitions was indeed neutral in 2018. For 2019, based on acquisition completed and their likely date of consolidation, the impact of acquisitions on adjusted operating margin should be around minus 00.4 points, with half linked to the consolidation of NetATMo Whose operating profit was at breakeven in 2018 and the other half to the consolidation of other companies acquired in 18. Moving now to the adjusted net profit attributable to the group on Page 12. It was up plus 23.3 percent, I. E.
EUR 146,000,000. This strong rise results from many positives, including, predominantly, a strong growth in operating profit for 113,000,000, lower financial expenses and favorable change in the ForEx results for 22,000,000, And last, but not least, a 5 point decrease in income tax rate. This drop in tax rate is coming from 3 points, for lower corporate taxation in the US as announced last year and for two points from specific one off elements. Moving to cash generation on Page 13. As you know, the good reading of free cash flow generation should be done on a normalized basis.
You can see on the right hand side of the slide that normalized free cash flow was up plus 21 point 5% compared with 2017 to reach 14.9% of sales. Some additional information on the left hand side of the slide. Cash flow sorry, cash flow from operations increased close to 20% in 2018 and stood at more than 18% of sales. Working capital requirement remained below 10% at 9.2% of sales at the end of 2018. Now a word on our balance sheet on Page 14, At 2018 year end, net debt on EBITDA stood at 1.7 and the average maturity of gross debt was 6 years.
This correspond to a solid balance sheet structure, which provides Legrand with the resources and the flexibility it needs for a sustainable development. That's all for the set of our 2018 financial metrics. I give now the mic back to Benoit.
Thank you, Frank. Let me now concludes the review for 2018 performance with our CSR achievements on Page 15 16. Here also, Legrand Performance was good with an achievement rate of our 2014 2018 CSA road map of 122% demonstrating the group's commitment to creating sustainable value while taking all stakeholders into consideration. Two examples of important initiative that we launched in 2018 as far as CSI is concerned: 1st, We have adopted a target validated by science based targets that calls for a 30% reduction in greenhouse gas emission by 2030. 2nd, we have released our first human height charter on the occasion of the 70th Annie Versery of the UN Universal Declaration of Human Rights.
Two slides to conclude on 2018. On Page 17, a reminder that all 2018 targets were fully met. And then on Page 18, Legrand will propose to the general meeting of its shareholders to approve the payment of 1.34 per share dividend, up plus 6.3% versus 2017 dividend, which was at Coming now on Page 20 with our targets for 2019. In 2019, the group will pursue its value creating strategy of profitable and sustainable growth. Based on macroeconomic forecast for 2019, that are favorable overall, but that have become more uncertain Laurent has set a target for organic growth in sales of between 0% and plus 4% in 2019.
Additionally, the group has retained the target for adjusted operating margin before acquisitions, at 2018 scope of consolidation of between 19.9% and 20.7% of sales in 2019. Please note that this range embeds an estimated favorable impact of around plus 0.1.linked to the implementation of the IFRS 16 standard. Legrand is also pursued its acquisition strategy and its CSL approach by launching a new roadmap for 2019, 2021. So, this is it for 2018 and for 2019. I will comment now on a number of initiatives Lucron is taking to strengthen its sustainable and profitable growth profile, and that belong to 5 key themes that will be developed.
This being said, I understand that we are not the only company releasing its result today. So I will go quickly to those few slides, but of course, I'll be happy to be more specific on those points during the Q And A session. So, starting on Page 24, The first priority and initiative is to boost our ADA program is reminded on this page 24, the fact that we have achieved as early as 2018, the targets we set for 2020, both in terms of, growth in sales for connected products with a plus 28% CAGR from 2014 to 2018, and the Elliott sales, has now reached 1000000 in 2018, all in, including, of course, acquisitions and forex, And also in terms of the number of connected product families, since we have, including families, more than 40 product families that are now connected. Zooming on Netpad Mall, you have on Page 25, 26, and 27, show information of the company. Page 25, This is, as you know, a very interesting product offering.
Page 26, it reminds you that net debtbo is a very interesting company. Fast growing startup, for example, in 2018, sales were up 37% with net operating profit, which was at Breakeven. It's a leader in IoT for building with a large R and D capability and a large installed base of products. And it has a strong cultural fit with LeGrande. I mean, we've been a shareholder and the director of Net Netmo since 2015.
We have had up to 100 people working together on developing especially 3 ranges, Sedian was Netatmo, Dixie was Netatmo, and Valena was Netatmo. So, we are well positioned to confirm that there is a very good fit the teams. And last on Page 27, we've seen it that more as a unique opportunity to accelerate our Elliott program, because it will enrich our product offering and because we will be able to leverage their expertise their skills, their know how. For example, the founder and the CEO of Net Netmoof Freight Porter, was appointed as the chief technological officer of our aerial program. Other examples of initiatives that are taken to support our Elliott strategy on Page 28, a few examples of new products that were launched and introduced at the last CES show in Invegas, user interface embedding Alexa capabilities, and a connected range of emergency lighting.
And one of the 2019 focus on Page 29 will be to deploy this Elliott program. For example, we launched, user interface, embedding IoT in 5 Countries in 2018, and we have a plan to launch in 30 new countries in 2019 and 30 new countries in 2020. And we will also continue this deployment into what we may call master market solutions. And you have a couple of examples in this slide. And we keep working on the user experience.
This was for Elliott. Now moving to the 2nd type of initiatives, we are also fostering organic growth capabilities. On Page 31, you have a reminder of the strong Legrande fundamentals, which I will not elaborate because they are known by most of you, and leveraging those fundamentals we have launched a large number of products. We have actually an exceptional density of product launches in 2018. And those products are shown on Page 32, 33, 34.
As part of the initiative that we have done, there's also the fact that we have implemented a 3 zone front office organization. This is shown on Page 3536. So to make since fear, of course, of organization remains country based. And you know that, country managers, the contract country manager is at the hurt of the Legrand performance, tracking and optimization model. And this will remain, but in order to be more efficient, we have grouped those countries into 3 zones, Europe, North And Central America and rest of the world, all of them be headed by Laurent veterans, as we may say, having between 16 years of experience within Lagrange up to 26 years of experience.
And the objective is to improve the coverage of a couple of global customers, even though most of our customers remain local, to accelerate growth in dynamic verticals to enhance deployment of group international programs as well as to enhance further across the utilization of sales and marketing best practices amongst the country. We will start reporting as per those 3 zones, starting, in our Q1 release. As part of those organic growth initiatives, so we have new products, we have news and organization, and we also have on Page 37, a step up in digital initiatives in communication, R&D, customer relation, commercial data, and so on and so forth. All those are part of our so called gross expenses, and it's, those are significant investments, which will support the gross. 3rd initiative, on Page 39 acquisitions, we intend to keep shooting our acquisition driven growth, you have on Page 39, the list of the 7 acquisitions that were completed in 2018, as well as the impact they should have on 2019 numbers.
So the impact on 2019 sales should come to around 3% on sales And as Frank said, minus 40 bps on adjusted operating margin. Half of that coming from Netatbo and half of that coming from the other transactions. On Page 40, you have a reminder of very selective criteria, to create values that are, to do transaction, sorry, that are creating values, as well as on page 41, a reminder also on the fact that we have a large number of potential opportunities. Our accessible market is worse more than EUR 100,000,000,000. And on this market, you have close to 3000 small to midsized companies, of which, about 300 are part of our, day to day monitoring list And as I already said, we completed out of this list, 7 transactions in 2018 force type of initiatives, we will keep constantly optimizing performance.
Again, on Page 43, you have a reminder of the Legrand strong fundamentals, a number of strategic assets driving performance, the fact that our back office is already competitive and agile. And the fact that we have an organization, which is focused on execution with contract based budget with an incentivization, which is in line between stakeholders and managers and a very solid processes, for performance monitoring. Those are it is a Legrand core assets, in terms of performance. And on Page 44, you have a number of initiatives, a number of additional levers, which are implemented to further boost this performance, So we have on the left side of the slide, initiatives to improve operating performance, luke hardware acceleration, saturation, incineration, light automation, make or buy and so on. Part of those initiatives, you may have noticed in your account that our restructuring expenses increased, slightly in 2018 compared to the previous years because we are financing a number in 2018, a number of interesting plants.
On the column, on the center of the slide, you see that we are also doing targeted back office digitalization. So we have a number of proof of concept that we announced and some of them have already demonstrated that they are yielding significant payback, and we are, already deploying of them, and we intend to progressively dedicate a larger part of our CapEx to industry 4.0 investments. And last, we have a number of other levers. For example, the fact that we have made large number of acquisitions in the previous year that we are docking and that are bringing a number of synergies. Well, page 45, just an illustration of a number of industry 4.00 initiatives.
And the 5th and last initiative relates to CSR, we are launching our 4th CSR road map as shown on Page 47 of the deck, which is a 2019, 2021 road map. And you see how CSL is rooted in the organization. We started as early as 2004, our CSL strategy you have on page 48 main focus point of our CSS road map. It's around business ecosystem. So improvement of value chain.
It's about people, human rights, diversity, involvement in communities. And so about environment, which is decreasing carbon footprint, Circular Economy, and the inclusion of CSR priority into our industrial processes. Those are for the 2019, 2021 Ciel Seron map. And on Page 49, We have also added longer term 2030 objectives in line with Uniti Nation's development goals, which are, very important for LeGrande, which we are pushing hard. So number 1, we want 80% of our revenue, which is sustainable by design or by usage.
Number 2, in terms of diversity, we are aiming to have in the workforce and to have at least 1 third of our key positions being held by a woman. And number 3, in terms of CO2 emissions, we intend to reduce by 30% the emissions for SCOPE 1 and SCOPE 2. So, based on all those initiatives, we will to confirm the Legrand Mediante value creating model, which is on page 51, So confidence in the soundness of its model and its ability to fuel lasting profitable growth. Legrand confirms its medium term model Assuming a buoyant economic backdrop and excluding exchange rate effects, the group intends to achieve annual growth in sales and adjusted operating profit of 10%, assuming lackluster of our unfavorable economic backdrop, L'Oreal focus on protecting its model profitability and generation of free cash flow. So either 1 or the other.
And over a full economic cycle, an excluding any major economic slowdown, this model would result in average total annual total gross in sales, that of the group's reference markets, adjusted operating margin, averaging around 20% of sales, normalized free cash flow ranging on average between 13% 14% of sales and an attractive dividend. Legrand also intends to continue holding out an ambitious approach to CSR, driven by demanding road map. That's what we wanted to, tell you today. And now, I'm pleased to open the floor to Q And A. Thank you.
Your first question from Gal De Bray from Deutsche Bank. Sir, please go ahead.
I have two questions, please. The first one is regarding the change in the reporting structure you're planning Q1. I mean, given the local market structure of your industry, what's the rationale of creating a front office organization for Europe. So that's question number 1. And question number 2 is about the growth, the revenue growth acceleration we saw in Q4.
In both France and Italy, and I guess that was clearly not expected. That is not to that extent. How do you explain this kind of sequential acceleration? And in light of the recent statistics on the on the residential market, in those countries, what do you see for the Italian and French markets in 2019? I mean, do you expect this geographies to continue to grow this year?
Thanks very much.
So on your first question, Actually, obviously, you cannot have, 80 countries reporting directly to the CEO. And the local organization is a mix between respecting local organization, local contract commitment and local customers, local policies and practices, and at the same time, making the most of its size and international footprint. So we were already organized by zones before this reorganization, but, for example, we had a big export zones that we're putting together countries as different as Spain and China, for example. So the reorganization is a way to make an organization, which is a lot more in line with the market. And for example, to make the most of potential synergies, potential exchange of experience between countries such as France, Italy, Spain, Germany, and so on, which were in different clusters.
So again, Tim has said that we are not changing which is and will remain country based, but we are trying to make the most of that by, facilitating synergies and exchanges between countries, especially in Europe, which were in different clusters in the previous organization. As far as your second question is concerned, we clearly do not believe that neither the French nor the Italian markets are growing at the pace, which is the one shown in Q4, I. E, a plus 4% for France and plus 7.9% in Italy. What happened in France is that clearly Q4 is a good performance, which was clearly helped by a bit of restocking from distributors. You remember that there was a very strong destocking in Q3.
There was a bit of restocking in Q4. Or feeling is that the French market has been quite depressed in 2018. And the French market was probably only very, moderately up in 2018. So going into 2019, as you know, we have no visibility, but at the same time, we have no triggers that would, push a significant change in trend, upward in France. So we remain extremely cautious in the French market.
The Italian situation is a bit different. Italian market is probably a bit more supportive than the French market, has been a bit more supportive than the French market. Now this being said, the Legrand or Biteshinal performance in Italy is a clear, over performance, compared to the market, And this is due not only to be the Chinos, let's say, core assets and deeply rooted qualities and quality of its team, of its management, strong relationship with customers and a number of assets that you know well, but on top of that, We have had very successful product launches. The one launched in 2016, 2017, I'm thinking of a class 300 III and the smarter or the thermostat, but also more recently, the launch of living now which is replacing the standout and high end range in Italy. So it's a big event, a big range for Italy.
So, and clearly, it helped and supported the 2018 performance. Here again, moving into 2019, we are, as we are for France, very cautious because, there is, according to what we read, significant uncertainty on the Italian market. If you look at what the European Commission, Central Bank is saying, the IMF and so on, everybody is wondering, what will the evolution of the Italian market be? So we remain extremely cautious, having in mind that our objective remain And this is actually true also for France to overperform a market. It's the reason why we keep launching new products and and investing in growth.
And last to conclude on that, obviously, and we put that in the press release, the basis for comparison going to be challenging for Italy because a 6.2% growth in 2018 is such very, very good performance that it creates a challenging basis for comparison for 2019.
Okay. Thanks very much for the color. Thank
you. Next question from Robert Burns. Please go ahead.
Hi, good morning. I have two questions. One on pricing you mentioned that pricing was your pricing strategy was a full in Q4 for North America and offsetting the tariff. Can you give us the at the level, the pricing versus raw material and component inflation? And my second question is a bit more long term, but an update on your strategy following the purchase of Netatmo and the appointment of Radpots CTO.
I mean, should we read this move as a more ambitious growth strategy in home automation do you intend to unify the brands for automation or keep different brands? Some color would be helpful.
Thank you. You Sebastien. As far as pricing is concerned, let me maybe give you, if you agree, the big picture on pricing, and then I will zoom on the on the tariff specific topic. So as far as pricing is concerned, for the full of 2018, The pricing was raw materials and components was up about 4.1%, including about one point from U. S.
Tariff impact. So without the tariff impact, the inflation of raw materials and components would have been up by slightly more than 3%. Those are the numbers for the full of 2018. Now zooming on the tariff because it was part of your question. Topic, but it's a developing topic.
So things may change from one day to another. The best example of that is a list 3, which was supposed to move from 10 to 25 percent tariff in Jan. And this was postponed to March 1st, And there is apparently some uncertainty in whether it's going to be implemented or not. So we have to remain extremely cautious when analyzing the numbers. This being said, in November, we explained that in the worst case scenario, the yearly impact of the U.
S. Tariff, I. E. Comparing a year with tariff fully enacted with a year with no tariff enacted at all would result in a rise of close to 7% of Legrand North And Central America cost of goods sold, which is about USD 90,000,000. So some of these already had an impact in Q3 and Q4 to give you the numbers The gross impact on Q3 was about EUR 4,000,000 and the gross impact on Q4 was about EUR 12,000,000, which is what we said it would be in Q3.
So as a consequence, if we put together the fact that some tariff was implemented already in 2018, that we would have the full impact in 2019. The U. S. Tariff should increase LNCA COGS by close to 5% in 2019 compared to 2018, I. E, a net favorable gross impact of about EUR 65,000,000.
So I hope it is clear. It would be EUR 90,000,000, if no tariff was enacted in 2018, putting together the fact that some tariff was already enacted into 18. Plus, we had a 2 month relief on this 3. This 90 becomes 65 additional COGS in 2019. So in front of that, those numbers are for growth.
What have we done? In Q3, you remember that Tariff were put suddenly, and as we explained in November, haven't been compensated given the short notice. In Q4, we have launched a number of action plans and U. S. Tariff impact have been almost compensated in value.
And our objective for 2019, based on those action plans, which are a mix of minisings, a mix of pricing, a mix of changing our logistic flow in changing our manufacturing locations, and so on and so forth. We will, of course, continue to work on all those levers with a target to fully mitigate in value, in Lagrange And Central America accounts, the impact of U. S. Tariff. So this is for the tariff topic and for the raw materials topic.
As far as Netatmo is concerned, well, the deal was closed in December. So we have only a month and a half of Net Netmo without us. So the plans are currently being being done. Will it lead to an acceleration of your program? I hope so, and this is a plan at TPT, for example, Fred Potter together with Netatmo and Legrand teams, have started to work on our roadmaps, both the lecron road map and the Netat More road map.
And on a number of topics, which we believe will help accelerating our growth, cloud, API, partnerships, technology, options, and so on and so forth. Well, will it lead to, Lagrange to change its brands? Why not? The plants are currently being drafted. By the way, Elliott, you remember that it's not only about residential, idiot, it's residential and commercial, even though Netatmo is mostly a residential, company selling residential product, the Elliott product is both residential and commercial to give you an order of magnitude about 2 third of our sales in Elliott are commercial.
And 1 third, well, excluding net debt move, 1 third is residential. So yes, we intend to accelerate the growth, how will it be done? We'll probably give you more color and more flavor in a couple of months or a couple of quarters.
If I can come back on the question, I mean, I calculate it's about 2.5% in Q4. The price increase. Do you see further price increase to come in, I mean, have you done any more in the first 2 months? And do you expect a further price increase? Because if we are at 2.5% run rate, I mean, could we see a higher rate for 2019 than the 2.5 percent you achieved in Q4?
Well, It is true that the Q4 pricing is about 2.5%, will we do further pricing, if needed, you know, the way pricing is, pricing is managed at Le Mans with really a country based approach depending on a number of topics, not only actually increase in raw material prices, but increase in the auto inflation and also competitiveness position of the market, a number of things. So if needed, we always have the ability, even though not immediately, to increase, pricing. And the good example is what happened in the U. S. I mean, the fact that, We almost compensated in value, which by the way, have then a slight negative impact on margin, even if we compensate in value, is a rather good news.
If we are able to fully compensate in value, the tariff increase in 2019, so to offset the $65,000,000 of additional COGS coming from the tariff it would have a slight negative impact on our adjusted operating margin of about 20%. But this would then be good news anyway. 20 bps, sorry, 20 bps. So to make a long story short, if we feel that it is needed, in a given geography, And provided, of course, it does not hurt our competitive position. Yes, we always have the ability to do further pricing.
That's very helpful. Thank you.
Thank you. Next question from Andreas Wholly from JP Morgan. Go ahead.
Yes, good morning. Thanks for the time.
My first question is up on
the earlier question on France and Italy. Particularly in France, what's the inventory levels now? Rexel said yesterday, they ended up with a bit too much inventory in France the end of December. Can you talk a bit back to the comment on what do you think inventory levels are in those two markets as we go into, 2019? And the second question on net loss more in terms of the growth strategy you laid that out what's the plan there in terms of profitability?
Is that a focus for the coming years? Or is that mainly a growth story? So you will keep profitability around breakeven while reinvesting or should we expect that, M and A dilution from that deal then to decline as we go into 2020? You.
Hello, Andreas. Well, as far as your first question is concerned, I have absolutely no clue on the level of inventory of our customers It is true that we felt in Q4 that there was a bit of inventory of, let's say, restocking from our distributors, which is not unusual at the end of the year. We did not really have the same feeling in Italy. But, at the end, it's extremely, difficult to know. We are able to measure if you want the difference between selling and sellout And that's why we're able in Q3 to give you quite precise indications, the fact that even though our sales in France were down significantly, As far as the sell in was concerned, the sell out was still, slightly up, but we absolutely have no clue about the level of inventory for distributors.
As far as your second question is concerned, we don't intend, net that more to come even close to the group's level of margin in the years to come it wouldn't be reasonable. We really want to keep the dynamics of the company. Well, this being said, we don't expect either, to remain at 0 percent plus forever. So the objective is to is three folds as far as financial metrics are concerned, to keep having a very strong growth in sales, which is a top priority, Well, I'm not able to shoot an error. Would it be 30% 40%, 15%?
I don't know. It depends on many things, including, of course, the economy. But we will we intend to accelerate growth. Well, we'll be, of course, happy if the margin could improve a bit, but I think we will remain in the single digit territories. And number 3, which is, of course, very important to pick, because I was mentioning net debt most standalone.
Number 3, there are all the synergies we intend to do with net debt, which may be captured in net debt more accounts, but which may also be captured in local accounts. It's about, technology sharing. It's about, purchase of components. It's about helping net that move to, to sell leRamp, to sell its products in leRamp Tory. For example, we are building plants to take Netatmo products outside of Western Europe to Russia, for example, to Latin America.
On the other way, it's about, net debt more helping LeGrand to penetrate certain customers. It's about bringing, net debt more R and D people expertise into Legrand Elliott Products. And to tell you a bit the way we are looking at this transaction, these number 3 objectives, I. E. Synergies between the two companies and the impact could have an idiot is internally seen as even a more important priority than lifting net debt most margin up or even the number 1 or number 2 priorities.
So this is those are the plans. And I can tell you that internally everybody is very excited by the opportunity because we are strong believers that it could be could be of a great support to Twilio. Maybe your last point, we do not intend to change our acquisition strategy and to enter into a strategy where we would buy every year 1 or 2 companies with 0% EBIT obviously not. So the L'Oreal acquisition strategy remains unchanged. So we are targeting mostly market shares, and we are extremely excited by companies if they have, if they own a market share, significant market share in a given product family in a given country.
So the NetApp model was really an exception exception coming from the fact that it's a fantastic company. We have contact with the owner for you. We had a partner shipping place, we were already a shareholder of the company. So, it's not a change in the acquisition strategy. It's very a different animal.
Because we believe it could help accelerating our idiot sales.
Thank
you. Next question from Daniela Costa from Goldman Sachs. Please go ahead.
Hi, this is actually Ben dialing in on behalf of Daniela. I was wondering whether you could give some additional color on what you expect in terms of market environment in other regions outside of Italy and France? Maybe the rest of Europe or even the U. S. Going forward?
Well, as every year, you're going to be very frustrated by my answer. No, I mean, Of course, we have, you know, Zolubra Mounder, we have absolutely no visibility on what we have in front of us. So as you do, we rely on what the, economic specialists are saying, what we are hearing from our customers, trade associations and so on and so forth. So all those are light signals and not the hard signals. So overall, Why did we qualify the forecast as being favorable.
It's because when we listen to what many opinion leaders are saying, there are still planning for, key economies to be in positive territories in 2019. For example, if you look at the IMF, The IMF expect for 2019, plus 3.5 percent World GDP growth, which is more or less in line with the average GDP growth from 2015 to 2018. This being said and, you know, that as much as I do, everybody is also underlining the fact that the outlook is extremely uncertain. And that the level of uncertainty has increased a lot with many potential factors affecting the economy. It's, the U.
S.-China dispute, which could also have some impact, both on the U. S. Economy and on the Chinese economy. It is the Brexit where nobody really knows what's going to happen. It the European elections, which are always creating some uncertainty, situation in France and in Italy, election in India, Turkey, Brazil.
So the level of uncertainty has clearly increased a lot compared to what it was a year ago. Now this being said, well, France and Italy, you understand that we are a bit cautious because of this level of uncertainty. Rest of Europe, I think it's going to depend a lot on the UK and Germany And for that, it's extremely difficult to say. Well, everybody expect India to remain on the positive, stories. And, as a matter of fact, we have always recorded growth in India, and we intend to continue.
Well, China We have a very different positioning from, from, some of our peers or competitors. We are mostly on the real estate market. We are not on industrial or OEM market. So far, the real estate market is pretty nicely monitored by the Chinese authorities. Now this being said, if the Chinese economy was to go down, of course, we would, would be impacted.
U. S. Has been, still quite positive, ball reading, what people says most people expect that at some point, this positive cycle will end, but nobody is really able to tell us whether it's going to be, in 2019 or in 2020. Well, so, so, yeah, unfortunately, I cannot be more specific than that because, again, We have absolutely absolutely no visibility. So as usual, as we are always doing, Zolgromodaire is to be ready Whatever happens.
So typically, in our budget process, for example, in our plans, in countries where we knew there would be uncertainties. We have, as usual, prepared, scenario based budget, where we have plants targets, ready, whatever the economic environment. And I think Soluco's specificity is more to be able to react should the economy deteriorate, razors and precisely forecasting what the market's going to be because, unfortunately, we're not able to do so.
We appreciate it.
Thank
you. Next question from Lucy Terry from Morgan Stanley. Please go ahead.
Hi, good morning gentlemen. Thanks for taking my question. I actually have a follow-up on the connected products and the connected strategy. I was curious if you could maybe explain to us what the impact of your Connected offering has on your existing I. E.
Standard of offering non digital, non connected in terms of price and in terms of volumes because, we see very strong growth rate around Elliott and it doesn't seem to be kind of fully matching always what we see on the overall top line group So I was curious to get your view on kind of the dynamics on pricing and volume here. And then I have a follow-up question.
Well, hello, you see, don't forget that the 28% cash that we are mentioning for the Eviot program is all in. It's not it's not organic, organic. It's still double digit, but it's not the same order of magnitude. So it embeds the number of acquisition, which we qualify as, as Elliott. And of course, it also includes, Forex.
Well, the objective with Elliott is clearly to do trading up. So what impact does it have on our traditional offering But sometimes it replaces a traditional product. So for example, instead of selling a traditional switch, you are selling a connected switch, instead of setting a traditional door entry, you are setting a connected door entry. So it's purely cutting up. Yes, you would qualify that as being cannibalization.
But at the end, it's selling a product at a higher price to the same customer. This is one effect Sometimes it can pull the whole range. If you look, for example, at living now in Italy, which is basically for you, you see who knows how well it's a range replacing a light living and absolute in Italy. So it's big, big deal for us. Well, and it's doing very well as far as the connected part of living now is concerned.
It's clearly a way to, convert some of our customers that we're using competitive products 2 living now, because they are attracted by the connected piece of our offering. So of course, they buy living now connected, which by the way, is also based on the net agro technology, but on top of that, they're also buying the basic traditional socket power socket to connect their devices. So it really depends on the product. Sometimes it cannibalizes, if I may say, but I would pull that trending up. And sometimes it's just pulling the whole range.
But again, keep in mind that, It's right. Let's say, organic, figure to, I mean, mine is more, low double digit growth. Year on year for Toyota.
Thank you, Bruno. That's quite helpful. So just following up on that for to understand maybe a bit more the margin dynamic. I mean, I understand the Elliott range is solar at a higher price, but how does that compare for the moment in terms of profitability versus your traditional product. And I guess my concern is a little bit that at some point to a low area to kind of become a bit more, what I would call a bit more mass market or accessible to most people, you would have to take that level down in terms of a in terms of pricing.
So how should we think about that a bit more long term?
Well, this is a good question and referring previous discussion on net debt more, I wouldn't, want you to come back home with a feeling that, Elliott products or Connect products have a 0% margin. This is really net that move profile, which, by the way, has on products margin, which are a lot higher than that, which is a pure startup, so which has so far reinvested all of its proceeds, all of its results, out of its profit into growth. So as far as Xavier is concerned, there is not only one answer. So level of profitability really depends on the market share we have on the range. So if we have on the full range, a very good level of profitability because we have a good level of market share, then we have a good profit on the Elliott piece of the offering.
And the other way, if we don't have a good market share of the royal family, then it's highly unlikely that we'll have a good profit on the connected piece of it. So We do not believe that, the sales in Elliott will change substantially the margin profile of the group. And this is, well, exemplified, if I may say, by, the model we have reiterated in this model, we are, at the same time, planning, strong and fast growth in, ADOT related products because we believe that our product families will increasingly be impacted by the need by customers to get connected. And at the same time, we have also reiterated the fact that we were shooting to maintain the margin level, the EBIT level at around 20%. So we do not believe that it's going to change the margin profile of Fluoron.
Thank you.
Thank
you. Next question from Andre Koning from Credit Suisse. Yes,
good morning. Thanks very much for taking my question. I'll just go one at a time. Firstly, on Elliott, a quick follow-up, you talk about, kind of a low double digit organic growth. For that range, within that overall nearly 30.
Could you give us an idea how that compares to your kind of historic new product launches when you the kind of major introductions of either new replacing products or rolling out in new countries. How does that compare to that?
Well, I'm afraid I'm not able to answer this question because it really is no there's not a magic number. It really depends on the on the product. What usually happens when you launch a new product is, of course, that you have inventory built up, by your customers because they need to serve the market, so they build their inventory, And then so short term, you have inventory buildup, then a couple of months, you have a sellout and then eventually rebuild. So this is short term impact when you're launching a new product, but I'm not able to give you a magic number saying, when I launch a product, it's growing x or y percent. It also depends on whether your range is replacing an existing range or not.
For example, leaving now, of course, it's a great success. We have a very interesting numbers, but it's replacing, 3 existing ranges. So you cannot expect the growth rate on the living now to be as high as when you are launching a new range, which is not free patient existing ones. So unfortunately, I'm not able to give you a synthetic number.
I understand. What I'm really just trying to get engaged on whether Elliott is a kind of a true accelerator or it's just a kind of new version and the modern version of the new product launches. So maybe another way to look at it at how is the growth the earlier products that were launched at the beginning of the program 3 years ago.
It's when I was spotting the 10% or, you know, double digit, low double digit growth in sales for earlier it's referring to a product that we're already in the catalog in 2014. At the time we learn programs. At the time, we already had 20 product families, which were part of the program. And it's also referring to products that were introduced in 2015, 2016, 2017. What you can do maybe is to, is to look at the average growth rate of Legrand organic growth rate from 2014 to 2018, which was probably something like percent.
I didn't do the math. And, and obviously, and taking a 10% 10% plus for the other products. So those are the orders of magnitude. So everything, which is not Elliott, of course, you can make the last, but To make a long story short, the group has grown by 2%, 3, 4% depending on the year organically in the past few or 4 years. Including double digit on Elliott.
So clearly, yes, I confirmed that Elliott is an accelerator and it's a very strong piece of our trading strategy.
Thank you. And in terms of new targets now that you've surpassed your 2020 targets already, am I right to kind of to pick up that point you made that you'll say something in March, March, April on that?
We are currently building the plants with, with our friends from Net Netmoore, you can assume that, of course, we'll not, we'll not drop the pin and we'll continue work hard to go as fast as possible and to keep increasing the number of product families, which are connected. But I cannot commit to March, but I'm sure that we'll have the opportunity in the coming months or quarters to come back to you, to tell you the step 2 of the story. Great.
Thank you. And the final one, could you just quantify the size of that restock in France in Q4? Or maybe just relative to how big the destock was in Q3? I think that was 5%. Was that restock kind of half of that more or less roughly?
It's always very difficult. You remember that the trend in the 1st semester of the year in France was about +2 percent. Then we had the minus 4 something in Q3. And we said, look, the difference in trend between this plus 2 and this minus 4 of course, is a clear sign of a destocking. So if you wish, you could, keep the same sort of at Roche saying that maybe the difference between the plus 2 or plus 1 trend of the year and the plus 4 in Q4 is is, is somehow to be qualified as restocking.
And those are orders of magnitude. Again, We don't have a precise view of our, of the inventory level at our distributors, but those would be consistent math if I may say, between Q3 and Q4.
Next question from Graham Phillips from Jefferies. Please go ahead.
Yes, morning. Just a couple of follow ups. Just on the French restocking, is this your restocking? So does this impact your margins? Or is this what you're saying once the product has left your factories?
And I'll follow-up with the other question after.
No, no, when we say potential restocking, just the fact that, they they it's the orders from our distributors. And it just the factual analysis that the French market didn't grow plus 4% in Q4. So since it didn't grow for plus 4% in Q4, Probably part of this growth, is it 1.2.3. I don't know. I'm not able to tell you that, is coming from the fact that our distributors have, built somehow some inventory.
So again, it's a very factual analysis looking at our full year performance, looking at the effect of the I mean, the status of the French market, as well as, as well as the performance in Q4. So it's not we are not talking about any restocking in our factory, but potential, bit of restocking on the market.
Okay. So you yourself didn't change your stocking levels between the end of the quarters at your your facility?
No, not materially. You may be fair to the fact that, that, our non normalized free cash flow is, is, or that our net working capital is higher in December 2018 that it used to be in December 2017, but this is really coming from the basis for comparison. As far as our ratio of net working capital to sale is concerned, it's slightly above 9%, which is, which is still below the sort of 10% mid term range we've been giving consistently to the market. But the fact is that, this level at the 2017 was much lower than that. So we have not done any, specific restocking in our factories.
It's really, put, I mean, in seating and other words, and potential restocking from our distributors. Okay.
Thank you. And just also following up on Elliot. So with what we're saying is that the organic growth for Elliot is around 10. So what what do you mean by low double digits? And where would we be seeing that in which geographic regions is Elliot more represented in the group?
No, it's, not exactly, reflecting precisely,
the
what we are doing, in sales, but, if you take the 6 5,000,000 of sales we achieved in Elliott in 2018. We have a bit more, in North And Central America, than the breakdown of our sales, a bit less in Europe. It would typically be something like 40% of our sales are made in Europe, more than 45% in North And Central America. And 15% in the rest of the world. This would more or less be the breakdown of our sales in Elliott.
So you'll see that it's really impacting, all markets, one way or the other, almost significant markets, one way or the other.
Okay, but it just represents in the U. S, I guess, that's the point.
It's also represented in the U. S. Now you may have we are doing almost 80% of our sales in the U S on commercial buildings. So typically, we launched a connected range of volume devices in the U S. In 2018.
It's name is is Radient, but it's still very small numbers. And most of Elliott sales in the U. S. Are related to commercial products. So it could be, for example, present detectors and lighting management products.
It could be a smart PDUs like Horizon Seadertek PDUs, and a number of other products. So, so Elliott sales would be quite early, Elliott sales would be a lot related to, to residential. It's a door entry. It's a thermostat. It's warring devices.
In the U. S. In the contrary, it would rather be commercial. And this is also the reason why, on page 29 of the deck, we insisted on the fact that In 2019, a big part of our Elliott plan will be to deploy the international programs. Okay.
So to take each of the programs, I mean, not each, but most of the programs that we have and to deploy them in an initial number of geographies.
Okay, right. That makes sense. And on your organic growth targets for this year, 0 to 4, how much of that is pricing?
Well, you know the whole of the game, we are never giving precise guidance on pricing because it depends of course, many things, the evolution of raw materials, potential potential tariff. For example, if, for whatever reason, there would be another relief, in the list, 3 tariffs, if, again, for whatever reason, the increase from 10% to 25% was to be pushed by an additional 3 months. Well, obviously, we wouldn't get in the U. S, all the tariff we intended to get. So it's such a fast evolving situation that we don't give get it because it's, again, what we aim at is to remain extremely flexible on this front as on the other fronts.
Okay. But I mean, I guess, if you were to repeat what you had for last year, and if you could just remind me of that number, because actually my line dropped out for a while. What was the figure that you said last year and if would you think that 0 to 4 for this year would you would take the same for last year?
What I said for last year was that the pricing was up 1.7%. That was the number the number, so the pricing in 2018 compared to 2017.
Okay. And just, I haven't had a chance to look through the full financial numbers yet with all the other releases and some printouts I've got today, but could you just please take us through R and D and CapEx had evolved for the year, and into this year, what you're expecting 2019?
So the level of R&D to sales is a 4.8%. So it's a fairly consistent with what it used to be in the 3 or 4 years. It's close to 5%, which is what we've been doing, in order to fuel our growth. And the level of CapEx, to sales was 3.1% So here again, in the sort of long term average between 3% to 3.5%. Now Of course, and we've been saying that consistently for at least 12 months on both topics, we could very much go above or below, sort of long term trends, and which wouldn't be necessarily a bad news for shareholders, But in 2018, 4.8% for R and D and 3.1% for CapEx to sell.
Okay. But trend in 2019, there's nothing more you can give us and just to say you'd be staying in the range?
Well, same as for pricing. We are not, we are not guiding precisely on those on those 2 topics. And, because, again, it depends also on, on many topics. Obviously, for example, you should take CapEx, while the CapEx level is different. Whether you have, to build capacity or not, you can decide to postpone for achievements of the few projects.
So there's no reason why midterm, we shouldn't be close to 5% for R&D. It could be, let's say, let's say, slightly below, slightly above. And between 3% to 3.5% in CapEx to sales. And again, sometimes it could be 2.8 and sometimes it could be 3.7. Those are the sort of long term targets, if I may say, that are embedded into a long term model.
So close to 5% as far as R and D to sales is concerned. And between 3% to 3.5% on average for CapEx to sales.
Thank you. We don't have any question back to you for the conclusion, sir.
Well, thank you very to all of you for your interest in Legrande for taking the time to attend, this call. And good luck for today because I understand that it's going to be a very day for all of you. So thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.