Good morning, ladies and gentlemen, and welcome to today's Legrand 2018 first quarter result conference call. All participants are in listen-only mode. Later, there will be a question-and-answer session. For information, this conference is being recorded. At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart, and CFO, Mr. Antoine Burel. Sir, please go ahead.
Thank you. Hello, everybody. Benoît speaking. Antoine Burel, François Poisson, and myself are happy to welcome you to the Legrand 2018 Q1 result conference call. Let me remind you that we have published today a press release of financial statements and a slideshow. We will refer to this slideshow during this call. The documents are available on the Legrand website. As usual, please note that this conference call is recorded and webcasted on our website. Let me first start with an exact summary following which Antoine and I will comment into more details our results and achievement. I will first start on page four of the slideshow with the three main takeaways of today's release. The first takeaway is that 2018 Q1 performance is solid. Sales were up +9.6%, of which +3.9% organic, driven by both mature and new economies.
More specifically, organic growth was very good in Italy and rest of Europe, partly due to one-off effects. Adjusted operating profit and net profit attributable to the group were up double digits, and those solid results demonstrate once again Legrand ability to generate profitable growth. Second takeaway, we have actively pursued a number of growth initiatives by continuing to launch new products, both non-connected and connected. We have also continued to leverage on the geographical deployment of both international programs and Eliot. The group also benefited from the successful overseas development of businesses recently acquired in North America. The third main takeaway of this release is that Legrand confirms its targets for 2018. After this introduction, let's start with an overview of the sales. I'm going to page six of the slideshow. As I said, we recorded a total rise in sales of +9.6%.
Our first growth driver is doing well, with organic growth reaching a solid +3.9% in Q1, driven by healthy rises like for like in both new economies, where sales were up +5.7%, and in mature countries, where sales were up +3.2%. Those good showings benefited more specifically from very good growth in part one-off recorded in Italy and in some new economies in the rest of Europe. As you know, the group's second growth driver is external growth, which stood at +14% in Q1 2018 and should amount to over +7% full year. Lastly, Forex impact, as expected, is negative at -7.5% in Q1 2018. If we apply to the last nine months of the year, the average Forex observed in April 2018, annual Forex for 2018 would be around -5%.
Of course, as you know, this is a theoretical computation, and of course, time will tell what will be the actual Forex impact on sales on a full year basis. Let me now comment with more details our like-for-like evolution of sales by reporting segments, and I'm referring to pages seven and eight of the slideshow. Before going into detail into European countries on page seven, let me first indicate that our performance in Europe as a whole, so including France, Italy, and rest of Europe, is very strong with a total organic growth recorded in Europe of +6.2%. Moving into each zones. In France, organic growth in sales stood at +2.7% in Q1 2018, which is a good performance, driven by a very positive momentum in energy distribution in home systems.
New products also contributed to growth, notably the Céliane with Netatmo range of connected user interface, as well as a range of structured cabling, which is called LCS3. Moving to Italy, like-for-like sales growth was +6.3%. This very good performance is supported by innovation, including all the new products that were launched over the past quarters, which continued to perform well in Q1 2018. Our robust rise in sales in Q1 also benefited from a favorable basis for comparison effect. I remind you that for the full of 2017, we recorded like-for-like growth of +4% in sales, and Q1 2017 alone was up only +1.9%. Last reporting segment in Europe, the rest of Europe, sales were up +9.3% like-for-like compared to the first quarter of 2017.
This is a very strong growth overall, which was driven by both mature and new economies with a notable increase in sales in countries like Spain, the Netherlands, Greece, and an activity which was almost stable in the U.K. compared, once again, to Q1 2017. In new economies, we recorded very good showings overall, in part one-off, specifically in Turkey, Romania, and Hungary. On page eight, moving to North and Central America, sales rose +1.7%, like-for-like. In the U.S., where sales were up +2.5%, performance was good in both user interface and lighting solutions. Q1 rise in sales was also driven by solid achievements of Milestone, which grew mid-single digit in Q1 in spite of a challenging basis for comparison.
As said in the previous publications, Milestone has fluctuating businesses with ups and downs on a quarterly basis, and in Q1 2018, activity in retail was particularly strong. Finally, sales in Mexico retreated due to high basis for comparison in 2017. Maybe a side comment on LNCA. If we combine organic growth and perimeter effect, growth in North and Central America, in local currency, was almost up +50% between Q1 2017 and Q1 2018, which is obviously a very impressive achievement. Coming back to organic growth and talking now about the rest-of-the-world area. In this area, sales rose +3.2% on a like-for-like basis. In a number of countries, we achieved double-digit growth in sales. This is notably the case in China, where we did very well, in South Korea, in Peru, in Saudi Arabia, and in Nigeria.
Sales in India declined due to high basis for comparison in Q1 2017. Last comment on Brazil and Colombia, where sales decreased in Q1 2018. I pass the mic to Antoine for an overview of our financial performance.
Thank you, Benoît, good morning to all of you. I start with profitability on page nine, where we compare adjusted operating margin between Q1 2018 and Q1 2017. As you can see from the slide, adjusted operating margin before acquisitions came to 20.4%, showing a rise of +70 basis points on Q1 2017. In the context of growing sales, it mainly reflects, first, our good global operating performance, second, the group's ability to adjust its selling prices to inflation in raw materials and components. To put figures on words on this last point, Legrand selling prices were up +1.4% in Q1 2018, raw material and component prices were up +2.5%. As said, it demonstrates our ability to have a good coverage of inflation on raw materials and components.
Please note that we even benefited from a slight bonus in Q1 due to a lag effect between an immediate selling price increase and a progressive rise in raw material and component prices. This is for the adjusted operating margin. On page 10, talking now about value, adjusted operating profit was up +11.9%, reflecting Legrand's ability or capacity to create value through profitable growth. Moving on to page 11, another key indicator of value creation, which is the net profit attributable to the group. You see that it was up +17.7% at EUR 175 million for Q1 2018. This strong increase is mainly the result of our robust operating performance, but not only. It also embeds the decrease in net financial cost in spite of higher debt, it is thanks to very competitive recent refinancing conditions.
The last favorable item contributing to this performance in net profit is the group income tax rate. As announced, our group tax rate is down by three points, thanks to the decrease in corporate taxation in the U.S. Moving to the last indicator of my presentation on page 12. As you all know, we also clearly focus on cash generation. Our key indicator there is normalized free cash flow. It was up 20.3% in the first quarter 2018 to reach EUR 219 million. This performance was mainly supported by the growth in cash flow from operations. On the left-hand side of the slide, as far as working capital requirement is concerned, please note that the rise in Q1 is mechanical, as it compares to a low level of working capital requirement at the end of December 2017.
This being said, at the end of Q1 2018, working capital requirement remains well under control at 9% of sales. To sum up on my presentation, I believe that we report a good set of financial metrics in Q1 2018, close to 10% growth in sales, significant improvement in adjusted operating margin, strong growth in adjusted operating profit, close to 12%, net profit close to 18%, and normalized free cash flow with +21%. Thank you. I give now the mic back to Benoît.
Thank you, Antoine. Let's move now on to the next topic of our presentation. In other words, our ongoing growth initiatives. I'm turning to page 14. As shown on this slide, we remain very active in terms of new product launches in Q1, both on non-connected products and on connected products. You have here a few examples on non-connected products such as the Pratik box cabinet in Brazil, Logix floor boxes, Keor multi-plug UPS, and many others. As far as connected products are concerned, we launched, for example, Céliane with Netatmo, Mosaic with Netatmo, both in France, and Yi Xuan in China. A word on Céliane with Netatmo because we talked a lot about this range in the last quarters. The new range has been very well received with already close to 2,000 connected installations managed through our Home + Control application.
This is just a start, of course, but a very good and very encouraging start. On a broader basis on connected products, the deployment of other Eliot products, such as a Classe 300X door entry system or the Smart Thermostat, is also doing very well. Moving to page 15, we are also successfully pursuing the deployment of international programs that we launched recently, including, for example, the high-performance structured cabling system, LCS3, and UPS systems. In the meantime, we also benefited from the successful overseas development of Raritan, Finelite, and Solarfective, all companies we acquired recently. Finally, on the right-hand side of the slide, we announced today a very small but nice deal in digital infrastructure for data centers in Germany, a deal that rounds out of existing positions in Europe, the U.S., and Asia. Coming now to the last topic of this earnings release on page 17.
Based on Q1 2018 achievements, Legrand confirms its targets for 2018, i.e., organic growth in sales of between +1% and +4%, and adjusted operating margin before acquisitions at 2017 scope of consolidation of between 20% and 20.5% of sales. To conclude, Q1 2018 showed solid performance. All growth initiatives are delivering well and will continue, of course. Lastly, we confirm our 2018 targets. With this in mind, Antoine, François, and myself are ready to answer any questions you may have. Thank you.
Ladies and gentlemen, if you wish to ask a question, please dial zero and one on your telephone keypad. We have a first question from James Stettler from Barclays. Sir, please go ahead.
Yes. Good morning, all. Thank you for taking my questions. Can you talk a bit, give a bit more color around Milestone and indeed how that has impacted the margin for the U.S. operation? Secondly, just on lighting controls, clearly a lot of your lighting peers are having more issues. You highlight lighting controls being a positive driver in the U.S. in the quarter. Can you talk a bit about that? Finally, when you look at your top-line guidance of 1%-4%, versus when you set up the guidance back in February, are you feeling more confident to be at the higher end, or has that not changed at all? Thank you.
Hello, James. Benoît speaking. On Milestone, we recorded a good 2018 first quarter with, as I said, mid-single-digit growth in sales and a slight improvement in profitability. It's a good quarter. We are just making this kind of cautious statement saying, "Be careful, do not overread performance or quarterly performance at Milestone because there is some volatility in quarterly sales." Q1 is good. We are extremely positive on the docking of this company, which is a great addition to Legrand. Of course, Milestone is not growing 14% over 2 years on a permanent basis. Once again, Q1 was strong and good. As far as the acquisition impact on the LNCA margins over Q1, it's neutral. Including all acquisitions, it has no impact on the LNCA margin.
Second question, as far as lighting controls is concerned, I can confirm that both lighting controls and lighting fixtures are recorded good growth in Q1 2018. It's always difficult to compare ourselves with peers actually because we are not in the big lighting segment, and we do not intend or pretend to fight against the big lighting players. We are active on a very specific niche in the U.S., which is both lighting controls and highly specified architectural lighting for commercial buildings. This niche maybe represent 10% or 15% of the lighting market in North America. It's hard to compare ourselves with other lighting companies or with lighting companies. I wouldn't extrapolate that we are gaining a lot of market shares over those players, just that we are not comparing apple to apple. Overall, our Q1 performance for lighting in the U.S. is very nice.
As far as your question, the top-line guidance is concerned, we insisted a bit in the release and in our comments on the fact that even though Q1 organic growth is good, it is impacted by what we have qualified as one-off. Typically, Italy, the Q1 2017 was two points below the trend of the full year. It gives a sort of theoretical advantage of two points for our performance. Number two, as far as the rest of Europe is concerned, we believe that the underlying markets are closer to the pace they had in 2017 than to 9%. I let you do the math, but taking that into account, Q1 performance is completely in line with our +1 to +4 guidance.
Great. Thank you.
Thank you. Next question from Andreas Willi from J.P. Morgan. Sir, please go ahead.
Good morning, everybody. I have a couple questions. I would like to start with the recent press article that was about the market structure in France and competitive behavior. If you want to use this opportunity to comment on that. Second question, you mentioned the acquisition dilution that didn't affect North America, but the 30 basis points overall was maybe a bigger number than I had expected. What should we expect for the full year, and why was the dilution then so large in Q1? If you look at North America, you elaborated on lighting and Milestone having good results, and you mentioned Mexico, but what's the growth rate in kind of the core heritage Legrand U.S. business outside, basically, Milestone and lighting, which have been kind of acquired partly at least over the last few years? Thank you very much.
Hello, Andreas. I'll take question one and three, and I will let Antoine answer on the dilution impact of acquisitions. As far as the first question is concerned, my answer going to be extremely short, because we do not comment on press articles. This being said, should this be necessary, I confirm that our sales policy is fully in compliance with competition law, obviously. On question three, as far as North America is concerned, let me maybe remind you the numbers. If you take LNCA as a whole, our sales were up +1.7%. If you take the U.S. alone, our sales were up +2.5%. It's always interesting to look at the performance over two years, or sometimes even longer. Typically for the U.S., for example, Q1 2017 was up 3.5%.
In the U.S. over two years, our performance is growing at a +3% per year pace, which, if you compare to other players, even though the comparison isn't easy because we all have different parameters of activities, is a good performance. I confirm that we are not losing shares in the U.S. We are growing on average, in the past two years, at a 3% per year pace, which is good. With many different units, wiring devices is nicely up. Lighting and Milestone are up, and you have other businesses amongst 10 or 15 businesses we have there that are a bit less supportive. Even sometimes going down for good reason that we know. Overall, no warning in the U.S. We believe both in terms of absolute terms and in terms of relative terms, that our performance is good.
The Mexican situation is a bit special. It is down in Q1, but we had a very strong start last year. Plus, we launched a nice new range in Mexico, and we had a bit of inventory build-up at the distributor level at the end of the year. Our teams remain positive on Mexico, and we believe we're going to achieve a good year. That's it. Turning to Antoine for the second question on dilution.
Yes, thank you, Benoît, and good morning, Andreas. First, I would start by saying that we have no issue there. Effectively, we talked about 10 basis points margin dilution expected from acquisition on a full-year basis. This is what we said in February 2018. I remind you that we talked also at that time that we were shooting for 7% scope effect on sales, then 10 basis points dilution on margin, 7% scope effect on sales. You may have noticed that in Q1 2018, the scope is not 7%, it is 14% and twice the annual effect just due to the seasonality of the acquisition in 2017. Mechanically, the 10 basis points dilution become 20 basis points. On top of that, there is some seasonality observed in 2017 in the profitability of the businesses we have acquired. We consider that this seasonality represents around 10 basis points then.
On this basis, the Q1 30 basis points dilution is consistent with about 10 basis points dilution on a full-year basis, which is still valid. To sum up, 10 basis points full-year dilution, 10 basis points scope effect in Q1, and 14% versus 7% on a full-year basis. Third point is seasonality observed in 2017 for around 10 basis points. This is also important to note that this is also the reason why we consider that the performance in operating margin in Q1 should be read before acquisitions impact, because of course, taking into account 30 basis points in Q1 and not 10 basis points on a full-year basis, it creates a form of gap on the operating margin analysis on a reported basis in Q1.
To sum up, we consider that this analysis should be done before acquisition due to the seasonality in the margin dilution over the course of the year.
Thank you very much.
Next question from Lucie Carrier for Morgan Stanley. Madame, please go ahead.
Maybe, sorry, just one additional point to make sure that my long answer was clearly understood on this subject, that what we say, to sum up, is that the 30 basis points in Q1 is consistent with the 10 basis points on a full-year basis. Okay? Thank you.
Good morning, gentlemen. Can you hear me?
Yes, Lucie. Hello.
Good morning, Lucie.
All right. Good morning. I have a couple of questions. The first one actually is a follow-up on the one-off effect you mentioned for the rest of Europe segment in the first quarter. Can you give us maybe a bit more kind of color on what those one-off is and why you think they are not necessarily sustainable? That's question number one.
Maybe, Lucie, if you don't mind, maybe ask all your questions, and then we will address them.
Okay, sure. That was the first question. The second one, I was curious to know whether you had seen some kind of restock effect in some specific geographies in the quarter because from some of your competitors or distributors, we've kind of heard of some restocking momentum. I was wondering if you've seen that, and if so, how it had affected you. The last question was around M&A. There has been, of course, little M&A done in the first quarter. I was curious of your objective now, whether you are a bit on a slow mode for 2018 as you integrate Milestone or whether we should expect an acceleration, and if so, considering you've done quite a lot of M&A in the U.S. over the last few years, show maybe the other area or the new area of focus for you on the M&A side.
Okay. Thank you, Lucie. Typically, what we saw in Q1 in the rest of Europe, in a few countries that are listed in the press release, are a number of effects which we do not consider as being a recurring effect. For example, there have been in a few countries, a bit of inventory build-up from our distributors in this area. There was a couple of big projects also. We do not believe that the 9% growth rate recorded in this area is sustainable and that we should record such kind of high growth rate for the full year. Nothing, let's say, exceptional in our trade. It is just that when zooming on a given quarter and zooming on a given area, those kind of effects, inventory build-up, big project, basic comparison and so on, can play.
Moving to your second question, yes, a bit of inventory build-up in a few countries in the rest of Europe area. We haven't seen in other geographies anything meaningful in terms of restocking, neither destocking, actually, from our distributors. It explains a little bit of the over-performance in the rest of Europe area, but it has not come into play for the other zones. As far as M&A is concerned, don't read the fact that we are announcing only a very small deal in Q1 as a sign of anything as far as our M&A strategy is concerned. We remain extremely eager to make deals, and we have a pipeline which is full of opportunities. We are spending a lot of time reviewing opportunities, meeting targets, qualifying targets, negotiating with some of them. I hope that we'll be able, in the coming quarters, to do more deals.
It is just that the timing is not fully in our hands. You can have one quarter with many deals, even last year, a quarter with a big one, and quarters with very small deals, and even no deals. It does not imply that we are decelerating as far as M&A is concerned. We remain on the acquisition mode in the U.S. and elsewhere. If we find a good acquisition opportunity fitting with our criteria, a good leader, good brand, good management team, solid product offering, with the ability to be docked within Legrand with a significant synergy potential, we will, of course, do it.
Thank you. Just if I can have a follow-up on the first one, on the one off in rest of Europe. I understand some big project and some inventory rebuild. I think you were suggesting earlier that you thought the underlying growth in the market was more around low single digits. Is that correct? How much do you think the inventory build-up kind of contributed to the bridge from low single digit to the 9% organic growth?
No, I was more implying, when commenting this area, that the underlying trend was probably closer to the trend we experienced in the full year 2017, which I remind you, was 5.5%.
Okay
don't see that as a guidance, of course. This is just a qualitative comment on the fact that we do not believe this plus 9.3% is a sustainable growth rate.
How much do you think was the inventory build-up effect versus the project effect?
It's part of the gap that I'm mentioning between the +9.3% we recorded in Q1 2018, and the +5.5% we recorded for the full of 2017. It's in the bag of all those many small one-offs that happened. Don't forget that this area is made of 40 countries, so it's difficult to identify only one phenomenon from one country.
Okay.
It's part of a mixed bag of phenomena that explains the gap between Q1 performance and full year 2017 performance.
Okay. Thank you very much.
Next question from Andrei Kukhnin from Credit Suisse Securities. Sir, please go ahead.
Good morning. Thanks so much for taking my questions. I'll list them out in one go. Firstly, on the margin drivers, you mentioned that you exceeded raw materials inflation with price in Q1 because you raised prices early and raw material increases have been gradual. What's your expectation for the full year on that net price effect on the profit bridge? Secondly, on the margin drivers, just in terms of labor inflation, you're seeing with the rates kind of negotiated for the start of the year, what is the level you're seeing, and how does that compare to your expectations of that last year? Another question I had was on Amazon acquisition of Ring. Does that now make them a direct competitor of your Eliot connected doorbell offering, and does that change anything for you from perspective of Amazon as a channel or from any other perspectives?
Very finally, on the last question I was asked, calibrating that other Europe, you said 5.5. I've got 6.5 in the model. I just wanted to double-check if 5.5 is what you see as the organic performance for 2017 for other Europe. Thanks very much.
I'll take question 3 and 4, and I will let Antoine answer on question 1 and 2. For the first question, I confirm that last year growth like-for-like by destination in the rest of Europe area, it was +5.5%. I don't know where your +6.5%-
By origin. Sorry
maybe by origin or it may be sales by origin.
Yeah.
Sales by destination is clearly that's what press release in February, +5.5% organic, sorry. As far as the Amazon acquisition of Ring, two comments. Number 1, I believe that Ring and Legrand are not exactly in the same segment of the market, even though from the outside you might think that the product are the same, I don't believe that is the case. Ring is in the consumer electronic product. Legrand is in the infrastructure, professional grade, technical products, a bit for individual housing, but also for flat apartments, and so on and so forth. Products that are embedded into the wall, connected to a complete electrical infrastructure. It's not exactly the same segment. We don't see Ring as a direct competitor to Legrand.
We rather see Ring as an additional door opener for our products in a sense that the more companies will teach end users that it's good to have smarter products at home, the better it will be for Legrand. Some of those customers that are contacted by Ring and by other players will buy out of the shelf Ring-like products, and some other will call the contractors to have professional grade installed products. If we are doing a good job, part of those products will come from Legrand. On a competitive landscape point of view, we don't really see Ring as a competitor and as a result, we are not really impacted by the Ring acquisition from Amazon except that it will little bit like it was with Google Nest.
It will hopefully make more popular in the mind of end users that it's good to have a smart connected product at the entrance, at the gate rather than a dumb doorbell. Second point, Amazon is of course also a customer of Legrand, a growing customer, nice customer, small customer, that we are happy to have as a customer. Turning to maybe Antoine for the two question on the margin drivers.
Yes. Good morning, Andrei. You know our typical answer as far as anticipation of raw material and components inflation is, we don't really know that as we negotiate that on a quarterly basis. As far as selling prices are concerned, of course, we will follow this trend observed in raw material and components inflation. What we only said during this presentation of results is that we have benefited in Q1 of a slight bonus due to the fact that we negotiate some raw material prices in the quarter before any potential selling price increase. This is what we have done in Q4 of 2017. Country manager anticipated some price increase in January. It happened that the raw material inflation was a bit lower than expected in Q1, but we try to be very consistent vis-a-vis the market on that.
What we say that this bonus should not last because, of course, we will be on a full year basis consistent between inflation received and selling price increase. That's the first point. Maybe, to try to quantify that, we are talking about a few million EUR of bonus, but it's not so meaningful. That's the first point. I hope it answers your question. The second one was about labor cost inflation. Two things. Your question was about expectation about comparison vis-a-vis last year. I can say that vis-a-vis last year, we are seeing in some countries a bit more labor inflation, and this is not specific to Legrand. You know that very well. It's a question of market practice or market situation, for example, labor shortage. Second, was it anticipated by Legrand?
Mostly, yes, not by Legrand the group, but by Legrand as a country manager. This labor inflation is fully embedded in the financial performance contract of country manager. To sum up on this second question, yes, a bit of inflation above last year. Second, anticipation was done, and third, it is financed with the financial performance contract of country manager.
Great. Thank you very much. Very clear.
Thank you, Andrei.
Next question from Sebastian Growe from Redburn. Sir, please go on.
Hi. Good morning. The question coming back to the one-off because you are usually good at stressing the positives that boosted the performance. Let's go at stressing the negatives that has weighed on the quarter. Could you talk a bit about those negatives? I am talking about the calendar, the weather effect, maybe everything that weighed on the quarterly performance. Thank you.
Sebastian, it's a broad question. We don't believe for Q1 that there was, as far as the number of the calendar is concerned or the number of days it is concerned, it's always extremely difficult and not mechanical to read the impact. We can more easily do it once the quarter is completed than computing that theoretically in advance. What we could see for Q1 2018 is that even though theoretically you had a few minus one day here and there, it did not really play on the performance. We don't believe that our performance was really negatively impacted by the number of days on the quarter. Once again, with a cautious statement that it's always not mechanical in our trade and a bit difficult to read. For example, in the U.S., you had one day less. Did it have an impact on Q1?
That's not what we feel, and that's not what was reported by our team. The same would go forward-looking. If you ask me, for example, what will be the impact of the calendar on the French market in Q2, you are not living in France, I can tell you that the month of May is like a gruyere cheese in France with a lot of days off here and there. Example, this week and next week, it's extremely difficult to know now what will be the impact of those days off. We will have a lot more ability to comment when we'll comment Q2 performance. As far as the other negatives of the quarter are concerned, we mentioned a number of areas where our sales are down. Even in these areas, we are not pessimistic, or we are not worrying about our market shares.
Take India, for example. India is a fantastic country for Legrand. We have never recorded in India a negative organic growth rate on a yearly basis. We've always recorded growth in India organically. We've always been able to find interesting complementary opportunities. We have very solid market shares. We have nicely profitable operations there. We are not worrying because Q1 is slightly down. It's really coming from the basis for comparison, we are extremely optimistic in our ability to record growth in India in 2018. Same would go for Brazil. Even if our sales are down in Brazil, we don't see that as a loss in market share. It's just that even though the macroeconomic environment is a bit better in Brazil, you still have a lot of uncertainties coming from the political situation, our market is still depressed.
Less depressed than it used to be two years back, but it's still depressed. Even in the areas where our sales are down, we are not negative on our market shares, and we have action plans to recover in the quarters to come. I don't know if it addresses your question.
Yeah. Just weather, do you think it would be like calendar, but have you seen weather impact in the U.S., for instance, in the quarter?
Not specifically in the U.S., maybe a little bit in France. We hear here and there from some people that the weather may have impacted Q1, frankly speaking, it wasn't so clear. Forward-looking, same comment. I would prefer to give you a straight answer saying, yes, the weather had X impact or zero impact, calendar had X or zero, strikes in France will have X or zero. The reality is that it's a lot more difficult to read. Our feeling for Q1 is that it did not have a very material impact on the main geographies.
That's very helpful. Thank you.
Thank you. Before going to the next question, let me remind you that if you have a question, please press 01 on your telephone keypad. We have a new question from Gael de-Bray from Deutsche Bank. Sir, go ahead.
Thanks very much. Good morning, everybody. I have two questions, please. The first one is about the gross difference between France and Italy, because Italy has now outgrown France for perhaps three or four consecutive years, despite the macro conditions not being comparatively much more supportive. I guess my question is, how do you explain the gross difference between those two geographies? The second question is more for Benoît. Is there anything you would like to change now in terms of the way the group operates? Basically, are there any specific areas you'd like to improve either in terms of organization, in terms of structure, geographies, businesses, well, anything? Thank you.
Hello, Gael. As far as your first question is concerned, it's always difficult to compare from one country to another because even though those two geographies are important and big geographies for Legrand, because cumulative, they represented 25% of our sales last year, our market position is not exactly the same. The market drivers are not the same, market structure is not the same, and so on and so forth. The only hint I can give you is that, for example, when you saw the crisis in 2008, 2009, and then the so-called W in 2012, 2013, Italy, for example, decreased a lot more, both the market and our operations, than France. It is not completely surprising given the difference in the downturn, if I may say, between France and Italy, to have Italy recording higher growth than France.
What is important is that for both countries, our relative performance versus competitors, even though once again, it's difficult to really analyze the relative position on only one quarter. It's much better to do it on a yearly basis or even over a more significant period of two or three years. Even if we zoom on the quarter, our relative performance versus competitors, both in France and in Italy, is good. Coming to your second question. When I took over the position three months back, I clearly signaled that I intended as much as possible to respect the basics of the business model of Legrand. Not only I contributed to build this business model in my various positions, but more importantly, I'm strongly convinced that this is a winning business model.
Both in terms of top line, bottom line, return on capital, and ultimately, share price and benefit for the shareholders. Since I believe it is a winning model, I committed internally and vis-à-vis the financial community to work hard to respect and implement this business model. Of course, this does not imply that nothing will change, and you always have a few people changes, slight changes in organization, and so on and so forth. This is the day-to-day life of a big company like Legrand. What is important for our shareholders, I think, and it was pretty much appreciated during the road shows we did two months back, is the fact that as the CEO of this company, I will make sure that this winning model keeps working.
Gael, just as a side comment, I was in a road show, an investor told me, "Benoît, interesting, this is a bit boring." He added, "Boring is good." I'm not sure that our shareholders are expecting from the new management team to completely change the model.
I guess I appreciate fully that the business model is a great business model, no one is going to argue against that. I guess even in a great company like yours, there are always a few things that need to be even slightly improved. Maybe in terms of geographical positioning or in terms of businesses, maybe your presence in protection devices, circuit breakers, and the like, that sort of things. That was more the thinking behind my question.
At Legrand, we have medium-term plans, which are five-year plans, which are structured, obviously, every year, from both a bottom-up and a top-down approach, putting together our strategy team, the countries, the BUs. We formalize this plan, which shows where we intend to go in terms of organic growth, in terms of new products, non-connected, connected, Eliot, potential acquisition targets, and so on. Definitely, I've been part of the elaboration of this mid-term plan for years. I even owned this mid-term plan when I was head of the strategic team at Legrand. This being said, this is obviously an internal plan, which we do not disclose externally. I hope that in the quarters to come, you'll see more development into Eliot, potentially more acquisitions, and so on.
I'm sorry not to be more specific, but of course, the strategic direction within 5 years are something which is Legrand plan. Needless to say, this mid-term plan is, of course, fully consistent with the Legrand model.
Okay, understood. Thanks very much.
Thank you. Next question from Martin Wilkie from Citi Research. Sir, go ahead.
Thank you. Good morning, it's Martin from Citi. Just one question on the U.K. business. You mentioned that the U.K. is relatively flat year-on-year, and I think had been down very slightly in the second half of last year. We're hearing from other companies, in similar business areas that the U.K. is down mid-single digit or even up to 10%. I'm just wondering, similar to the question you had earlier in the U.S., is it just a bit of the U.K. market that you're in? How come the U.K. is seemingly so resilient for you, when for many of your peers, it's a much weaker business? Thank you.
It's always difficult, once again, to compare to peers. Whether this kind of factual comparison seems to be working for or against Legrand, we are always extremely cautious because you hardly compare apple to apple in our trade. What I can tell you is that our U.K. market is almost stable, on a basis for comparison, which wasn't easy. We have very solid positions there in a number of businesses. Not so much in the traditional Legrand business, but we are, for example, very strong in what we call assisted living. We are also strong, since the acquisition of CP Electronics, in lighting controls. We are also strong in cable management. We have solid leaderships. Of course, it doesn't make us immune from cycles. Our teams did a good job in Q1.
What will it be going forward is extremely difficult to read, and nobody can really predict what the impact of the Brexit will be. Our teams remains extremely, let's say, motivated to adapt. Should the market deteriorate, we will have the flexibility to adjust. We can hardly tell you that the market is doing 0 minus 5, plus 5, and we can, of course, hardly tell you what it will be going forward. Remind that the U.K. is less than 2.5% of our sales. Even if the situation was to get worse or to deteriorate, the impact on the Legrand sales and P&L and profit would be limited.
Thank you. That's very helpful.
Thank you. Next question from William Mackie from Kepler Cheuvreux. Sir, please go ahead.
Yes. Good morning to everyone. Thank you for taking the questions. A follow-up on the trends in a number of your countries in emerging markets. Could you just describe the development within the Middle East? I notice you said that Saudi Arabia was up, which is a change in trend over a number of years, given that the constraints that we've seen on a number of budgets there. How that's generally trending in the Middle East, particularly Saudi? Also on top of that, if you've seen any effects in Russia from the geopolitical environment. Secondly, on structure. Obviously, 14% impact in Q1 and 7% guide for the full year. There's still a significant impact in the second quarter. Would you be able to guide on the level of structural impact or scope that you see in Q2?
Lastly, I may have missed it when you discussed North America. When we talk about North America, could you just update us on how Milestone developed in Q1? I noticed from the figures you gave at the end of last year, when you gave monthly organic growth at Milestone, you talked about 9% growth in Milestone in Q1 in 2017. A tough comparison. How did Milestone compare within the U.S. figures in Q1 2018 versus 2017? Thank you.
Hello, William. Starting with you, I'll take question 1 and three and leave number 2 to Antoine. As far as the situation Middle East is concerned, once again, be careful not to extrapolate what we are telling you as market trend. Especially on a given quarter where you can have a lot of different impacts that explain this or that performance. On top of that, our market positioning might be on a few market segments and not on the whole of the market. Typically Saudi, for example, we are mostly active in cable management, and in a bit of wiring devices and protection products. We hardly have the 80 or 90 product families that we sell at the group level.
I confirm that Saudi is growing nicely, double digit, and our teams remain pretty optimistic for the rest of the year, even though it's extremely difficult to predict. UAE is also up, even though the pace of growth is slower than Saudi. You have different situations. Lebanon is a good situation. It then depends on the countries. If you take Saudi and United Arab Emirates, Q1 was a good quarter. As far as your third question is concerned, you are right to recall that Q1 2017 for Milestone, even though the company wasn't consolidated at that time, was up 9%. Last year, we said, "Be careful, the basis for comparison going to be tough for Q1 2018." Despite this difficult basis for comparison, sales were up mid-single digit at Milestone in Q1.
My cautious statement earlier in the call was to say that it does not imply that Milestone has a sustainable growth rate of about 14% or 15% over two years. That's not what we think. We think that you still have a lot of variability from one quarter to another in the Milestone business. Q1 was very strong, notably due to the fact that we did very well in the retail piece of the market. Again, don't extrapolate that into the remaining nine months of the year. Milestone is very good business, very solid business. We've always talked of a growth rate, of a sustainable midterm growth rate of 2%, 3%, not 15%, not 7%, of course.
We also have, of course, the benefit of the synergies, a bit in the U.S., but also a lot outside of the U.S. because part of the synergies will be to deploy, as we are doing with [Heighton], for example, to deploy the Milestone sales outside of the U.S. To make a long story short, good performance in Q1 for Milestone, growth mid-single digit. The model remains extremely solid, but with variability from one quarter to another. You also had a question on Russia. Russia did pretty well in Q1 with a mid-single digit growth. Our market positioning there is extremely strong. What will it be for the rest of the year? Same comment as we usually do. No other book, and in a country like Russia, it's even harder to predict than in a lot of other countries.
Difficult to say, at least Q1 was up single middle digit, and it's a good performance. Now, Antoine, maybe on question two.
Yes. Good morning, William. Very simple answer. Q2 scope of consolidation should be more or less the same in Q1. It would lead to close to 14% the scope of consolidation for H1, and we expect H2 to be zero plus to have this average of 7% on a full year basis. This is quite consistent with the fact that our main acquisitions were made last year, mid-year.
Thank you very much. Just another clarification, actually, while you're there, if you could. I think the currency has obviously been a very big feature of Q1 and will be in the first part of Q2, and is moving quite a lot actually at the moment in the last few weeks. What's your best assessment of the currency effects, whether there are any transactional as well as translational factors that may come up to challenge some of those financial contracts you have with all the countries?
This is a very good question, William. This is something we have constantly reminded to market, is that finally for Legrand, except a specific situation two to three years ago, is a very strong appreciation of the dollar. At that time, the margin of our LNCA operation were less close to the average of the group than now. What we said at that time, that it could have a slight effect on the profitability of the group. This is not the case today. We consider that despite the trend we have in currencies today, the impact on group profitability would be not only limited, but equal to zero. The only impact we have is an impact of a translation and a mechanical impact due to the fact that we have operations outside the Euro zone, and when consolidated our data into Euro, we have this translation effect.
To sum up, no transactional effect, no impact on margin, but just a mechanical effect due to this conversion of non-Euro operation into Euro operation or Euro value.
Thank you very much, everyone.
Thank you. You're welcome.
Thank you. We don't have any question for the moment. Ladies and gentlemen, let me remind you that if you wish to ask a question, you have to dial zero and one on your telephone keypad. Ladies and gentlemen, if you wish to ask a question, please dial zero and one on your telephone keypad. We don't have any question. To you for the conclusion, sir.
Well, thank you, ladies and gentlemen, for having taken the time to attend this conf call. Should you have any follow-up questions on the Q1 results, please feel free to get in touch with François, Antoine, and myself. We'll be happy to give you more details. Thank you very much.
Thank you. Goodbye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.