Good morning, ladies and gentlemen, and welcome to today's Legrand's 2024 nine-month results conference call. For your information, this conference is being recorded. All participants are in a listen-only mode. Later there'll be a question-and-answer session. At this time I would like to hand the call over to CEO Mr. Benoît Coquart and CFO Mr. Franck Lemery. Please go ahead, sir.
Thank you very much. Good morning everybody. Franck, Renan and myself are happy to welcome you to the 2024 nine months results conference call and webcast of Legrand. Please note as usual that this call is recorded. We have published today a press release, financial statements and a slideshow to which we will refer. Those documents are available on the Legrand website. After a few opening remarks, we'll comment on the results in more detail. I begin on page five of the deck with the key takeaways of this release. First, in a building market that remains in decline in most of our geographies, Legrand reports stable sales in the first nine months of the year, including a +2.4% sales growth in the third quarter driven by acquisitions and data centers. Over nine months we deliver a solid margin and free cash flow.
Second, we are sustaining a strong acquisition momentum. Third, we are specifying our margin full-year target. And lastly, we recall our 2030 ambitions as presented during our last CMD. So, moving to pages 7 to 8, I will start with an overview of sales. Over nine months, excluding FX and Russia, our sales increased by 0.3% with an organic trend of minus 0.8% and a positive scope from acquisitions of plus 1.1%. In the third quarter alone, sales grew plus 2.4% excluding FX and Russia, driven by inorganic growth of 1.7%, embedding a particularly sustained growth in data centers in the US. This is a good performance when considering the current building market environment that remains depressed in many geographies. Looking forward, based on acquisitions made and their likely date of consolidation, the impact from acquisitions should be close to plus 2.5% full year.
Regarding the two other elements on sales, the negative scope effect from Russia was minus 0.8% for the first nine months of the year and will be minus 0.6% for the full year. The FX effect was a negative minus 0.7% for the nine months of the year and based on average rates of October, it will be around minus 1% for the full year. You will read on page 8 the key takeaways per geography on a like-for-like basis. In Europe, sales fell minus 3.4% over nine months in a persistently tough building market in most countries. These trends reflect a particularly deteriorated context in major countries during the quarter and do not point to a recovery in the construction market in the very short term. In North and Central America, sales were up 2% over the period.
We achieved a solid performance in the third quarter with a steep plus 6%, mostly driven by offers dedicated to the data center market segment in the US. Lastly, in the rest of the world we recorded a decline of minus 0.9% in the first nine months with a mixed picture depending on regions or countries. Sales grew notably in India, the Middle East and South America, but this failed to offset a slight decline in Africa and the sharp fall in China while the construction market continues experiencing a marked decrease. These were the main comments I wanted to make on sales. I will now hand over to Franck for more color on our financial performance.
Thank you, Benoît, and good morning to all of you. I will start on page nine. Commenting the adjusted operating margin before acquisitions, we recorded a solid adjusted operating margin of 20.6% at September end. This resilience confirms the ability of the group to hold margins high in a difficult environment. The impact of acquisitions was minus 0.1 points, meaning the adjusted operating margin all in stood at 20.5% at the end of the first nine months of this year. Going now to page 10 and 12 and highlighting two main points. First, the net profit stood at 834 million EUR, representing 13.4% of our sales, and second, the free cash flow came to 749 million EUR at 12% of sales. On page two we can see the robustness of our balance sheet and a net debt to EBITDA ratio of 1.7 at the end of the period.
This reflects both a solid free cash flow generation and a strong pace of acquisition that Benoît will command. Thereby, this concludes the key financial topics I wanted to share with you, now handing over back to Benoît.
Thank you Franck. We are now moving to page 14 of the deck detailing our recent acquisitions. Our pace of acquisition is very dynamic this year with seven acquisitions already announced adding around 350 million EUR acquired sales on an annual basis. I would like to highlight the fact that out of those seven acquisitions, four of them are in the data center segment and represent annual sales of 170 million EUR. With Netrack in India, Davenham in Ireland, VASS in Australia and UPSistemas in Colombia. We intend to pursue this momentum in the coming quarters. On page 16 a short reminder of our 2030 financial ambitions as detailed during our last CMD, we can maybe highlight two of them. Sales with a 6%-10% CAGR combining organic and M&A and unchanged targets regarding adjusted EBIT margin, free cash flow and capital allocation.
You can find the full presentation on our website for more information. We can move now to page 18. We specified our 2024 margin target. We now adjusted operating margin of between 20%-20.4% of sales after acquisitions, which is fully in line with our initial target communicated in February of 2024 of 20%-20.8% before dilution from acquisitions. This is it for the key topics of this release. Before we move to the traditional Q & A session, you will find in page 21-23 our corporate access agenda for 2025. Should you wish to meet with Legrand Management, let's now switch to Q & A. Thank you.
Thank you. To ask a question, you will need to press Star one and one on your telephone and wait for your name to be announced. In the interest of time, please limit yourself to one question and one follow up only and rejoin the queue if you have further questions. To withdraw your question, please press Star one and one. We will now go to our first question. One moment please. And your first question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good morning. So I'll start with the first one and then a follow up. But first, can you maybe help us out on free cash flow? I think sort of it's been disappointing at least versus the market expectations for quite a few quarters now.
Can you guide us again through what is structural in there of maybe perhaps a higher working capital level for longer versus what is temporary and how quickly can we see a recovery?
Hello, Daniela. I will let Franck take this question.
Yes, thank you. Benoît. Good morning, Daniela. The question is very clear and the short answer is also very very clear. We are talking about temporary higher working capital requirement than usual that drives the free cash flow at 12% at the end of the nine months. 12% is not a concerning achievement at all. We had in the past free cash flow softer than that when we look also in the absolute value the cash generation EUR 750 million is nice. But it's fair to recognize that the working capital requirement is slightly higher than the pre-pandemic level. That for two reasons. First, considering the declining business mainly in Europe, it will take time to adjust the inventory level. Second, and once again a temporary effect, we are carrying some extra inventory to support the data center business.
If we were to exclude the disposal impact of last year and data center additional inventory, the ratio of inventory to sales would be softer, lighter than last year. So this is it. Nothing concerning. I think quite a satisfactory free cash flow generation on the back of a working capital which is protecting product business.
Thank you. And then maybe for my follow up, if I could ask sort of what prompted you on the margin guidance change? Both changing it from before to post-M&A and then also it sounds like reducing it slightly. Is it just mix because of the Europe trend or is it something else?
I'll take this one, Daniela. The reason why we are talking about the margin after acquisition is to make your life easier and simpler. 2024 has been quite an active year in terms of M&A with a +2.5% perimeter impact. Based on the Legrand traditional model, this +2.5% would have led to a dilution of 30 basis points. Now you know that the deals we have made in 2024 are on average more profitable than the one we usually do. So we wanted to clarify the dilution impact which will be closer to minus 10 or minus 20 basis points to avoid any misunderstanding on the fact that despite we will have quite a nice perimeter impact, the dilution would be lower than the one you could have expected based on the traditional model. Now if we look at what we said initially.
Initially we said 20%-20.8% before acquisitions based on let's say minus 10 to minus 20 basis points of dilution. This would have translated into let's say 19.8%-20.7% after acquisitions. That is a midpoint of about 20.25% to be very precise. This is our, let's say initial guidance, including what we can now see in terms of dilution and what we are now saying is 20%-20.8%, 20%-20.4% post acquisitions. That is a midpoint of 20.2%. So we are moving from, let's say a midpoint of 20.25% to a midpoint of 20.2%. So roughly speaking, there's no change compared to our initial guidance. But we just wanted to make clearer to you the dilution you could expect from the acquisition consolidated in 2024. Is it clear enough?
Yes. Thank you. I appreciate that. Thanks.
Thank you. We will now take the next question. And your next question comes from the line of Max Yates from Morgan Stanley. Please go ahead.
Thank you. Just my first question is just around the European margin, 20% this quarter looks like it's taken quite a big step back versus the first half. And then I guess also year on year, when you look at the decline in sales, it's quite a high drop through to get that margin decline. So I just wanted to understand, could you give any color for kind of exactly what is happening here in Europe? I mean, obviously volumes is one element, but is there something to do with a particularly profitable region within that falling? Just any color around that European margin would be helpful, yes.
Okay, I will take this one.
It's true that the margin in Europe has declined in Q3. It's also fair to say that it's still a very nice margin at 20%. Two reasons for that softer margin. First one, as you rightly pointed out, business, the like for like sales are about minus 4% in Europe, so accordingly, SG&A absorption will need some time to be fully digested, and second, restructuring was quite dynamic in Europe versus last year. It's minus 40 basis points of additional restructuring investment, if I may say so, so that's the two main drivers, but nothing to be concerned of in terms of profitability management or trajectory.
Okay, thank you.
And maybe just a quick follow-up on data centers. I mean, obviously it sounds like that's accounted for a lot of your U.S. growth. Could you just give us a feel or maybe a number on kind of what the data centers grew at and also whether you're book-to-bill this quarter and any view on kind of how far ahead your orders are, the revenues as well would be useful? Thank you.
Yeah, sure. In Q3, our data center sales in the U.S. grew more or less plus 20%, which is a pretty good performance. Unfortunately it was partially offset by the weakness in our, let's say more traditional businesses, even though the underlying markets have not deteriorated. It is true that unfortunately the building markets in the U.S. are not as supportive as the data center. The data center grew about 20%. As far as the next couple of quarters, we believe that the demand should remain quite sustained in the data center market. We can of course not commit to a precise number, but in terms of incoming orders, book-to-bill and so on and so forth, all that remains very dynamic. We think that we are up for a couple of quarters of nice growth.
That's great. Thank you very much.
Thank you. Your next question comes from the line of Jingyi Zhang from UBS. Please go ahead.
Good morning. Thank you so much for taking my question. I have two if I may. First.
Sorry to inte rrupt, but the sound is very bad. Could you kindly talk closer to your microphone, please?
Hello.
Sorry. Let me try again. Is it? Okay, thank you.
Go ahead, go ahead.
Perfect, perfect. So I want to first ask about the pricing contribution in Q3. So after favorable pricing in Q2, remember correctly, I wondered how has it developed in the quarter and does your expectation for the full year still hold? And my second question is on the acquisition pipeline. Should we expect a similar pace as you've done so far, year to date in Q4 and into 2025, and are there any particular regions and areas you'll be focusing on going forward? Thank you.
Okay, thank you. So, as far as the first question is concerned, our selling price over nine months was plus 0.4% and I can already mention that our purchase price was minus 0.3%. But purchase price, sorry, selling price was plus 0.4%, which implies in Q3 a selling price of plus 0.6%. Those are the numbers as far as full year pricing is concerned. From the very beginning of the year, we said that price would be positive but reasonable. So we initially said that we would have a maximum price increase of plus 1% and we confirmed the number. So it will be maximum plus one. Q4 alone will be slightly positive, but we don't expect to have a lot more pricing because we intend to remain reasonable in terms of pricing leverage.
So to make a long story short, plus 0.4% at the end of the nine months, plus 0.6% in Q3 alone and Q4, which will remain slightly positive as far as M&A is concerned. Indeed, we have had quite an active year. Well, of course I cannot commit on the number of deals for Q4 or for Q1 2025, but I can confirm that we have still a very active pipeline, a lot of discussions going on, some of them at quite advanced stage. So I'm pretty confident in our ability to do more deals in the quarters to come. Don't forget that we have decided to dedicate an envelope of EUR 5 billion to M&A from now to 2030, which implies more or less EUR 800 million per year, give or take. So yes, I confirm we will remain very active.
Thank you very much. Thank you. Your next question comes from the line of George Featherstone from Barclays. Please go ahead.
Morning everyone. Thanks for taking the question. Just to follow up on data centers.
I wondered if you could talk a.
little bit about the competitive landscape you have now in rear door heat exchangers in particular. Obviously there's been a bit of consolidation in that part of the market, so be good to get your thoughts on the outlook there and the competitive landscape. Thanks.
The competitive landscape is not that different from what we could see in our traditional building market. You have a mix of big guys, companies such as ABB, Vertiv, Schneider, Eaton and a few others. And then you have tens and tens, if not hundreds of local specialists on a given product family, on busbar, on rear door cooling, which are extremely active and which are the targets of Legrand. And the four acquisitions we have made in 2024 are good examples of this landscape of active, dynamic small and mid-sized companies. It's the same landscape as the one we see in the building in traditional building industry, and the small ones are as active as the big ones.
So nothing specific and I cannot identify a change in the competitive landscape that would have had occurred in the last, let's say, 12 or 18 months. Yes, there is a bit of consolidation and Legrand is definitely part of this consolidation game, but it has always been the case, as it has been the case on the building market. So active competition made of either big guys or smaller companies.
Okay, thank you very much.
Thank you. Your next question comes from the line of Gael de Bray from Deutsche Bank. Please go ahead.
Thanks very much. Good morning everybody. Could you elaborate a bit more on the margin bridge this quarter? I mean, volumes were up. The price cost equation appears to be positive. So what drove the margin down on a year-on-year basis? And in relation to this, really, as you narrowed a bit the margin outlook, what surprised you the most? Was there an unexpected deterioration in any specific category or segment? Or was it just the magnitude of the decline in Europe? Thanks very much.
I'll start with the second question and I will let Franck answer the first one again. We are just switching from before-acquisitions to post-acquisitions. And we are narrowing the range. But again, I will not do again the math that I did earlier in the call. But the midpoint post-acquisition of our previous guidance was 20.25%. The midpoint of our guidance today is 20.2%. So there's almost no change. So in other words, the Q3 performance from a Legrand standpoint is very much in line, Gael, not only with our guidance, but also with what we had in mind a couple of months back. The profile, both in terms of top line and in terms of bottom line, is very similar to the one we had in our forecast.
Now, to be a bit more specific on Q3 performance, I will let Franck take this point.
Thank you. Benoit.
Hello, Gael. Yes, to be very precise about the bridge of Q3, as you have asked, so last year Q3 was at 20.3% this year it's at 20% of adjusted EBIT margin. It's minus 30 basis points, 30 basis points out of which minus 20 is the gross margin. As you rightly pointed out, sales price versus purchase price is slightly positive. Production expenses are slightly dilutive. Then SG&A dilution is minus 20 basis points, which is a good performance considering the growth of the top line, which is 1.7, which means that the growth of the SG&A rather soft and softer than the year to date and then 10 basis points coming from the other. And so that's a very logical Q4 if I may say so. And there is absolutely a Q3. Sorry. And there is no surprise for us in that Q3. It's fully on the trajectory that Benoît just recap.
Okay, thanks very much.
Thank you. Your next question comes from the line of Martin Wilkie from Citi. Please go ahead.
Thank you. Good morning, it's Martin from Citi. Just a couple of questions on your US business. So it sounds like the business excluding data center still negative. But if you could just talk sequentially about the non-res market in the US. Obviously you said Europe is deteriorating. Is the US stable relative to what you saw in the second quarter? Are there some signs of improvement even though it's still negative? So that was the first question. Thank you.
Yeah, sure. So it's a bit difficult to really be super specific on the Q1 trend versus the previous quarter. But what we can say is that Q3 are probably more or less in line with Q2 in terms of trends. So in other words, residential slightly bottoming out, but you know, it's only 20% of our sales. And the fact that the residential is bottoming out is not yet translated into our numbers. You know that there is a time lag between the time statistics are better in terms of housing starts, permits and so on. At the time we get into our P and L, the non-resi market are still not really improving. So no visible improvement in the non-resi market. And third, of course data center is very positive. So no significant change in trend. From what we can see market-wise.
Between Q2 and Q3.
As far as Europe is concerned, it's about the same. Still difficult residential market. And you know it's very easy if you look at statistics like residential permits, residential construction, renovation, new and so on in Europe, the statistics in 2024 remain quite negative. So still difficult and no visible improvement. And frankly speaking, we don't expect those markets to improve in the very short term. They will improve together with the drop in interest rate. But it's not a matter of months. The non resi is flattish or slightly negative and the data center market is doing pretty well. So those are the trends for the U.S. and for Europe as far as the rest of the world is concerned. Well, as usual, it's a mixed bag.
The one country which is in difficult shape is clearly China, where the building market and especially the residential market is down double digit.
Thank you. And if I could follow up on the U.S., could you remind us your sourcing into the U.S. I think some components have in the past come from China and how that was offset in previous waves of tariffs. Particularly if we think back to 2018, 2019. And I appreciate it's obviously way too early to understand how tariffs may change in 2025, but you must have some thoughts already about how you might offset that. So, yeah, intrigued to hear what you might think.
Okay, so about 55% of our COGS in the US are coming from the US and 45% of our COGS are coming from the rest of the world. Out of those 45, you have about 20% coming out of China, about 10% coming out of Mexico. 15. Sorry, Renan is helping me. 15%. And the rest 10% is a mixed bag of Canada, India, Vietnam and so on. So this is more or less the landscape today as far as the previous tariff increase was concerned. Back in 2018, it was an additional cost for our COGS of $50-$60 million which was entirely passed on into the selling price. So it had very little if no impact on our profitability. Now, as far as the potential next tariff are concerned, of course it's an open item and it's a question mark.
Will the tariff be implemented across the board? Will that be for all products? What will be the percentage rate? What will the exemptions be? You know, if the tariff were to be implemented as per the initial thoughts of the new administration, inflation in the U.S. would be so big that it would be difficult for U.S. citizens to bear the impact of those tariffs. So it's highly likely that there will be a lot of exemptions. So there are a lot of question marks. As usual. We will adapt whatever is implemented product by product. We have the same footprint as our competitors. We are not more or less exposed to China or to Mexico. So if tariffs are implemented, it will not be a competitive issue.
But again, we will see, depending on the magnitude of the tariff and the potential exemption and the way they are implemented.
Great. Thank you very much.
Thank you. Your next question comes from the line of Alasdair Leslie from Bernstein. Please go ahead.
Yeah, good morning. Thank you. Maybe a couple of questions, one on a follow-up. If I could just start on data centers. So very good growth there in Q3. Looks like a strong sequential acceleration. I was just wondering if there's any kind of comp effect that might have helped there and whether you can remind us as well of the kind of basis of comparison for Q4 because obviously heading into Q1 you're going to have a very easy comp given the flat growth earlier in the year. And then I've got a follow-up. I'll ask that in a second. Okay, thanks.
No specific easy or tough comp in Q3. No specific easy or tough comp in Q4. Be careful about the concept of basis for comparison when it comes to data center because data center is a project based business, not a flow business. So you know, if you have two or three big projects slipping from one quarter to another, it can indeed impact the performance of the quarter. So I wouldn't say that Q1 2025 going to be an easy decomp, we'll see. But you shouldn't expect anything, let's say a technical happening in Q4 at least. So Q4 should be a normal quarter in terms of basis for comparison.
Great, thank you. And then just to follow up on the subject of projects I suppose you previously highlighted in the gray space in Europe. I think you've won some projects there, some reference projects I think France, Italy, Switzerland. Are you delivering and executing on many of those now? And can you say anything about whether your win rates are now increasing on the back of those reference projects and I think also the broader portfolio with Davenham Switchgear. Thank you.
Well, it's a bit early to tell you a lot of things about the Davenham success rate. It has been consolidated for. It will be consolidated now actually. So it's a very recent acquisition. No, we continue to gain projects now of course, the data center business, it's about close to 30% of our sales now in the U.S. it's how much it's 5% of our business in Europe approximately. So even though we are successfully grabbing some projects, actually white and gray space in Europe, it has still a very little impact on our total sales just because it's only 5% of our sales. And unfortunately the remaining 95% are under pressure because they are exposed to the most traditional building market. So yes, I can confirm we are still actively pursuing and getting some projects in Europe.
Unfortunately, it has still a limited impact on our top line as far as precise KPIs are concerned. On our recent acquisitions will be a bit smarter next year.
Got it. Thank you very much.
Thank you. Your next question comes from the line of Eric Lemarié from CIC Market Solutions. Please go ahead.
Yes, yes, thank you.
I got a question on the U.S. What about your strategy to rebalance your U.S. volumes in other non-residential verticals there? I know you regularly mention it, but d o you reckon you could achieve positive result in Q4 next year? Regarding this strategy and still in the US do you have any fresh news or fresh comments to make on the return to the office issue in the US? Have you noticed any change recently? Thank you.
The rebalancing. We try to give a bit of color about this rebalancing during our CMD, but of course it will take time and it's not a matter of switching drastically in two or three quarters. Your business from the office market to the education or to the health market takes a lot of time and this change will be very progressive. So don't expect it to have a huge impact on our top line in the coming quarters.
It is more a midterm strategy in order to diversify our risks and to be a bit less exposed to the office market in the U.S. The big change which is going fast and which is visible in our sales is more the fact that the data center piece of our U.S. market is growing nicely and it used to represent 20% or 15% of our sales not too long ago and it now is 30%. So this is something which is going a lot faster and which is more visible than pushing ourselves into the education and the health market a little bit less in the office market. As far as the office market is concerned, we haven't seen any visible change so far. So we're still seeing that the next couple of years this market will grow again.
Remember what we told you during the last CMD. This growth won't be 5% per year. We'd be happy enough if it is 2%-3%, but it's still not very dynamic. So it's now more 2025 story potentially than 2024 story.
Thank you very much. And by the way, maybe a follow u p, I asked a question, but Motivair, you know the acquisition of Schneider Electric, did you look at Motivair as well?
We're not commenting acquisitions made by others. We know Motivair very, very, very, very well. We know Motivair key numbers very, very, very well. I confirm that we wouldn't have been interested at this level of price.
Thank you.
Thank you. We will now take our final question for today. The final question comes from the line of Delphine Brault from ODDO BHF. Please go ahead.
Yes, good morning. Thank you for taking my questions. I will ask them one at a time. Coming back on your gross margin that has deteriorated in Q3 but also by several tenths basis points over the first nine months, can you provide a bit more granularity? What is behind? Is it mix? Is it lack of pricing versus input cost? And what will be your strategy as regards gross margin in the coming quarters? For how long are you ready to accept small pressure on gross margin?
To make a long story short, excluding acquisitions over the first nine months of the year, the gross margin is flat compared to last year. Basically we have an inflation balance which is slightly positive. So the sales price versus purchase price slightly positive. But as it is always the case when your sales are a bit under pressure, we have production expenses that are slightly growing while our sales are slightly declining. So you have production expense on our gross margin. But overall the gross margin is flat compared to last year. The decrease in margin compared to last year which was fully expected and fully embedded into our guidance is coming more from SG&A and from the fact that our like-for-like SG&A is slightly increasing which again is not unusual in a context of sales which are a bit under pressure.
And if I wanted to add a comment with 50, I think our gross margin is 52% over nine months which is historically a very good level of gross margin. So there is nothing specific to be said on gross margin and particularly no issue in terms of selling price versus purchase price.
Thank you. And then can you provide a bit more granularity on the trend by country in your rest of the world segment?
Well, yes. So it's a mixed bag of many things as usual. So China is down quite a lot, which is nothing very surprising, but it's down double digit, and the first number not being one which is completely consistent with the market trend. You know that the building market in China is super super depressed, especially the residential side. India, I should have start with India actually because India is now much larger than China. For Legrand India is slightly up. There was the elections in H1 and during election time the market is always very soft. Now it's progressively catching up. So we are very optimistic on our ability to accelerate our growth in India in the coming months and quarters except that we have Africa, which had a very difficult start of the year for geopolitical reasons, recovering nicely and growing nicely in Q3.
Middle East is very good in terms of top line, double digit. And in the rest of America, it's a mixed bag, but Brazil is doing very well. Chile, Peru, it's a bit more complicated. So it's a very mixed bag. It's clearly a group of, let's say, three countries, those who are growing double digit. And in those countries there you find Middle East, Brazil and a few other countries. A few other countries, those growing single digit, notably India, and last group, China, where sales are down quite a lot.
Thanks for that.
T hank you. We do have time for one final question. And the final question for today comes from the line of William Mackie from Kepler Cheuvreux. Please go ahead.
Yeah, good morning to everybody. Thank you for squeezing me in. My question, Benoît, would be around your thoughts around the evolution of your organic investment. Not really so much CapEx, although that would be interesting. But more restructuring. You talked about restructuring. I think it's up 25% year on year in the first nine months. EUR 50 million or something. What are your thoughts running into the year? Where are you adjusting the balance of capacities across the business and perhaps also on the R&D side, whether you see scope to accelerate the innovation?
Yes. So in terms of restructuring, indeed, our expenses were EUR 51 million over the first nine months. So for the full year, you remember that historically net restructuring was at Legrand at about EUR 30 million per year. So clearly 2024 will be quite an active year. In terms of restructuring, we're not giving specific guidance, but the numbers could be above 2023, which was EUR 62 billion for the full year. And it shows that we have a lot of ideas. The way we work in restructuring, it's not really to allocate an envelope. If there is a good idea in terms of restructuring coming from our business units or coming from our countries with a nice payback, then of course we will add it to the basket of projects and we will finance it.
So it's more like the higher the better, even though, as you know, it's included in our adjusted EBIT margin. To make a long story short, 51 in nine months and probably higher, slightly higher than 2023 for the full year. That is more than 62 as far as R& D is concerned. For nine months over the first nine months of the year, R & D cash is about 4.5% of our sales. So it's very close to historical average, it's growing 5.2%. This is one of the reasons why our margins are a bit under pressure. As expected. Again, the first nine months. It's part of those SG&A which are increasing despite the sales, like, are decreasing. But it is a clear strategy.
We believe that if we want to keep growing as per our midterm targets, that is 3%-5% per year until 2030, we have to fill the machine with new products, so I confirm that we will remain very active in terms of new product launch and we don't expect to do significant cuts in our R & D expenses. On the contrary, we will keep investing into new products.
Thank you. One short follow up. I think it's short. It relates to your M&A strategy and your financing. Clearly you benefit from very strong cash generation. But I'm just thinking, when you look at leverage, how far up would you take leverage in the pursuit of deals in the near term? Would you go up as high as 2.5 or something?
It's funny because a year ago the questions were more how far down you can go? Because we were closer to one, well, the leverage at the end of September is 1.7. You will notice that earlier this year when our leverage was closer to one, we're a bit challenged on our ability to make this, and my answer has always been that our sort of target leverage was to be between 1.5 and two, so as of the end of September, we are fully within this range with a leverage of 1.7. Now, we are not limiting ourselves to two. If we were to have interesting acquisition opportunities in terms of strategic interest and value creation, which is also a very important topic, we could go well above the two if needed, so it could be 2.2, 2.5, so I don't believe that leverage is really the limit.
The limit is more, you know, the discipline we want to have in terms of M&A to make sure that we are doing this, which makes sense from a strategic standpoint and from a financial standpoint.
That's it.
Again, midterm, you have our target EUR 5 billion to be invested. That is 800 or so per year, which is consistent with a leverage of between 1.5 and 2.
Very helpful. Thank you very much.
Thank you. That concludes the Q & A session. I will now pass the call back for closing remarks.
Thanks a lot for your time and for your questions and I wish you a good end of the day and should you have more questions, the whole Legrand team. So Antonia, Renan, Franck and myself will be fully available during the day. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.