Good morning, ladies and gentlemen, and welcome to today's Legrand 2026 nine-month results conference call. For your information, this conference is being recorded. All participants are in a listen-only mode. Later, there will 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. Good morning, everybody. Franck Lemery, Ronan Marc, and I are happy to welcome you to Legrand nine months 2026 results conference call and webcast. This morning, as usual, we published our press release, financial statements, and the slideshow that we will refer to during the call. After a few opening remarks, we will comment on the results in more detail. Let me start on page four with the key highlights for the first nine months. First, Legrand delivered very strong sales growth of +22% excluding currency effects, together with excellent profitability. Second, we continue to actively execute our development strategy with seven acquisitions announced since the beginning of the year, all in buoyant energy and digital transition markets. Third, we are revising our FY 2026 targets upwards. Last, a short reminder of our new, sorry, highly value-creating 2030 ambitions.
Moving to pages six and seven, I will start with an overview of sales. Sales reached EUR 8.3 billion in the first nine months of 2026, up 22.1% excluding currency effects. This performance comprises organic growth of +12.7%, driven by data centers at close to +40%, as well as energy transition solutions and growth from acquisitions with a positive scope effect of +8.3%. Based on acquisitions announced and their likely date of consolidation, the overall impact of acquisitions would be around +8% for the full year. The exchange rate effect was -2.1% over the first nine months. Based on average exchange rates in October 2026, the full year effect would be around -1% in 2026. On page seven, you will find the key takeaways by geography on a like-for-like basis.
Europe was down 0.9% over nine months and grew +2.4% in the third quarter in a building market that remains mixed. North and Central America increased sharply by +26.6%, driven by strong momentum in data center offerings and energy transition solutions in the U.S. Rest of the world grew by +8.4% in the first nine months, with significant growth in India, Australia, and many other Asian countries, while activity in China remained soft. Sales in Africa and the Middle East grew despite the geopolitical context. 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, everyone. I will start on page eight with adjusted operating profit and margins. Profitability is excellent over the nine first months of 2026, with an adjusted operating margin of 20.8%. The profitability remained high despite continued cost inflation, and this reflects our strong execution, including disciplined pricing, solid productivity, and the contribution from recent acquisition. It is a solid performance with adjusted operating profit growing +20% in value. Going now to page nine and value creation. First, the net profit attributable to the group reached EUR 1.1 billion at 12.8%, up 29.6% versus 2025. This increase was primarily driven by higher operating profit, a corporate income tax of 27.5%, and an unfavorable change in financial results. Second, free cash flow increased by 15.9% to EUR 1 billion, representing 12.1% of sales. That is it for the key financial topics.
I will now hand back to Benoît.
Thank you, Franck. Let me now cover two key aspects of our strategic roadmap, sustained acquisition momentum, and our new 2030 ambitions. First, acquisitions on page 11. Since the beginning of 2026, we have announced seven acquisitions, all focused on energy and digital transition markets, two in the U.S., two in Europe, and three in the rest of the world, in Brazil, Malaysia, and China. Together, the acquisitions represent approximately EUR 450 million in annual sales and further strengthen the group's leadership positions in attractive growth markets. Second, our new 2030 ambitions on page 13. At our Capital Markets Day on September 29, we detailed our strategic roadmap structured around three focus areas: data centers, energy transition directly driven by electrification, and essential infrastructures for buildings.
For the 2027-2030 period, our ambitions include organic sales growth of +6% to +8% CAGR, combined with an average yearly scope effect from acquisitions of around +5%. An adjusted operating margin of 21%-22% of sales on average, after acquisitions and including restructuring expenses, and of course, solid free cash flow generation and disciplined capital allocation. We can now move to page 15 with our full year 2026 targets revised upward. Taking into account Legrand performance over the first nine months and the current global macroeconomic environment, Legrand is now targeting the following in 2026: sales growth excluding currency effects of between +20% and +22%, comprising organic growth of between +11% and +13% versus +8% and +10% previously, and growth through acquisitions of around +8%, unchanged.
Adjusted operating margin after acquisitions of between 20.5% and 21% of sales, unchanged, and a CSR achievement rate of at least 100% for the second year of its 2025-2027 roadmap. In conclusion, the first nine months highlight the strength of our business model and the acceleration of our momentum. Very strong growth, excellent profitability, sustained value creation, and disciplined execution of our strategic roadmap. Our new 2030 ambitions provide a clear framework to accelerate further value creation, supported by structurally attractive markets and Legrand unique growth engines. This concludes our presentation, and we are now ready to take your questions.
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. To withdraw your question, please press star, one, and one again. We kindly request that participants limit themselves to one question and one follow-up so that as many attendees as possible have the opportunity to ask questions. Thank you. We are now going to start with our first question. Just one moment. This question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good morning. Thank you for taking my question. I will take the one and the follow-up, but I will start out with a question regarding, can you talk a little bit about Europe? Obviously, you moved from negative growth into Q2, positive growth now. Exactly what drove that? How did France do given the situation there, and was there any data center pickup in Europe contributing to that?
Hello, Daniela. Well, there was nothing exceptional happening in Europe. Yes, Q3 is slightly better than H1 in terms of growth. Data center is doing okay. But I think what really matters is the nine-month trend, which remains somehow a bit muted. I can confirm that there is no rebound happening so far in the building market in Europe, which remains pretty flattish. Our performance is okay in this context, thanks to data center and to some extent also to energy transition. As far as France specifically is concerned, it is amongst the European markets which are not helping us. Our sales are clearly down in France for the first nine months, and we hope that the situation we expect in the quarters to come, the situation remains quite complicated. So, I would not qualify the Q3 as a rebound in Europe.
The market remained pretty flattish, and in this context, we are doing okay. Slightly negative in H1, slightly positive in Q3, and we hold firmly our market share, but unfortunately, the markets are not really helping us yet.
Thank you. Then just on the follow-up regarding, I guess, the margin given you were so much higher than expectations and guidance in terms of the organic growth in Q3, would have thought that you would get a bit more operating leverage. Can you talk through about what was pricing? Was there any dilution on the mix from data centers or from anything else? Yeah.
Well, I'll say a few words on pricing, and then I will let Franck zoom on the margin topic. So, as far as the nine months are concerned, prices are up by 3%, 3.1% to be precise, selling price. Purchase price are also slightly up by a little bit more than 3% for the first nine months, up 3.3%. So yes, we are doing a bit of pricing. We are very cautious in not doing too much pricing. It has been a deliberate strategy for quite some time now to do a bit of pricing to, of course, offset as much as possible the increasing price of formats and components, but making sure that we remain competitive. I can maybe give you already the sort of high-level guidance for pricing for 2026, and I will then let Franck zoom a bit on the margin topic.
For the full year, we expect selling price to be again more than +3%, so it'd be 3.2%, 3.4%, 3.5%, we'll see. We'll do what it takes. As far as purchase price, same. We expect the purchase price for the full year to be above +3% and probably a little bit more than purchase price. So that's the same price, right? That's what we expect to see in terms of selling and purchase price. Now, Franck, maybe you can take the lead on the margin question.
Yeah. Of course. I assume, Daniela, that your question is on the group margin, not the European one, which I would be happy to comment if needed. But for the group, as I said, first, let's look at the value creation. Operating profit is growing 20%. Then margin-wise on the nine months, it's a strong margin and totally in line with our full-year guidance. The main building blocks are about, of course, two things: some operational leverage and good performance of the acquisition. Let's look at the results excluding acquisition.
On a year-to-date basis, margin is improving 20 basis points, with some pressure on gross margin, - 50 basis points, with pricing covering largely in value the raw material inflation, but not fully in margin, and a strong leverage on SG&A. This comes also with a very strong cost control. Globally speaking, on the nine months, the costs are growing 8%.
Headcount in SG&A is - 1% on a like-for-like basis. That's the building blocks of the nine months. If we look at Q3 alone, it's a little bit the same story, but with obviously much more leverage coming from the SG&A, and accordingly, excluding acquisition, adjusted operating margin growing 100 basis points.
Sorry, Benoît, the number was 3.2%- 3.5%, right? Not 2.2%- 2.5%.
Yeah.
3.2%. Okay. Thank you.
Yeah. We chase, Daniela, by the way, that you got from my answer and answer of Benoît, what could be the inflation balance on Q4, the year to go.
Got it. Thank you very much.
Thank you. We are now going to take the next question. This one is from Alasdair Leslie from Bernstein. Please go ahead.
Oh, yeah. Good morning. Good morning, everyone. It seems like a strong acceleration in data centers again in the quarter. I was just wondering if you could comment on how much of that, what kind of impact you had from perhaps just a more favorable comp. I mean, given last year, I think we did have a bit of a slowdown in DC growth in Q3. So, how much of this is just a kind of genuine underlying acceleration, in your opinion, in data centers? I was wondering if you could follow on from that. When you look at your different segments, the critical power, compute infrastructure, cooling, testing, are you seeing any of those start to significantly outperform? Any additional color on those segments as well? Thank you.
Yeah. So, maybe starting with the numbers. So, as I said, data center over nine months are growing organically by close to +40%, which means that Q3 was indeed a very strong quarter. Q3 grew close to 50%. So it's about, let's say, slightly more than 30% in H1, close to 50% in Q3, and close to 40% in nine months. So very, very solid quarter. What are our expectations for the full year? We think now that the data center business should grow in 2026 full year somewhere between +35% and +40%, which means that we don't expect another quarter at +50%, but it will remain very, very, very solid growth. And we are again upgrading our guidance for data center growth. So full year, it should be between +35% to +40%.
It implies that indeed, not all quarters will be growing 50%. Was there anything exceptional in Q3? The answer is no. It's a mix of a number of very interesting projects, a couple of new customers that we onboarded, old customers that ordered a little bit more. So very, very solid quarter. But again, we don't believe that we're going to grow 50% every single quarter. Are we seeing any sign of the demand weakening? The answer is clearly no, we are not. And we are very confident in the fact that our data center will continue to grow. We have orders coming in, a lot of very strong book-to-bill, very strong bookings, and it will definitely continue. In terms of product families, it's the usual suspects. If I had to name, all families are growing nicely, and probably almost all families are growing double digit.
When you are growing close to +40%, you don't have a significant product family which is down or only growing a single digit. If I had to name three product families which are growing very fast, I would definitely name critical power, which is doing very well, cooling, which is also doing very well, and testing and commissioning, and especially the Avtron load bank business, which is also doing very, very well. But again, all product families show a very nice and satisfactory growth.
Fantastic. Maybe if I could just follow on that, because obviously we also saw very strong growth in the rest of the world region, 25% growth in APAC. I think that's quite a strong quarter-over-quarter acceleration. I think a high single digit last quarter. I guess that's not driven by comps, just looking at prior quarters. And it does look very broad-based, Benoît, maybe with the exception of China. So, I guess, is this largely data centers again, and is the growth kind of in that kind of APAC segment comparable to the kind of 50% that you called out for the group?
Well, again, I'm always a bit cautious in commenting quarterly trends, and a bit the answer I was doing to Daniela on Europe. Yes, it's a very solid quarter. It's not coming specifically from data centers. The data centers are doing well in the rest of the world, but you also have the traditional essential business and the energy transition piece, which are growing nicely, with countries such as India, which are doing a fantastic performance. A lot of countries in Southeast Asia are also growing nicely. It's not solely data center. It's also energy transition essentials. Now, again, it's only a quarter. I think that what is most relevant is to look at the growth over nine months, which is quite solid. + 8% over nine months, it's a solid performance. Going forward, again, we'll see.
Now, coming back to your question on comps, I don't believe that there's been anything helping the group when it comes to comps. Neither in the data center business, nor in the traditional business, and neither in the rest of the world, nor in North and Central America and Europe. So the performance over the first nine months of the year and in Q3, it does not include any technical factors like basis for comparison, like number of days, like big one-off in terms of projects. This is a real solid, let's say, performance.
Very clear. Thank you.
Thank you. We are now going to take the next question. This one is from Phil Buller from JPMorgan. Please go ahead.
Good morning, gentlemen. Thanks for the presentation and the questions. I guess I've got two follow-ups. Firstly, just on that Asia-Pacific topic, if that wasn't data centers, are there any one-offs in there that we should bear in mind as we think to Q4? Or really, is the data center growth accretive to the 50% number that you mentioned at a group level? Or is your dollar per megawatt in the region different to the group average? I just want to understand a bit better what's driving that growth if it's not data center. That's the first question.
Well, indeed, it's not solely data center. If you take a country like India, for example, well, data center in India represent probably something like 10% of our Indian sales. So it's not like in the U.S. where it's about 50%. It's only 10%. Even if it's only 10%, India growth was a great, very solid double-digit performance. So in India, for example, all three businesses are growing, energy transition, Essentials, and data center, at a very solid pace. Now, we couldn't identify anything exceptional, like, for example, one-off inventory building from our distributors, or again, a big project, or a big number of days. I'm a bit cautious. A quarter doesn't make a trend. At Legrand, at least, we tend to analyze our performance on a yearly basis, not on a quarterly basis.
To answer your question, there was nothing exceptional in the Q3 performance in Asia-Pacific or elsewhere.
Okay, that's great to hear. Thank you. A follow-up on the margin topic, specifically in Europe. In Q2, that was a point to pick on, I think, and I think most of us were surprised in Q2 to see some of the costs associated with the North American growth allocated to Europe. I know that's how you run the business, but the margin in Europe has improved significantly in Q3 on volumes, which I assume are flattish. Is it as simple as you have chosen to allocate the SG&A and R&D costs slightly differently? Is it as simple as that, or is there anything else going on here that's led to that jump in the European margin, please? Thanks.
Well, let me be extremely clear on that one. No, we haven't changed any allocation. It's not the Legrand style to change the allocation of expenses or to do this kind of stuff between two quarters to optically improve the result in that or the other. The clear answer to that is we haven't changed anything in terms of allocation. Then specifically in European margin, I will let Franck answer.
Yes, hello. I will answer by making two points. The first one is looking at the European profitability, and it's true for the quarter, it's true for the year- to- date. The gross margin is good. Gross margin is well on hand. It's growing 10 basis points versus last year on a year- to- date. It's even increasingly more on a quarterly to date, above 110 basis points versus last year. So good margin is very good. The question of the last call was about SG&A, with the confusion of the global SG&A evolution versus what was linked to the business. I will perhaps recap the number now at the end of the nine months, we have SG&A growing on a like-for-like basis, because this is what is mattering, by 6%, when sales by origin are growing 2%. On the quarter, SG&A are growing 4%, sales 4%.
It's also a little bit what I said at the beginning commenting the margin, strong execution, very good cost control, and SG&A growing faster than the top line in Europe is okay. It's growing 6%. Considering that Europe is also investing for the group, that the group is growing at 13% on a like-for-like basis, it's totally okay. But definitely, absolutely no change in methodology.
Thank you very much.
I could turn it differently, more qualitative comment, if I may say. Our European margin was not a concern in H1, and it is not a relief in Q3. It is exactly where we expect it to be, actually, to be clear.
That is great. Thanks for the clarification.
Thank you. We are now taking the next question. This one comes from Max Yates from Morgan Stanley. Please go ahead.
Hi. Good morning. My first question would be around your data center capacity. I guess if we look at data center additions into next year, it would look like the gigawatts added will be growing somewhere around 50%. I guess my question is, given the likelihood that your data center business could grow very rapidly again, I would think potentially similar to what we see this year, do you actually have the capacity to keep growing the business at that rate? Or are you at the point where you may be running into capacity constraints?
Well, two points, Max. This year, we expected that center business to grow between 35%-40%. Last year, it grew close to 40%. It means that in two years, organically, our data center business will have more or less doubled. You could see that we've been able to increase, to cope with this growth. It did not come without challenges, to make things clear, but I confirm that we could do capacity increase without incurring a lot of CapEx. We could do it. If we need to add further capacity in the years to come, we will have the ability to add further capacity. Again, it doesn't come without challenges. It has a cost. It is complicated. It requires a lot of expertise and professionalism from our team, but we could do it, and we will be able to do it if needed.
Now, going forward, to make things clear, we don't expect the data center market to grow 40% every year, and to double every two years. I remind you the guidance we gave at our last CMD, our assumption, our midterm ambitions are based on a data center market growing more or less 15%-20% from 2027- 2030. I think it is a more reasonable assumption than every year growing 40%. To make a long story short, we will certainly have the ability to increase our capacity further if needed. Our data center business is asset light, and we have demonstrated our ability to do it in order to cope with the demand coming from our customers.
Okay. Just a sort of maybe a bit more strategic kind of follow-up question.
Yeah.
Obviously, yesterday, the U.S. election or Democratic kind of result, but even before then, we were starting to see a few more kind of stresses around data centers, whether it was kind of cost of financing, et cetera. Just as that relates to your M&A, it's obviously been somewhat skewed towards data center in recent years. I was just wondering, given the events of maybe not just yesterday, but the last three months, is there any way to think proportionally how that 5% of sales that you're targeting every year from M&A may balance between data center and non-data center? Would it be reasonable to expect that maybe the sort of data center heavy M&A is a bit less than what we've maybe seen in the last sort of two to three years?
Yeah. Well, a couple of comments on this very interesting question. Well, number one, the fact that you may have additional regulation here and there, that access to energy is sometimes complicated, permitting takes a long time, all of that is fully embedded in our midterm ambitions. I remind you the numbers. If we put together the announced gigawatt, there should be additional capacity of more than 300 GW to be added throughout 2030. 300 GW. We have discounted that down to 100 GW. So, we took only one-third of the announced capacity in our plan, so turning the 300 GW into 100 GW. This 100 GW capacity is enough for the market to grow 15%-20% per year. In other words, we have already embedded into our ambition the fact that there will be some regulation, there will be energy access issue, and so on and so forth.
I could even do one more comment. Is regulation a problem for the business? The answer is no. If the fact that there is, in some communities, a pushback leads to regulation implying, for example, a sort of bring your energy concept, it's good for Legrand. I remind you that we have off-site energy generation capability with one of the business we bought in the U.S. If it requires PUE, power usage effectiveness, to be very low, or water usage effectiveness to be very low, it's good for Legrand. I remind you that 40% of our data center business is made with products that help saving energy. If, in order to save contracting manpower, the market goes toward more container, skid, factory-assembled product, it's good for Legrand because we have bought some of those capabilities.
So again, the fact that you have in some communities a bit of pushback and some regulations being implemented is almost a good news for data center business, not a bad news. Now, when it comes to acquisitions specifically, yes, indeed, we have done a lot of data center acquisitions. As we showed in September, late September, a lot of the acquisitions we made recently, the last two years, were doing data center, but also energy transition. Almost half-half. Going forward, it will really depend on the opportunity. We may continue to do a number of data center-related acquisitions because we still have a number of geographies where we are underrepresented and a few product families we would love to add.
But you should expect to see also energy transition-related acquisitions because we believe that it's a very strong and long-lasting mega trend, and there are many product families and geography in which we are not yet represented. You could also expect to see a traditional or essential type of acquisition. So, I know that it's not a very precise answer, but it will really depend on the opportunities. It's highly likely that you'll see probably a bit more of energy transition-related acquisitions than in the past couple of years.
That's helpful. Thanks, Benoît.
Thank you. We are now going to take the next question. This one comes from Delphine Brault from ODDO BHF. Please go ahead.
Yes. Good morning, gentlemen. Thanks for taking my questions. I have two. We'll go one at a time. First, your new full-year guidance implies a Q4 organic sales growth around 10% at midpoint. What would trigger such deceleration as compared to the close to 19% reached in Q3? Is it just the kind of traditional cautiousness, or is there something else?
Bonjour, Delphine. Well, yes, you're right. If you look at the midpoint of our guidance, it implies a Q4 at +10%, which is very consistent with the H1 we did at +10%. So, our scenario is that Q3 saw a sort of surge in sales, but which is not sustainable, and we don't expect to do again +19% like-for-like evolution every single quarter. So, the sort of sustainable recurring kind of growth we are experiencing is closer to 10%. So, we would have made +10% in H1, +10% in Q4 if we are at the midpoint, and then a sort of very strong exceptional quarter at +19%. This is the main scenario. Well, I'm not sure that we can really say that it is the legendary conservatism of Legrand. We are not the only one which are grading our guidance.
The whole industry, I think, during the year 2026, has been somehow a bit surprised by the magnitude of the growth in some geographies and in some verticals. We have issued this guidance based on what we think we should deliver, and again, the Q4 is very consistent with H1.
Thank you. The second one, how big is your data center backlog now, and how much visibility does it give you for 2027?
Well, we have a large backlog, which we don't comment much. You know, Delphine, our approach. The connection between backlog and actual sales, it's always a complicated topic. So, I can only repeat what I said a little bit earlier in this call. There's a very active level of activity. We have a lot of orders coming. We are confident for the next couple of quarters. We will certainly see growth coming. We'll give you a more precise guidance for 2027 at the time of the release of our 2026 results in February.
Thank you.
Good try.
Thank you. We are now going to take the next question. This question is from Martin Wilkie from Citi. Please go ahead.
Thank you. Good morning. It's Martin from Citi. Just to continue on the data centers theme, and obviously lots of market debates about the spending. When you look at your customer base in data center, has that meaningfully changed over the last year or so? Obviously, historically, the hyperscalers were a clear majority of industry spending, and there has been some broadening of that spend. Just in terms of your exposure, have you seen a broadening of your customer mix, either in your current sales or in your backlog? Just to understand how we should think about your customer base. Thank you.
Well, of course, you have some customers that are growing faster than others, and sometimes you lose customers, and sometimes you gain customers. But in terms of profile, I'm not aware of a very significant change in the last one or two years. The hyperscalers definitely represent a large part of the market. Not all of them are buying direct from Legrand. A number of them are renting space through colocators. It's likely that our sales more or less replicate the market, with basically two big type of customers, hyperscalers and colocators, either retail or wholesale colocators. I don't see any reason why we would have a breakdown of our sales much different from how the market is organized.
Now, if you zoom on a specific category which has attracted a bit of media attention, the neoclouds, some of them are very nice customers, and we are very happy to have them as customers. But in total, neoclouds represent approximately 1% of our total group sales. It is not a very meaningful exposure. To answer your question, no significant change in terms of customer weighting between hyperscalers, neoclouds, retail colo, wholesale colo, enterprise, that I am aware of in the last 12 months.
Great. That is really helpful. Just a second question more broadly. You have mentioned a couple times that the energy transition has been a driver of growth as well. When we think about the sort of underlying drivers of that, in some areas it can be regulation, in other areas it is just simply commercial buildings customers, or energy savings reasons making those investments. What has triggered the sudden improvement in energy transition?
Maybe starting with a number, I said that in the first nine months of the year, the data center business was up close to 40%, while energy transition is up mid-single digit. Essentials is just slightly up. You see that energy transition is not growing as fast as data centers, of course, but it has been consistently overperforming the essential part of the business for quite some time. It really depends on the geographies, but it is less and less the regulation and more and more the private market prompting sales. Take Europe, for example. There is now a good level of understanding that we need to electrify more. I remind you the number that we showed at the last CMD.
There is an official Electrify EU plan, which is stating that the share of electricity in Europe energy mix should move from 23% in 2025 to 46% in 2040. It is not prompted by regulation. It is really acknowledging the fact that people understand now that electrical vehicles, and heat pumps, and electrical process in factories make households and industries less dependent upon the fossil import, and hence the price of gas and oil. Look at the percentage of sales in Europe which are of vehicles, which are electrical vehicles. In Europe, it is really the dependency upon fossil fuel and gas, which is pushing people to electrify their vehicle, electrify the heating system, electrify industries, blah, blah. Of course, we are not selling much EV charging station, and we are not selling heat pumps at all.
But every time you move from a gas-powered product or oil-powered product or device to an electric one, it is likely that you will install a circuit breaker, a load shedding device, a panel board, a measuring device, blah, blah. This was for Europe. As far as the U.S. is concerned, it is really the very low quality of the U.S. grid which provides us with opportunities. The wind and solar business in the U.S. has been growing nicely, not because it is pushed by a lot of incentives, but because we need, in the U.S., to have a more reliable, better grid. Too much interruptions per year are damaging or negative impacting businesses and households.
So imports from fossil fuel, getting away from fossil fuel in Europe and in China and a few countries, and enhancing the quality of the grid in the U.S. are very strong long-term drivers that should support our energy transition business, not in the next two or three years, but in the next 15 or 20 years. And we are very confident that this business should overperform the essential business. And it is already meaningful. It is already about 20% of our sales.
Great. Thank you very much.
Thank you. We are now going to take the next question. And this one comes from Lucas Ferhani from Jefferies. Please go ahead.
Good morning. Thanks for the time. I have one and a follow-up as well, so maybe we do it one at a time. The first one is just on your roadmap on new architectures. Obviously, you highlighted that at the CMD. Just wondering how you are executing on kind of those product launches you talked about, and whether there is any already kind of discussion, testing with customers that is happening. Thank you.
Well, the CMD is a month and a half old. In terms of product development, you do not have news every single week. So it is as per the plan. No change in the launching dates for new products, being AI load stabilizer or the other products. Everything is on plan. Yes, we start to have some discussions with our customers, and which are quite early discussions because everybody is thinking about what the next architecture should be. Those discussions have been going on even before the topic of direct current. Not much news yet. Again, it is only a month and a half old, and we have not seen out on the market anything since our CMD that would indicate that we are not doing the right direction. So, I confirm that our technical choices are the right ones.
Perfect. Thank you. The follow-up is just on your ability to test a little bit the backlog and the projects you are working on, specifically on data center in the U.S., and to follow up really on the changes in the election and what is happening on permitting. How far can you go in kind of testing what is happening at customer level, the level of permits they have, and the, let us say, reliability, how those projects will be coming through? Thank you.
Well, it is difficult to answer this question. Our backlog is short-term backlog. We do not have a lot of orders that we should deliver in 2029 or 2030. It has always been the case. It is not a change recently. Our backlog is 12- 18 months max. So those are projects that are already well advanced and already in execution phase. Right? So they can always be pushed, canceled, and so on and so forth. But those are not projects that should come out of the blue in 2029 or 2030. As far as the potential impact of the last U.S. elections on our business is concerned, I just refer to my previous answer.
Again, it is already included in our midterm guidance, the fact that here and there, you could have some more regulation to be implemented or requests for lower water usage effectiveness, or requests for customers to bring their own energy in order to power that. All that has been fully included into our midterm ambitions.
Perfect. All clear. Thanks.
Thank you. We are now going to take the next question. This one is from Ben Uglow from OxCap Analytics. Please go ahead.
Good morning, everyone. I hope all are well. My question is about the M&A pipeline as we move into 2027. My impression from the outside, which may be right or wrong, is that there are more assets available than, let us say, that we have seen recently. Obviously, last week, we had Eaton coming in to take out the COL power distribution business in Italy, which was quite sizable. When I look at your acquisitions so far this year, they are typically what we would call smaller, I.E., I think the average sales is something like EUR 70 million. I guess my question is, number one, would you consider doing somewhat larger transactions as we move into 2027? I guess secondly, how are you feeling about the valuations of the assets that are on the block at the moment? Thank you.
Yeah. Well, the answer to your first, hello Ben, the answer to your first question is clearly yes, and almost the bigger, the better. For us, it's the same amount of work in terms of deal-making and docking whether the company is EUR 50 million or the company is EUR 500 million. It's sometimes even easier to dock a EUR 500 million company because you always quite usually have the processes and so on and so forth. We are very open to bigger deals, provided, of course, they meet our criteria, so both the strategic and the financial criteria. They have to be, for example, value accretive within two, three, four years. We need to see ROACE higher than the WACC on year two, three, four, and not on year 10. This is a very, very important criteria.
We also want to make sure that the company we buy fits well into our portfolio of products. We are not desperate to make deals. We really want to do the right picks. The answer is clearly yes, we are open to larger deals, provided they meet our strategic and financial criteria. Having in mind that in the 400 companies that are part of our pipeline, you have a lot more small deals than big deals. Statistically speaking, you're more likely to see small than big, but we are open to bigger ones. As far as the pipeline itself is concerned, it remains very solid. We haven't seen anything specific in terms of pricing of the acquisitions. We will have both the 2026, we have done the 2026 deals at approximately 11x EBIT, 2026 EBIT. It's likely to be 10 x 2027 EBIT.
Well, 11 x 2026 EBIT before synergy, I think it's a pretty reasonable multiple. Sometimes we have to pay 13, 14, 15 x EBIT of the current year. It's not out of question if we feel that the company deserve it. Sometimes we pay seven, eight, or nine. It really depends on the quality of the target and its business plan. No, no significant change in terms of pricing. We are still able to make good deals at reasonable multiples, to dock them properly within Legrand, and to have a nice 8%, 9%, or 10% ROCE within a very short period of time.
That's understood and helpful. Thank you. Then one follow-up. I know that you've sort of answered the question in terms of your targets and your guidance, et cetera. Obviously, the markets are asking this question. In terms of your customer conversations on the data center side, in the run-up to the midterms, and obviously people have been aware that this was going to come for some time, did any of your customers express a different view or a change of sentiment, or that your plans may go from A to B based on this? Or was it just accepted that there would be a Democratic clean sweep, as it was, and this was always understood by your customers?
Well, I personally did not have discussions with customers for the past two days. I've been really focusing on other topics. Based on the feedback I've got from my U.S. teams, we have not seen any change in the conversation. The fact that the data center market would come down to more reasonable growth rate, if I may say, has been in the air for quite some time, and it has been clear from a customer standpoint. If you look at the CapEx investments which has been announced by the big guys, it's interesting to look at the numbers, huh? When they entered the year, if you take the five big guys, like Meta, Microsoft, Google, Oracle, Amazon, they started the year saying, "We're going to spend $500 billion for the CapEx investments." My understanding is they will rather spend $800 billion, closer to $800 billion.
Most of them have announced further CapEx increase in 2027. So I don't have the feeling, we'll see, but I don't have the feeling that they are slowing down. Again, those data center, but I think they knew it already, and we knew it already, we need to be more efficient, less water consuming. We need to pull less energy from the grid, and we'll need to provide their own energy, and so on and so forth. But I think it was already in everybody's plan. To make a long story short, I'm not aware of any change, neither in the CapEx plans of our customers, nor in the conversations we have, or that our U.S. teams have had with our customers lately.
That's great. Thank you, Benoît.
Thank you. We are now going to take the next question. This one is from Aron Ceccarelli from Bank of America. Please go ahead.
Hello. Good morning. Thanks for taking my questions. I have two, please. The first on North America gross margins. North America organic growth accelerated to about 30% in Q3, but gross margin declined to 290 basis points year-over-year after being broadly flat in Q2. What changed sequentially in Q3, and how much of the dilution affects the revised data center mix versus acquisitions?
Yes. Hello. Talking about the gross margin, starting from a year-to-date perspective, gross margin, you are right to say, for North and Central America is down -180 basis points. Half is mix, half is acquisition. The part of the mix obviously is definitely recovered on SG&A, so there is no bottom line impact. When we speak about Q4, we are speaking, Q3, sorry, more or less the same impact. Now, perhaps to echo your question or to rebound on your question on the margin, I am personally much more looking at the value creation of the U.S. than at the margin. Adjusted operating profit of the U.S. on Q3 is growing 46%, on a year-to-date, 42%. So value-wise, very, very happy of that strong value creation. With some mix challenges on the gross margin, but which is broadly recovered on the Adjusted EBIT margin.
As far as the mix is concerned, we remind you that the data center business has a level of gross margin which is below group's average, and a level of SG&A which is below group's average, and an EBIT margin which is more or less the group's average. So, given the size of the data center business in the U.S. and the impact it has on the U.S. growth, this kind of mixed phenomenon can play. When it comes to our performance and profitability performance in the U.S., we are very happy with what is happening. Also, don't forget that when you have this kind of hypergrowth, and we can qualify the U.S. growth as hypergrowth, unprecedented hypergrowth for Legrand, it also comes with some cost, and we have to admit it.
It comes with inefficiencies, it comes with capacity increase you have to manage, additional subcontracting, sometimes delivering by planes what you should have delivered by truck, because you want to make sure that your customer is satisfied. But again, this being said, in terms of value creation, rebounding or confirming what Franck said, +46% EBIT growth in North and Central America in Q3 is a fantastic performance.
Even margin, 22% at the EBIT margin. I understand your point, but it's a fantastic performance.
That's very clear. Thank you. The second question is, I would like to go back to rest of the world organic growth, which was particularly strong at 19.6%. Perhaps, is that sort of lumpiness going to volatility, let's say, continue to appear in the coming quarters, and Q3 was a representative or underlying demand? Or should we think that some of the strength was coming from, let's say, project timing between quarters? How should we think about that, please?
Well, again, I'm a bit uncomfortable in drawing big conclusions out of one quarter. One quarter could be up 5%, another one could be up 20%. It's a bit the same comment I made for the full group. Q3 was very strong in the rest of the world. It was a bit lighter, even though it was good in H1. We'll see for Q4. But I wouldn't take for granted that every single quarter, or next quarter, or rest of the world business would grow 20%. Again, a quarter is not a trend, and a quarter is not a full year. We'll see. Sorry not to be more precise than that, but again, it's always complicated to comment on only one quarter.
I understand. Thank you very much, guys.
Thank you.
Thank you. We are now going to take the last question. This one comes from Gaël de Bray from Deutsche Bank. Please go ahead.
Thanks very much. Good morning, everybody. The first question I have is related to the U.S. dynamics. I mean, one of your peers recently highlighted that they are seeing demand broadening much beyond data centers, so in commercial, in industrial buildings now, and it seems that you are seeing the same dynamics. Could you provide an update on your strategy journey to diversify away from offices, from shopping malls, into more technical buildings in the U.S.? Thank you.
Well, to commence, the building business, very traditional building business, the market, if I may say, remained not very positive in the U.S. Resi, for example, is going down in 2026, even though we are overperforming. It is true that the energy transition piece is doing very well in the U.S. over nine months. It is not linked to data center because the data center piece is completely in a separate, let's say, bracket for Legrand, but it is everything which is linked to reshoring, semiconductors, industrial facilities, infra, all that is growing very, very nicely. We are more and more exposed to that, thanks to the many acquisitions we have done in the U.S., the Girtz, the Avtron, the Kratos of the world.
Yes, I can confirm that even though the traditional building market is still very so-so, there are pockets of growth elsewhere that we are now able to capture, and that we couldn't capture two years back because we did not have the right assets for that. This is typically an area where we'll continue to look at opportunities, both organically and inorganically.
Okay, thank you. The second one very quickly, is there any update on the divestment program that you mentioned at the CMD?
No update yet. To remind everybody, we said at the CMD that we would divest businesses representing between EUR 0.5 billion and EUR 1 billion sales. We have a bit of time, Gaël, because those divestments were announced over the duration of the plan, so throughout 2030. So, no update to share.
Okay. Thank you very much.
But I can only confirm the rationale behind that. The objective is not to sell business for the sake of selling business, but it is to accelerate the repositioning toward a faster-growing energy and digital transition. So we intend to sell, let's say, traditional businesses, essential businesses, and to continue to invest heavily into energy and digital transition businesses. And if I may add, same comment, I was saying a bit earlier that we are not desperate to buy, we are not desperate to sell, so we are waiting for the right buyers.
Understood. Thank you very much.
Thank you. That is all the time that we have for questions for today. I will now hand the call back to Mr. Coquart for closing remarks.
Thank you very much, everybody, for connecting. And as usual, the whole team, including Franck, Ronan Marc , and myself, are at your disposal for any further clarification if needed. Thanks a lot.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.