Ongoing growth acceleration
Sales: +9.1%
Double-digit increase in results and cash
flow
Adjusted operating profit: +10.9%
Net profit attributable to the Group:
+11.5%
Free cash flow: +19.1%
2017 targets fully confirmed
Regulatory News:
Gilles Schnepp, Chairman and CEO of Legrand
(Paris:LR), commented:
“Ongoing growth acceleration
In the first half of 2017 Legrand reported total sales up +9.1%
driven by the ongoing acceleration of its two growth drivers
(organic growth of +3.2% and external growth of +4.1%).The exchange
rate effect was +1.6%.
Organic growth in sales was sustained with good performances
recorded in mature countries as well as new economies. A steady
stream of new product launches, including the new Smarther
connected thermostat in Italy in the second quarter of 2017,
contributed to these good showings.
Moreover Legrand has made five acquisitions that round out its
operations (“bolt-on”) and signed one joint venture since the
beginning of the year – allowing the Group to strengthen positions
in segments of its market driven by technological and societal
megatrends. These acquisitions should thus help increase the share
of Group annual sales made in new business segments1 to around 38%2
and raise the percentage of Group sales made with products ranked
#1 or #2 on their markets to around 69%2.
Double-digit increase in results and cash
flow
Growth in adjusted operating profit (+10.9%), net profit
attributable to the Group (+11.5%) and free cash flow (+19.1%)
reflect robust value creation.
At the same time, adjusted operating margin before acquisitions
(at 2016 scope of consolidation) stood at 20.6% of sales compared
with 20.1% in the first half of 2016, or an increase of 0.5
point.”
2017 targets fully confirmed
Based on Legrand’s solid performances in the first half of 2017
and reiterating the expected unfavorable impacts on sales in the
third quarter, mainly due to calendar effects as well as to high
bases for comparison – particularly in the US – Legrand fully
confirms its two targets for 20173:
- organic growth in sales of between 0% and +3%; and
- adjusted operating margin before acquisitions (at 2016 scope
of consolidation) of between 19.3% and 20.1% of sales.
1 Digital infrastructure, energy efficiency, assisted living,
and home systems.
2 Based on 2016 sales incorporating acquisitions made in 2016
and 2017 over 12 months.
3 Readers are invited to refer to the press release announcing
full-year 2016 results for a complete presentation of Legrand’s
2017 targets.
Key figures
Consolidated
data
(€ millions)(1)
1st half 2016 1st
half 2017 Change Sales 2,448.4
2,671.6 +9.1% Adjusted operating profit 492.7
546.3 +10.9% As % of sales 20.1% 20.4% 20.6% before
acquisitions(2) Operating profit 470.8 520.2 +10.5% As % of sales
19.2% 19.5% Net profit attributable to
the Group 283.5 316.2 +11.5% As % of sales 11.6%
11.8% Normalized free cash flow 317.6 373.3 +17.5% As
% of sales 13.0% 14.0% Free cash flow 191.2 227.8 +19.1% As % of
sales 7.8% 8.5% Net financial debt at
June 30 1,374.8 1,431.9 +4.2%
(1) See appendices to this press release for definitions and
reconciliation tables of indicators
(2) At 2016 scope of consolidation
Financial performance at June 30, 2017
Consolidated sales
First-half 2017 sales stood at €2,671.6 million, up +9.1% from
the first half of 2016.
Organic growth in sales in the first half of 2017 was a solid
+3.2%, thanks to good showings in both mature countries and new
economies.
As announced, and as a reminder, sales growth for the third
quarter should be unfavorably impacted by a calendar effect and by
high bases for comparison, in particular in the United States –
where growth was +9.3% in the third quarter of 2016.
The impact of the broader scope of consolidation resulting from
acquisitions was +4.1%. Taking into account all acquisitions
announced and their likely consolidation dates (in particular the
estimated consolidation date starting September 1, 2017 for
Milestone1 and Server Technology, Inc.1), the change in scope of
consolidation should stand at around +7% in 2017.
The exchange-rate effect was favorable at +1.6%. Applying
average exchange rates for June 2017 to the second half, the annual
exchange-rate effect for 2017 would be close to 0%.
Changes in sales by destination at constant scope of
consolidation and exchange rates broke down as follows by
region:
1st half 2017 / 1st half
2016
2nd quarter 2017 /
2nd quarter 2016
France +1.9% +0.0% Italy +3.1% +4.4% Rest of Europe +5.5% +2.4%
North and Central America +2.8% +1.7% Rest of the World +3.0% +2.1%
Total +3.2% +1.9%
1 Subject to standard conditions precedent.
These changes at constant scope of consolidation and exchange
rates are analyzed below by geographical region:
- France (17.5% of Group sales): organic growth in sales
in France was up +1.9% in the first half of 2017. These good
results were supported in particular by an increase in new
residential construction activity (15 to 20% of sales in France)
and a very slight rise in renovation.
- Italy (10.5% of Group sales): at constant scope of
consolidation and exchange rates, sales were up +3.1% in Italy.
This good performance benefited from the ongoing success of the
Classe 300X connected door entry system and the My Home Up home
system offer, as well as the favorable reception of the Smarther
connected thermostat in the second quarter.
These good showings helped to more than offset the high basis
for comparison represented by the first half of 2016.
- Rest of Europe (17.6% of Group sales): at constant
scope of consolidation and exchange rates, sales were up +5.5% from
the first half of 2016.
The Group recorded solid performances in Eastern Europe, with
particularly robust growth in Russia. Growth in sales was also
sustained in many mature countries, in particular Spain, Greece,
the Netherlands, the United Kingdom and Belgium.
In Turkey, sales retreated over the period.
- North and Central America (29.6% of Group sales): at
constant scope of consolidation and exchange rates, sales were up
+2.8% in the first half of 2017.
In the United States alone, and thanks in particular to good
performance in home systems and user interfaces, organic growth
stood at +2.4% (and at +8.0% over two years from the first half of
2015). As a reminder (i) the calendar effect should be unfavorable
in the third quarter, and (ii) growth stood at +9.3% in the third
quarter of 2016, benefiting from favorable one-offs (excluding
these effects, the rise in sales would have been in the
neighborhood of 3%) hence representing a demanding basis for
comparison for the third quarter of 2017.
Mexico reported a solid increase in sales for the first
half.
- Rest of the World (24.8% of Group sales): organic
growth was +3.0% for the first half of 2017.
A number of countries recorded a good first half, including
China, South Korea, Indonesia, the United Arab Emirates and New
Zealand.
In India, sales were also up from the first half of 2016,
although business slowed temporarily in the second quarter due to
the enforcement of the GST1 on July 1, 2017.
In the region, activity retreated in some countries, including
Australia, Malaysia and Thailand.
Adjusted operating profit and margin
A good operating performance against a backdrop of rising sales
set adjusted operating margin before acquisitions2 at 20.6% of
sales in the first half of 2017. This was up 0.5 point from the
first half of 2016. Including acquisitions, adjusted operating
margin stood at 20.4% of sales.
As a result, adjusted operating profit came to €546.3 million,
up +10.9%, i.e. an increase of €53.6 million, reflecting the
Group’s capacity to create value through profitable growth and
ongoing productivity initiatives.
More specifically, by reacting quickly to adjust its price lists
in the first quarter, and with additional increases in the second
quarter, Legrand was able in the first half to offset, in absolute
value, the impact of the marked rise in raw material and component
prices.
1 Goods and Services Tax.
2 At 2016 scope of consolidation.
Net profit attributable to the Group
Net profit attributable to the Group for the first half of 2017
stood at €316.2 million, up +11.5% from the first half of 2016.
This reflects:
- a good operating performance, with a €49.4 million improvement
in operating profit;
- an €8.2 million decline in net financial expense;
- a €0.1 million decline in profit to minority interests;
partially offset by:
- a €17.4 million rise in income tax expense (the tax rate stood
at 33.0%, almost stable compared with that for 2016);
- a €6.4 million unfavorable change in the foreign-exchange
result; and
- a €1.2 million decline in the result of equity-accounted
entities.
Cash generation
Cash flow from operations rose by over 18% in the first half of
2017 to stand at €449.4 million. This included in particular €7.3
million of realized non-recurring foreign-exchange gains and
represented 16.8% of sales.
Working capital requirement as a percentage of sales for the
last twelve months remained under control at 7.9% at June 30,
2017.
Industrial investments stood at €70.6 million in the first half,
up €11.4 million from the first half of 2016. More particularly,
investments dedicated to new products accounted for over 51% of the
total, reflecting the drive for innovation fueling the Group’s
current and future growth. Based on usual seasonality, industrial
investment should be higher in the second half than in the
first.
Free cash flow was thus €227.8 million, up €36.6 million from
the first half of 2016 and generated as follows:
- a good operating performance, with
EBITDA up €55.3 million;
- a rise in realized foreign-exchange
gains, which totaled €12.1 million; this includes in particular
€7.3 million of realized non-recurring foreign-exchange gains;
- an €11.6 million rise in other
long-term items; and
- a €6.8 million decline in net financial
expense;
partially offset by:
- a €20.0 million rise in working capital
requirement excluding tax items. As a reminder, working capital
requirement was at an exceptionally low level at the end of 2016
compared with the ten previous years.
- an €18.8 million rise in tax paid;
and
- a €10.4 million rise in investments net
of sales.
Normalized free cash flow came to €373.3 million in the first
half, including €7.3 million of non-recurring realized
foreign-exchange gains.
External growth
Since the beginning of the year Legrand has made five
acquisitions1 that complement its existing operations (“bolt-on”)
and one joint venture, in a generally favorable economic
environment.
These acquisitions enable the Group to pursue its targeted
build-up of solid positions in segments of its market driven by
technological and societal megatrends.
Legrand thus announced the acquisition of three companies
specializing in digital infrastructure, a field sustained by rising
data flows and a shift to new uses:
- Milestone AV Technologies LLC
(“Milestone”)1, a frontrunner in audio-video infrastructure and
power. Milestone’s solid positions – over 75% of sales are made
with leading positions – round out Legrand’s existing positions
under the Middle Atlantic Products brand.
1 Subject to standard conditions precedent.
Generating mid-term synergies in sales as well as short- and
mid-term synergies in costs, this acquisition1 was made for an
enterprise value of $950 million net of a discounted tax benefit2
of $2503 million, and at conditions that meet all of the Group’s
financial criteria4.
Milestone is based in Eden Prairie (Minnesota), reported sales
of $464 million in 2016 and has around 1,000 employees; and
- Server Technology, Inc.1, a leading
player in smart PDUs5 and AFCO Systems Group, specialized in
Voice-Data-Image (VDI) cabinets. These two acquisitions strengthen
Legrand’s positions in the buoyant market for datacenter
solutions.
Server Technology, Inc. and AFCO Systems Group report annual
sales of over $110 million and around $23 million, respectively,
and together employ some 310 people.
The Group has also acquired two companies specializing in
specification grade architectural lighting for non-residential
buildings in the US:
- Finelite, an acknowledged US player in
linear lighting fixtures with manufacturing facilities and a broad
commercial network in the United States, allowing it to offer
innovative, high added-value solutions and premium customer
service. Finelite has around 465 employees and reports annual sales
of some $200 million; and
- OCL, specialized in lighting solutions
for non-residential and high-end residential buildings. Annual
sales are around $15 million and the company employs some 60
people.
Legrand also signed a joint-venture with Borri6, an Italian
company specializing in three-phase UPS7 and known for its
customized solutions. With annual sales of around €60 million and
around 200 employees, Borri6 rounds out the Group’s positions in
UPS7.
Based on acquisitions announced and their likely date of
consolidation – in particular the consolidation of Milestone1 and
Server Technology, Inc.1, which is expected to take place starting
September 1, 2017 – changes in scope of consolidation should boost
Group sales by around +7% for 2017 as a whole, and dilute adjusted
operating margin by around -0.2 points for the same period.
These acquisitions should thus help raise the share of Group
annual sales made in new business segments8 to around 38%9 and the
percentage of Group sales made with products ranked #1 or #2 in
their markets to around 69%9.
As a result, Legrand has strengthened its positions while
maintaining solid financial discipline.
In this regard, the success of the €1 billion bond issue
announced on June 29, 2017 to finance the acquisition of Milestone1
testifies to investor confidence in Legrand’s development model and
in the strength of the Group’s balance sheet10. The issue,
consisting of two tranches of €500 million each with maturities of
7 and 15 years and respective coupons of 0.750% and 1.875%, was
subscribed three times over.
Governance
Change in Strategy and Social Responsibility
Committee
In a context of accelerating growth for the Group and of
increasing importance for topics linked to CSR, the Board of
Directors, acting on the recommendation of the Nominating and
Governance Committee, approved the appointment of Isabelle
Boccon-Gibod as a member of the Strategy and Social Responsibility
Committee.
1 Subject to standard conditions precedent.
2 Tax benefit resulting from standard goodwill amortization
starting 2017. Gross price paid of $1,200 million less a cash tax
benefit of $400 million discounted to $250 million.
3 Discounted at a rate of 7.0% over the period of goodwill
amortization (15 years).
4 For more information on the Milestone purchase, the press
release announcing the acquisition and the presentation published
on June 28, 2017 are available on the Groupe website
www.legrand.com.
5 PDU: Power Distribution Unit.
6 As Legrand holds 49% of equity, Borri will be consolidated on
the equity method.
7 Uninterruptible Power Supply
8 Digital infrastructure, energy efficiency, assisted living,
and home systems.
9 Based on 2016 sales and incorporating acquisitions made in
2016 and in 2017 over 12 months.
10 A- rating since 2012 by Standard & Poors, confirmed and
moved to “negative outlook” following announcement of the Milestone
acquisition.
2017 General Meeting of Shareholders
At the General Meeting of shareholders held on May 31, 2017,
shareholders reiterated their confidence in Group’s governance,
thus approving by over 98% all resolutions on Say on Pay, the
renewal of the term of office of Director Annalisa Loustau Elia,
and conditions for dividend distribution.
On this occasion, Legrand also demonstrated the importance in
its development model of (i) the different stakeholders’
contributions to value creation, (ii) the megatrends for its
business areas, (iii) its approach to risk management, and (iv) the
skills and complementary expertise of its Board of Directors. As a
result, Legrand was awarded the Grand Prix de l’Assemblée Générale
du CAC 401 organized by the Institut du Capitalisme Responsable
(Institute of Responsible Capitalism).
1 This award is attributed each year to a company in the CAC 40
index according to the quality of its presentation during the
General Meeting of Shareholders by the Institut du Capitalisme
Responsable (Institute of Responsible Capitalism).
Consolidated financial statements for the first half of 2017
that were the subject of a limited
review by the Group's auditors were adopted by the
Board at its meeting on July 28, 2017. These consolidated
financial statements, a presentation of 2017 first-half results,
and the related teleconference (live and replay) are available at
www.legrand.com.
KEY FINANCIAL DATES:
- 2017 nine-month results: November 7,
2017“Quiet period1” starts October 7, 2017
- 2017 annual results: February 8,
2018“Quiet period1” starts January 9, 2018
- General Meeting of Shareholders: May
30, 2018
ABOUT LEGRAND
Legrand is the global specialist in electrical and digital
building infrastructures. Its comprehensive offering of solutions
for commercial, industrial and residential markets makes it a
benchmark for customers worldwide. Drawing on an approach that
involves all teams and stakeholders, Legrand is pursuing its
strategy of profitable and sustainable growth driven by
acquisitions and innovation, with a steady flow of new
offerings—including Eliot* connected products with enhanced value
in use. Legrand reported sales of more than €5 billion in 2016. The
company is listed on Euronext Paris and is a component stock of
indexes including the CAC 40, FTSE4Good, MSCI World, Corporate
Oekom Rating, DJSI World, Vigeo Euronext Eurozone 120, Europe 120
and France 20, and Ethibel Sustainability Index Excellence.(code
ISIN FR0010307819).http://www.legrand.com
*Eliot is a program launched in 2015 by Legrand to speed up
deployment of the Internet of Things in its offering. A result of
the group’s innovation strategy, Eliot aims to develop connected
and interoperable solutions that deliver lasting benefits to
private individual users and
professionals.http://www.legrand.com/EN/eliot-program_13238.html
1 Period of time when all communication is suspended in the
run-up to publication of results.
Appendices
Glossary
Working capital requirement
Working capital requirement is defined as the sum of trade
receivables, inventories, other current assets, income tax
receivables and short-term deferred tax assets, less the sum of
trade payables, other current liabilities, income tax payables,
short-term provisions and short-term deferred tax liabilities.
Free cash flow
Free cash flow is defined as the sum of net cash from operating
activities and net proceeds from sales of fixed and financial
assets, less capital expenditure and capitalized development
costs.
Normalized free cash flow
Normalized free cash flow is defined as the sum of net cash from
operating activities—based on a normalized working capital
requirement representing 10% of the last 12 month’s sales and whose
change at constant scope of consolidation and exchange rates is
adjusted for the period considered—and net proceeds of sales from
fixed and financial assets, less capital expenditure and
capitalized development costs.
Organic growth
Organic growth is defined as the change in sales at constant
structure (scope of consolidation) and exchange rates.
Net financial debt
Net financial debt is defined as the sum of short-term
borrowings and long-term borrowings, less cash and cash equivalents
and marketable securities.
EBITDA
EBITDA is defined as operating profit plus depreciation and
impairment of tangible assets, amortization and impairment of
intangible assets (including capitalized development costs) and
impairment of goodwill.
Cash flow from operations
Cash flow from operations is defined as net cash from operating
activities excluding changes in working capital requirement.
Adjusted operating profit
Adjusted operating profit is defined as operating profit
adjusted for amortization and depreciation of revaluation of assets
at the time of acquisitions and for other P&L impacts relating
to acquisitions and, where applicable, for impairment of
goodwill.
CSR
Corporate Social responsibility.
Payout
Payout is defined as the ratio between the proposed dividend per
share for a given year, divided by the net income excluding
minority interests per share of the same year, calculated on the
basis of the average number of ordinary shares at December 31 of
that year, excluding shares held in treasury.
Calculation of working capital requirement
In € millions H1 2016 H1 2017
Trade receivables 664.0 645.8 Inventories 684.5 704.5
Other current assets 169.7 168.8 Income tax receivables 23.8 25.1
Short-term deferred taxes assets/(liabilities) 89.2 84.8 Trade
payables (525.7) (586.0) Other current liabilities (511.4) (509.0)
Income tax payables (54.9) (43.0) Short-term provisions
(78.7) (74.9)
Working capital requirement
460.5 416.1
Calculation of net financial debt
In € millions H1 2016 H1 2017
Short-term borrowings 392,7 958.7 Long-term
borrowings 1,510.9 1,095.0 Cash and cash equivalents (528.8)
(621.8)
Net financial debt 1,374.8
1,431.9
Reconciliation of adjusted operating profit with profit for
the period
In € millions H1 2016 H1 2017
Profit for the period 284.9
317.5 Share of profits (losses) of equity-accounted entities
0.3 1.5 Income tax expense 139.8 157.2 Exchange
(gains) / losses 0.2 6.6 Financial income (4.4) (7.3) Financial
expense 50.0 44.7
Operating profit
470.8 520.2 Amortization & depreciation of
revaluation of assets at the time of acquisitions and other P&L
impacts relating to acquisitions 21.9 26.1 Impairment of goodwill
0.0 0.0
Adjusted operating profit
492.7 546.3
Reconciliation of EBITDA with profit for the period
In € millions H1 2016 H1 2017
Profit for the period 284.9
317.5 Share of profits (losses) of equity-accounted entities
0.3 1.5 Income tax expense 139.8 157.2 Exchange
(gains) / losses 0.2 6.6 Financial income (4.4) (7.3) Financial
expense 50.0 44.7
Operating profit
470.8 520.2 Depreciation and impairment of
tangible assets 47.1 47.7 Amortization and impairment of intangible
assets (including capitalized development costs) and impairment of
goodwill 35.7 41.0
EBITDA 553.6
608.9
Reconciliation of cash flow from operations, free cash flow
and normalized free cash flow with profit for the period
In € millions H1 2016 H1 2017
Profit for the period 284.9
317.5 Adjustments for non-cash movements in assets and
liabilities: Depreciation, amortization and
impairment 84.0 89.4 Changes in other non-current assets and
liabilities and long-term deferred
taxes
15.1 28.2 Unrealized exchange (gains)/losses (4.6) 13.8
(Gains)/losses on sales of assets, net 0.2 (0.8) Other adjustments
0.9 1.3
Cash flow from operations
380.5 449.4 Decrease (Increase) in working
capital requirement (130.8) (153.7)
Net cash
provided from operating activities 249.7
295.7 Capital expenditure (including capitalized development
costs) (59.2) (70.6) Net proceeds from sales of fixed and financial
assets 0.7 2.7
Free cash flow
191.2 227.8 Increase (Decrease) in working
capital requirement 130.8 153.7 (Increase) Decrease in normalized
working capital requirement (4.4) (8.2)
Normalized
free cash flow 317.6 373.3
Scope of consolidation
2016 Q1 H1 9M
Full year Full consolidation method Fluxpower
Balance sheet only Balance sheet only 8 months
11 months Primetech Balance sheet only Balance
sheet only 8 months 11 months Pinnacle Architectural
Lighting Balance sheet only 5 months
8 months Luxul Wireless Balance sheet
only 5 months 8 months Jontek
Balance sheet only 5 months 8 months Trias
Balance sheet only Balance sheet only 8
months CP Electronics Balance sheet only
Balance sheet only 7 months Solarfective
Balance sheet only 5 months
Equity method TBS(1) 6 months 9
months 12 months
2017 Q1
H1 9M Full year Full
consolidation method Fluxpower 3 months 6
months 9 months 12 months Primetech 3 months
6 months 9 months 12 months Pinnacle
Architectural Lighting 3 months 6 months 9
months 12 months Luxul Wireless 3 months 6
months 9 months 12 months Jontek 3 months
6 months 9 months 12 months Trias 3
months 6 months 9 months 12 months CP
Electronics 3 months 6 months 9 months
12 months Solarfective 3 months 6 months 9
months 12 months OCL Balance sheet only 5
months 8 months 11 months AFCO Systems Group
Balance sheet only 5 months 8 months
Finelite Balance sheet only 4 months
7 months Server technology
To be determined To be determined Milestone
To be determined To be
determined
Equity method TBS(1) 3 months
6 months 9 months 12 months Borri
Balance sheet only To be determined To
be determined
(1)Created together with a partner, TBS is to produce and sell
transformers and busbars in the Middle East.
Disclaimer
This press release may contain forward-looking statements which
are not historical data. Although Legrand considers these
statements to be based on reasonable assumptions at the time of
publication of this release, they are subject to various risks and
uncertainties that could cause actual results to differ from those
expressed or implied herein.
Details on risks are provided in the Legrand Registration
Document filed with the Autorité des marchés financiers (Financial
Markets Authority, AMF), which is available on-line on the websites
of both AMF (www.amf-france.org) and Legrand (www.legrand.com).
No forward-looking statement contained in this press release is
or should be construed as a promise or a guarantee of actual
results, which are liable to differ significantly. Therefore, such
statements should be used with caution, taking into account their
inherent uncertainty.
Subject to applicable regulations, Legrand does not undertake to
update these statements to reflect events or circumstances
occurring after the date of publication of this release.
This press release does not constitute an offer to sell, or a
solicitation of an offer to buy Legrand shares in any
jurisdiction.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170730005087/en/
Investor relationsLegrandFrançois PoissonTel: +33 (1) 49
72 53 53francois.poisson@legrand.frorPress RelationsPublicis
ConsultantsVilizara LazarovaTel: +33 (0)1 44 82 46 34Mob: +33 (0)6
26 72 57 14vilizara.lazarova@consultants.publicis.frorEloi
PerrinTel: +33 (0)& 44 82 46 36Mob: +33 (0)6 81 77 76
43eloi.perrin@consultants.publicis.fr
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