Half Year 2024 Legrand SA Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniela Costa - Goldman Sachs - Analyst : Hi, good morning. Thank you. I have two questions, if possible, if there's space for it. But the first one, just looking at sort of how you grew in North America, I guess, assuming would be interested in getting your breakdown of datacenters non-resi and resi, I would assume it's not -- the datacenters that has grown very strongly given construction read across as we here are yet not very buoyant. Was there any catch-up or is this from prior quarters where you were weak or is this sort of the normal growth that you see going forward for datacenters?

Question: Daniela Costa - Goldman Sachs - Analyst : Very clear. And maybe a comment on the free cash flow where the margin has been a little bit lower than it used to be in the past. Can you talk through the working capital build up? Is that something that we're going to see a reversal for in the second half? Or is it part of the strong growth in areas like datacenters and we won't see a reversal? How should we see it?

Question: Daniela Costa - Goldman Sachs - Analyst : Thank you very much.

Question: Andrew Wilson - JPMorgan - Analyst : Hi, good morning. Thanks for taking my questions. I've got two, please. Can I just ask on pricing development in the Q2 and also expectations for the remainder of the year? And then secondly, and it's really a follow-up to Daniela's question, but I don't know if you could kind of quantify quite how strong the datacenter growth was in the Q2 and expectations for the second half. I'm just trying to see if we can kind of get above that double-digit rate for the full year as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: Andrew Wilson - JPMorgan - Analyst : Thank you. And if I can just squeeze in one quick further question, just on the second half margin, I'm just thinking about 2023, there was a good step-up in terms of investment in the second half. Just trying to think about sort of investment plans appreciate at this stage, but your investment plans for kind of second half and whether that can actually be a tailwind in terms of second half margin development given the step-up you saw last year?

Question: Andrew Wilson - JPMorgan - Analyst : Very clear. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: Andre Kukhnin - UBS - Analyst : Good morning. Thank you very much for taking my questions. I'll just go one at a time. And can I follow up on datacenters first? And that 10% growth that you cited, I think right now, we're seeing higher growth rates in the market in terms of megawatt additions in the datacenters capacity than the 10%, especially in the US. Could you just talk about how your exposure correlates with that? And should we expect it to catch up at any point or is there a kind of different multiplier on your growth versus the megawatt additions?

Question: Andre Kukhnin - UBS - Analyst : Got it. I was looking at the absorption data, which I thought was kind of close to the build rate as opposed to orders. But as you said, we look forward to the Capital Markets Day to learn more. And then I just have two quick follow-up questions -- further questions. One is you cited the destock effect in the US non-residential market in second quarter of 2023 that created an easy comp for this quarter. How did that destock progress through the second half of 2023? Was it still there in subsequent quarters of 2023?

Question: Andre Kukhnin - UBS - Analyst : I just wanted -- this is really useful, but I just wanted to check, last year in 2023, you said US non-resi was destocking in the second quarter and that helped this quarter, did it still -- did it proceed to destock further in the second half of 2023 or was that just a one quarter effect? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: Andre Kukhnin - UBS - Analyst : That's very clear. And lastly, just on acquisition contribution for the year 2024 from everything you've done so far, what should we expect for the year?

Question: Andre Kukhnin - UBS - Analyst : Perfect. Thank you very much for your time.

Question: Max Yates - Morgan Stanley - Analyst : Thank you, and good morning. I just want to start on your comments on US non-residential. And obviously, kind of one of the big drags for you has been your US kind of commercial and office exposure. I think it's down kind of more than 40% versus 2019 levels. I guess what I wanted to understand, the headlines, obviously, in that market are still quite challenging, but you've obviously had additional effects of destocking as well. So I just wanted to understand in that portion specifically, are you still seeing that being a drag to your overall Americas growth? And do you think we can start kind of talking about volumes there having bottomed, or do you anticipate kind of a further drag to your North America growth from that subsegment specifically?

Question: Max Yates - Morgan Stanley - Analyst : No, that makes sense. And just a quick follow-up on your acquisitions that you've done in datacenter. I guess just maybe a kind of quick comment on the strategy and the pipeline, I mean do you see when you kind of line up future M&A, are there a lot of these kind of smaller acquisition opportunities in datacenter like the ones that you just did? And I guess you're clearly finding things in, I think, what are your kind of core datacenter products that kind of things like the busways and the PDUs, so yes, is there still a lot of opportunities there for M&A and/or do you think you'll have to start moving out of those product categories if you want to keep doing M&A in datacenters?

Question: Max Yates - Morgan Stanley - Analyst : Thank you very much.

Question: Gael de-Bray - Deutsche Bank - Analyst : Well, thanks very much. Actually, I have three questions, please. So maybe I'll take them one at a time. Can I start with the M&A activity, please? I mean, usually, you've been pretty prudent on the M&A side with multiples typically lower than the group's own multiples. But in H1, you spent more than EUR1.2 billion. And if I'm not wrong, I think that's equivalent to about 4.2x, maybe 4.3x EV sales, so clearly above your own and what you've been used to pay in the past. I know there was something around software. But generally speaking, is there any change to the group's M&A approach or cautiousness or potentially any change to the competitive dynamics in the bidding processes? Has the market become perhaps more competitive on the M&A side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: Gael de-Bray - Deutsche Bank - Analyst : Well, that's great to hear. And then the second question is on the restructuring cost, which appear to be particularly high in Q2, especially in the US. So could you provide perhaps more details around the actions being taken there?

Question: Gael de-Bray - Deutsche Bank - Analyst : Okay. And maybe finally, I know you reaffirmed the revenue guidance, but could you perhaps provide a bit more details on what we should expect organically excluding acquisitions? I think the prior indication was for the organic growth to be between slightly negative and slightly positive for the full year, so how is it trending now rather positively or rather negatively after Q2 moved back into growth?

Question: Gael de-Bray - Deutsche Bank - Analyst : Thanks very much.

Question: James Moore - Redburn Atlantic - Analyst : Yes. Hello, everybody. I wondered if I could just follow up with a couple of technical questions and then a bigger picture one. Could you help us with the wage inflation in the first quarter and the second quarter? And was I right to say that the data centers grew 10% organically globally with 10% organically in the US and 10% organically in Europe? Those are the two technical questions. Maybe I'll come back to the other one.

Question: James Moore - Redburn Atlantic - Analyst : Great. And if I could just ask a little about (inaudible) I mean you've got 300,000 products, 100 product families, it's a complicated company. But if you were to look at some of the big categories, I think about wiring devices, cable management, audiovisual, lighting, I'm trying to think about sort of stuff that has got a good coefficient to electrification, where you're perhaps less present than some other players in the market. The last time I talked about circuit breaker mix, perhaps if we see it 20 years ago. Could you update as to how big circuit breakers is? I know you have a strong position in Italy, France and India. But as a proportion of group sales, are we talking mid-single-digit advantage of sales? And I'm trying to get my head around where are we in the cycle versus '19 in some of these bigger categories? Presumably, circuit breakers were up materially, wiring devices are down materially. Amongst some of your bigger categories, are there some areas that are much bigger a drag because of next to office or other things? Just any help on that from a qualitative perspective would be great.

Question: James Moore - Redburn Atlantic - Analyst : Thanks, Benoit. Thank you very much.

Question: Martin Wilkie - Citi - Analyst : Yes, thank you. Good morning. It's Martin from Citi. My question was on acquisitions. You talked about paying higher multiples for companies with higher margins. I see that the acquisition impact to margins is still a small negative in the first half, even if it's slightly less negative than it has been in the past. Just trying to understand, firstly, does that include transaction costs, and that's why we still see that slight drag? And then related to that, my understanding is that for the renovation deal in assisted living, you are buying a software sort of backbone that can then help the rest of your offering in assisted living and presume that then gives you some synergies just in terms of the time scale that we should expect to see that benefit in terms of that integration of renovation into the rest of your portfolio? Thank you.

Question: Martin Wilkie - Citi - Analyst : It was in terms of the benefits of the --

Question: Martin Wilkie - Citi - Analyst : Great. Thank you very much.

Question: Alexander Virgo - BofA Global Research - Analyst : Good morning. I wondered if I could just ask you quickly to clarify your comments on guidance for the organic growth? Because obviously, since you last talked about plus/minus growth that you've added 100 bps of M&A. So is that simply that you're suggesting we should be closer to slightly negative? Or did you have just a bit more wiggle room in the guidance in the first place? That's the primary question.

Question: Alexander Virgo - BofA Global Research - Analyst : Well, I guess, I understand you're saying that nothing has changed. It just looks that, I guess, if you add up what you said in Q1 and add up what you're saying now, it feels like things are maybe a little bit weaker. But I understand what you've clarified, so that's super helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: Alexander Virgo - BofA Global Research - Analyst : Okay. Thank you very much.

Question: Alasdair Leslie - Bernstein - Analyst : Yes, thank you and good morning. I was wondering if you could talk a little bit more about the Davenham acquisition in Ireland. It's obviously a decent-sized acquisition by Legrand standards. So maybe just a few questions. Firstly, I guess, how significant is that in terms of your strategy overall to kind of strengthen the portfolio in Europe? You mentioned it comes in and it gives you a new product offering as well. And you also mentioned, I think, in the initial press release, they sell in the US. So I was just wondering if that's something you can leverage? And the final thing, I sort of noticed it seems to work with some of your competitors as well, I was just wondering whether there's some dyssynergies perhaps there initially from the acquisition as well?

Question: Alasdair Leslie - Bernstein - Analyst : Great. So just a follow-up there. I mean could we view Davenham then as a kind of beachhead type acquisition into the gray space in US? Is that plausible?

Question: Alasdair Leslie - Bernstein - Analyst : Great. Thank you, Benoit.

Question: Kulwinder Rajpal - AlphaValue - Analyst : Good morning, everyone. Yes. So just wanted to ask a little bit about the faster expanding segments, how did it develop in H1 versus your core products? And then what are the expectations for the full year? And my second question was on the renovation markets across the group. How do you see them developing? Are there any green shoots visible or do you think that renovation is still not where it should be?

Question: Kulwinder Rajpal - AlphaValue - Analyst : Thank you.

Question: William Mackie - Kepler Cheuvreux - Analyst : Yes, good morning, everybody. Thanks for the time. A couple of questions. The first one comes back to the European markets, please, Benoit. You've talked in some detail about following the KPIs in relation to a discussion in North met and Central America. But -- maybe if we could just go into your thinking a little more around how you see the KPIs across the building markets in Europe developing at this stage. And with your experience, how far do you think it might be from reaching the bottom of the valley into the sort of the benefit of starting a recovery? What's the sort of planning assumptions?

Question: William Mackie - Kepler Cheuvreux - Analyst : And my next question is more top-down or bigger picture related. I mean you took the leadership in 2018 and then you really didn't have much chance to gather pace until you've had to deal with an incredible amount of turmoil from 2020 to 2023 and dealt with it exceptionally well in terms of the group maintaining profitability and cash conversion. But now as we head into a normalization perhaps across a number of your markets, you've called out data centers with your capital allocation and some of the faster assisted living growth areas. But when you look maybe on a three- or four-year view, where do you think Legrand has to change pace or change focus from where it's been in the past to keep the momentum in the underlying growth across the business continuing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 31, 2024 / 8:00AM, LEGD.PA - Half Year 2024 Legrand SA Earnings Call

Question: William Mackie - Kepler Cheuvreux - Analyst : Thank you. I just hope for a mute push. Super. Thank you very much.

Question: Jonathan Day - HSBC - Analyst : Hi, good morning. It's Jonathan from HSBC. Thanks for taking my questions. I've got a couple. I was wondering if you could just talk a little bit about the fact that last year in the second half, you were making some -- we're trying to make some internal improvements to drive growth. And I was wondering if you could sort of, first of all, just update a little bit on those and how we should also think about those in terms of comps for H2 this year? That's my first question.

Question: Jonathan Day - HSBC - Analyst : Okay. And I was also just wondering then if you could also comment a little bit on China and what you're seeing there? I mean, you described it as a sort of sharp slump, any signs of green shoots at all? Is it still really in the doldrums?

Question: Jonathan Day - HSBC - Analyst : Thank you very much.