Legrand: 2017 Achievements and Change in Governance
2017 achievements
Double-digit growth in main indicators
2017 targets fully met
Enhancing investments for the future
Milestone: performance and potential fully confirmed
Change in governance
From
Separation, on a long-term basis, of the offices of Chairman and of Chief Executive Officer:
As of
Franck Lemery Chief Financial Officer
LIMOGES,
2017 achievements
Double-digit growth in main indicators
Sales: +10.0%
Adjusted operating profit: +12.9%
Net profit attributable to the Group: +13.2%
Normalized free cash flow: +17.8%
2017 targets1 fully met
Organic growth in sales: +3.1%, against initial target of 0% to +3%2
Adjusted operating margin before acquisitions: 20.1%, against initial target of 19.3% to 20.1%3
Achievement rate of CSR roadmap: 122%
Enhancing investments for the future
Increased investment in new products: +11%
Enhanced offering of Eliot products: over 30 connected product families at year-end 2017
Milestone4: performance and potential fully confirmed
Organic growth in sales in 20175: +3.0%, versus announced aim6 of +2% to +3%
Adjusted operating margin for 2017: 21.8% versus 21% in 20164
Synergy7 potential confirmed: Audio-Video8 Division created in
Milestone with
1 Targets relate to integrated performance combining financial and CSR-linked extra-financial results, drawing on a broader approach to corporate scope creating value for all stakeholders.
2 Target announced on
3 Target announced on
4 For more details on Milestone, including 2016 performance, sales growth seasonality in 2017, and the company’s contribution to Group performance, readers are invited to consult pages 16 and 17 of this press release.
5 Full-year organic growth achieved in 2017.
6 As a reminder, on page 10 of the press release announcing nine-month 2017 results (published
7 Commercial and cost synergies, short and medium term, representing 1% to 5% of Milestone’s 2016 sales.
8 As announced on
9 Combination of residential audio-video offerings from Milestone,
On the closing of full-year accounts for 2017,
“Double-digit growth in main indicators
In 2017 Legrand reported double-digit growth in its main financial indicators. Total sales were thus up +10.0%, a very good showing fueled by momentum from external growth (+7.8%) and organic growth (+3.1%), new product launches, and Group teams’ commitment that helped strengthen Legrand’s positions in many countries.
Adjusted operating profit rose +12.9%.
Driven by this good operating performance and a decrease in financial expense, net profit attributable to the Group increased +13.2%.
At the same time, normalized free cash flow was up +17.8%.
These good results reflect a new acceleration in our growth drivers and illustrate once again the robustness of the Group’s business model, as well as its ability to create sustained value for all of its stakeholders.
2017 targets1 fully met
The Group fully reached its targets1 for 2017 and recorded:
- organic growth in sales of +3.1%, exceeding the top end of its target range (+3.0%);
- adjusted operating margin before acquisitions (at 2016 scope of consolidation) of 20.1%, reaching the top end of its target range (20.1%);
- CSR roadmap achievement rate of 122% – Legrand thus nearly met the targets set in its five-year roadmap in year four.
Enhancing investments for the future
Legrand also enhanced investments aimed at fueling its sustainable and profitable development model.
Investments dedicated to new products thus rose +11% from 2016, with momentum leading to many new product launches. More specifically, the Eliot program now has over 30 families of connected products, and the Group reported average annual total growth in sales of connected products of close to +28% from 2014 to 2017.
Legrand has also pursued commercial initiatives, recently opening six new showrooms and rolling out digital marketing and communications tools. In addition, the Group is also strengthening its local presence in markets representing long-term development opportunities, such as
Lastly, Legrand remained active in external growth, with six operations finalized in 2017. These will strengthen its positions in particular in digital infrastructures and specification-grade architectural lighting solutions in
Based on acquisitions announced, the contribution of the broader scope of consolidation to Group growth should be over +7% in 2018.
Milestone2: performance and potential fully confirmed
The acquisition of Milestone, a US frontrunner in audio-video (AV) mounts and projector screens, rounds out Legrand’s US positions in AV infrastructures and power, where the Group is already #1 in AV enclosures through its
As reflected in its leadership, its well-known brands, a business driven by social and technological megatrends, a constant flow of innovation, a customer-centric sales support, and an active CSR policy, Milestone has a business model similar to that of Legrand.
1 Targets relate to integrated performance combining financial and CSR-linked extra-financial results, drawing on a broader approach to corporate scope creating value for all stakeholders.
2 For more details on Milestone, including 2016 performance, sales growth seasonality in 2017, and its contribution to Group performance, readers are invited to consult pages 16 and 17 of this press release.
In 2017, Milestone reported organic growth in sales of +3.0% – at the top end of its announced1 aim of +2% to +3% – and an adjusted operating margin of 21.8% compared with 21% in 20162.
Moreover, potential for commercial and cost synergies following the acquisition of Milestone is confirmed3. In this respect, Legrand set up an Audio-Video4 Division in
Proposed dividend
The Legrand Board of Directors will ask the General Meeting of shareholders to approve the payment of a dividend of €1.26 per share in respect of 2017 (compared with €1.19 in respect of 2016), representing a payout6 of 54%.
2018 targets
Macroeconomic projections for 2018 call for a still favorable economic environment overall. Against this backdrop, Legrand plans to pursue its strategy of profitable growth and has set the following targets for 2018:
- organic growth in sales of between +1% and +4%; and
- adjusted operating margin before acquisitions (at 2017 scope of consolidation) of between 20.0% and 20.5% of sales.
Legrand will also pursue its strategy of value-creating acquisitions.
1 As a reminder, on page 10 of the press release announcing nine-month 2017 results (published
2 For more details on Milestone, including 2016 performance, sales growth seasonality in 2017, and the company’s contribution to Group performance, readers are invited to consult pages 16 and 17 of this press release.
3 Commercial and cost synergies, short and medium term, representing 1% to 5% of Milestone’s 2016 sales.
4 As announced on
5 Combination of residential audio-video offerings from Milestone,
6 Based on adjusted net profit attributable to the Group. Adjusted net profit attributable to the Group does not take into account the net favorable effect of significant non-recurring gains and expenses resulting from announced changes in corporate taxation, primarily in
Key figures
Consolidated data
(€ millions)(1) |
2016 | 2017 | Change | |||||||
Sales | 5,018.9 | 5,520.8 | +10.0% | |||||||
Adjusted operating profit | 978.5 | 1,104.9 | +12.9% | |||||||
As % of sales | 19.5% | 20.0% | ||||||||
20.1% before |
||||||||||
Operating profit | 934.0 | 1,025.6 | +9.8% | |||||||
As % of sales | 18.6% | 18.6% | ||||||||
Net profit attributable to the Group(3) | 628.5 | 711.2 | +13.2% | |||||||
As % of sales | 12.5% | 12.9% | ||||||||
Normalized free cash flow | 623.9 | 735.2 | +17.8% | |||||||
As % of sales | 12.4% | 13.3% | ||||||||
Free cash flow | 673.0 | 695.8 | +3.4% | |||||||
As % of sales | 13.4% | 12.6% | ||||||||
Net financial debt at |
957.0 | 2,219.5 | +131.9% | |||||||
(1) See appendices to this press release for definitions and reconciliation tables of indicators.
(2) At 2016 scope of consolidation.
(3) See detailed explanation of change in net profit attributable to Group on pages 14, 15 and 20 of this press release.
2017 performance1
Legrand reported a very good performance1 in 2017, demonstrating its ability to create lasting value for all of its stakeholders:
- profitable growth accelerated as consolidated sales rose +10.0%, adjusted operating profit increased +12.9%, and net profit attributable to the Group gained +13.2% (notably reflecting both a good operating performance and a decrease in financial expense);
- normalized free cash flow rose +17.8% to stand at €735.2 million; and
- achievement rate of its CSR roadmap reached 122% - Legrand thus nearly met the targets set in its five-year roadmap in year four.
Consolidated sales
Sales for 2017 stood at €5,520.8 million, up +10.0% from 2016.
Sales growth at constant scope of consolidation and exchange rates was +3.1%, with increases in all five geographical regions. These showings, which reflect strengthening of the Group’s market positions in many countries, were driven both by sustained growth in new economies (+4.7%) and good performances in mature countries (+2.4%). They also illustrate successful launches of new products, as well as the commitment of teams across all countries.
The contribution of the broader scope of consolidation to Group growth was +7.8% in 2017, and is expected to be over +7%2 in 2018.
The exchange-rate effect on sales was -1.1% in 2017. Based on average exchange rates in
As a reminder, organic growth in sales was strong in the first quarter of 2017, thus representing a demanding basis for comparison including an unfavorable calendar effect in the first quarter of 2018 and in particular in
1 This relates to integrated performance combining financial and CSR-linked extra-financial results, drawing on a broader approach to corporate scope creating value for all stakeholders.
2 Based on acquisitions announced.
Changes in sales by destination at constant scope of consolidation and exchange rates broke down as follows by region:
2017 / 2016 | 4th quarter 2017 / 4th quarter 2016 | ||||||
|
+3.2% | +5.8% | |||||
|
+4.0% | +5.7% | |||||
Rest of |
+5.5% | +5.8% | |||||
North and |
+1.7% (+7.6% over 2 years)3 |
+2.1% | |||||
Rest of the world |
+3.1% |
+2.4% |
|||||
Total | +3.1% | +3.6% | |||||
These changes at constant scope of consolidation and exchange rates are analyzed below by geographical region:
-
This good relative performance reflects the strengthening of Legrand’s positions in
The new residential construction market showed strong growth throughout the year. Over the same period, new non-residential construction also expanded, while the renovation market showed very moderate growth.
At the end of 2017, French building sector activity accelerated, fueled by a marked one-off rise in demand that drove organic growth in the fourth quarter.
-
These 2017 showings were led by a very positive response to recently launched connected offerings, including the Classe 300X door entry system, My Home Up home systems, and the new Smarther intelligent thermostat. Against a backdrop of very slight growth in the construction market, this healthy performance also illustrated the Group’s successful commercial initiatives.
- Rest of
Countries in
In addition, business increased strongly in a number of mature European countries of the zone, including
In the
1 As announced, 2016 represented a demanding basis for comparison. For more details, readers should refer to comments on Legrand’s performance in North and
- North and
In
Milestone’s performance over full-year 2017 was at the top of the range of the aim announced2 last November, with organic growth in sales up +3.0%.
There was also a double-digit rise in sales in
- Rest of the World (24.4% of Group sales): organic growth was up +3.1% from 2016.
This good performance was buoyed by a number of countries in the region, including
Growth was also sustained in
In the rest of the region, sales retreated in
Adjusted operating profit and margin
Adjusted operating profit was up +12.9% at €1,104.9 million, reflecting the Group’s ability to create value through profitable growth.
Adjusted operating margin before acquisitions (at 2016 scope of consolidation) stood at 20.1% of 2017 sales, in line with the top end of the target range (20.1%).
This represents a +0.6-point rise from 2016 adjusted operating margin (19.5%). It reflects the Group’s good operating performance for +0.5 points as well as a net favorable non-recurring effect of around +0.1 points (coming from the impact of inventory build-up in finished and semi-finished goods estimated at less than +0.2 points, partially offset by the unfavorable effect of non-recurring items for close to -0.1 points).
When acquisitions are taken into account, adjusted operating margin stood at 20.0% of net sales.
By reacting quickly to adjust its price lists, Legrand more than offset, in absolute value, the impact of a marked rise in raw material and component prices in 2017.
Net profit attributable to the Group
Net profit attributable to the Group rose by +13.2% to €711.2 million in 2017.
2017 net profit attributable to the Group benefited from a non-recurring net tax income of €85.5 million linked to announced changes in corporate taxation both in
1 As a reminder, the US recorded organic growth in sales of +5.6% in 2016. As noted on page 4 of the press release presenting full-year 2016 results, published
2 As a reminder, on page 10 of the press release announcing nine-month 2017 results (published
3 GST: Goods and Services Tax.
Net profit attributable to the Group adjusted1 for these factors stood at €625.7 million in 2017 compared with €567.3 million in 2016, a rise of €58.4 million. This change reflects:
- a solid operational performance, with operating profit up a steep €91.6 million;
- a €12.0 million reduction in net financial expense;
partially offset by:
- a €29.9 million rise in income tax booked in the adjusted net profit attributable to the Group1 (on this basis, the tax rate on adjusted1 net profit attributable to the Group for 2017 would be 33.0%, almost stable compared with that of 2016);
- a foreign exchange result in 2017, which as it compares with a profit in 2016, represents a net unfavorable change of €14.8 million – the realized (cash) foreign exchange result recorded nevertheless a favorable change of €2.1 million;
- a €0.3 million rise in profit attributable to minority interests; and
- a €0.2 million decline in the result of equity-accounted entities.
The adjusted1 net profit attributable to the Group in 2017 also includes accounting expense related to Milestone’s PPA for a total amount of €16.0 million (non-cash impact expenses). This sets the adjusted1 net profit attributable to the Group before the Milestone2 PPA at €641.7 million, up +13.1% from 20163.
Cash generation and solid balance sheet structure
In 2017, cash flow from operations came to 16.7% of sales and stood at €919.8 million, up +16.2% from 2016.
Industrial investments as percentage of sales stood at 3.2%, in keeping with the Group’s long-term ambition (3% to 3.5% of net sales over the long run).
Working capital requirement expressed as a percentage of 2017 sales remained at a low level, standing at 6.8% at
Normalized free cash flow stood at 13.3% of sales in 2017 (or €735.2 million), up +17.8% compared with 2016.
At the same time, free cash flow was €695.8 million, up €22.8 million from 2016. This change reflects:
- a solid operating performance with EBITDA improving by €132.5 million;
- a €9.9 million decline in net financial expense;
- a €4.4 million improvement in other items, primarily long-term items;
- a €2.1 million favorable change in the realized foreign-exchange result;
partially offset by:
- a €105.9 million4 increase in change in working capital requirement excluding tax items;
- a €10.3 million rise in tax paid; and
- a €9.9 million rise in investments net of sales.
The Group’s balance sheet structure as of
1 Adjusted net profit attributable to the Group does not take into account the net favorable effect of significant non-recurring gains and expenses resulting from announced changes in corporate taxation, primarily in
2 Adjusted net profit attributable to the Group before Milestone PPA (Purchase Price Allocation) corresponds to adjusted net profit attributable to the Group before amortization of intangible assets and reversal of inventory step-up (with no cash impact) resulting from the PPA. For more information and reconciliations, readers are invited to consult pages 17 and 20 of this press release.
3 Compared with adjusted net profit attributable to the Group for 2016.
4 As a reminder, 2016 full-year results announcements specified in particular that “Working capital requirement expressed as a percentage of sales at the end of 2016 was temporarily at an exceptionally low level compared with the past ten years, which makes a challenging basis for comparison in 2017.”
Non-financial performance
CSR is at the heart of Legrand’s strategy. In this respect, Legrand set ambitious and innovative targets in its third multi-year roadmap, covering the period from 2014 to 2018. This defines 21 targets and sets annual milestones. Based on four focus points (user, society, employees and the environment), Legrand’s CSR draws on an approach based on progress for all of its stakeholders and contributes to sustainable use of electric power.
In 2017, Legrand’s ongoing initiatives in this field included:
- strengthening Legrand’s historic commitment to limit the environmental impact of its activities, by signing the “French Business Climate Pledge”;
- supporting equal opportunity and diversity by ratifying the Business and Disability network charter of the
International Labor Organization ; - conducting a comprehensive materiality survey on CSR challenges in the first half of 2017, polling all Group stakeholders to prepare the next multi-year roadmap;
- launching, in all countries where Legrand operates, a program to guarantee minimum social protection in three key areas: parenthood, healthcare and insurance;
- pursuing partnership agreements with NGOs, in particular with “Electricians without Borders”, with which Legrand has worked for the past ten years to support projects that develop access to electricity; and
- renewing, through the
Legrand Foundation , its call for projects that recognized three structures assisting people who are losing their independence.
In 2017 the Group recorded a 122% global achievement rate for the targets set1, thus almost meeting its CSR roadmap’s five-year target in year four. Legrand demonstrated once again its ability to meet key environmental, societal and technological challenges over the long term.
Dividend
The Legrand board of directors will ask the General Meeting of Shareholders to be held on
Based on the number of shares outstanding on
- distributable income in an amount of €0.933 per share on the one hand; and
- the “issue premium” account in an amount of €0.333 per share on the other.
Enhancing investments for the future
Innovation
In a growth-supportive economic environment, Legrand pursued its innovation momentum, with investments in new products totaling nearly €82 million in 2017, up +11% from 2016.
These ongoing investments enable Legrand to renew its catalog for product ranges in its historical business areas, including in 2017:
- Luzica and Clickme user interface ranges, designed for markets in
South America ; - a new easy-to-install home eco-meter that measures energy consumption in real time and can be programmed using NFC4 technology; and
- additions to installation component lines, including new multi-outlet sockets equipped with USB and induction chargers along with electric power supply functions.
1 For details on 2017 CSR performance, please visit Legrand’s website (http://www.legrand.com/EN/progress-tracking_13157.html).
2 Based on adjusted net profit attributable to the Group. Adjusted net profit attributable to the Group does not take into account the net favorable effect of significant non-recurring gains and expenses resulting from announced changes in corporate taxation, primarily in
3 Indicative split released for information purposes only and likely to be amended, depending on the number of shares entitling their holders to the distribution by the payment date.
4 NFC = Near Field Communication. Short-distance – a few centimeters – contactless communication technology.
At the same time the Group launched innovative solutions for markets buoyed by societal and technological megatrends, including:
- LCS3, an innovative high-performance copper and optical fiber cabling system for digital infrastructures; and
- new
UPS 5 solutions, with notably the launch in 2017 of the Daker+ and Keor T Evo ranges.
Moreover, since the launch of the Eliot program, Legrand has also steadily expanded its offering of connected solutions, which now comprises over 30 connected product families. Rollouts in 2017 included the EMS CX3 power metering system, the Smarther intelligent thermostat, and the IRVE 3.0 offering of charging stations for electric vehicles. At the same time, the successful deployment of the Classe 300X connected door entry system continued and in early 2018 Legrand launched in
Altogether sales generated by connected products rose nearly +12% in 2017, with total annual growth averaging close to +28% from 2014 to 2017. Eliot is thus proceeding in advance of its roadmap.
Momentum is set to continue with upcoming launches of:
- “Smart Lighting controls from the radiant collection”, an offering of connected sockets and switches for the American market for light control, sockets and other connected appliances in the home; and
- a range of lighting controls respectful of biological cycles, integrated into control devices from Pinnacle Architectural Lighting and into Wattstopper’s Digital Lighting Management range.
In the field of connected products, Legrand also relies on a number of partnership agreements. At the 2018 Consumer Electronics Show in
Within this framework, Legrand has teamed up with Amazon, Apple and Google. The Group also worked with Samsung to develop “Guest Room Management”, a new connected management system for Marriott International’s hotel rooms. The program also counts connected building players
Commercial and industrial initiatives
Legrand is also pursuing its commercial and marketing programs through:
- ongoing enhancement of digital marketing content for clients including distributors, prescribers and end-users (rich content);
- active contribution to the development of BIM6, an innovative process for digital planning of building life cycles;
- roll-out of digital promotion tools and ongoing enhancement of awareness amongst clients with digital communication campaigns such as “Il Mistero Sottile”, watched 6.5 million times online;
- expansion of its remote training offering for professional customers, which now includes webinars such as electrical installation management, maintenance of emergency lighting and the EMS CX3 connected offering; and
- expansion of its network of showrooms, with the opening this year of two Innoval spaces in
France (Bordeaux andLille ) and a third inBombay , as well as three new showrooms (inIndia , inAustria , and inAustralia , the latter being dedicated to the Eliot offering).
Legrand is also actively expanding its presence in markets offering long-term development opportunities. This includes
1 Uninterruptible Power Supply.
2 BIM =
At the same time, the Group is making targeted investments to digitize its manufacturing processes by:
- gradually rolling out applications designed to collect and analyze data for real-time control of manufacturing processes across the economic chain, allowing acceleration of its production cycles, and
- implementing solutions that assist intelligent production. These include AGVs1, Cobots2 and augmented reality, already installed at some plants.
Those initiatives are part of a global approach to manufacturing excellence.
Acquisitions
In 2017, Legrand pursued its strategy of acquisitions, making six external growth operations with companies operating in complementary segments driven by megatrends. These included:
- audio-video (AV) infrastructure and power in
the United States with the acquisition ofMilestone AV Technologies LLC (“Milestone”); - specification-grade architectural lighting solutions for non-residential buildings in
the United States with the acquisitions of Finelite and OCL; - solutions for datacenters with the purchase of
Server Technology, Inc. andAFCO Systems Group ; and - three-phase
UPS 3 systems with the signature of a joint venture agreement withBorri .
Based on acquisitions announced, the expected contribution of the broader scope of consolidation to Group growth should be over +7% in 2018.
More generally, these external growth operations should help raise on a yearly basis the share of Group sales made in new business segments4 to more than 38%5, and raise the percentage of Group sales made with products ranked #1 or #2 in their respective markets to around 69%5.
Milestone6: performance and potential fully confirmed
Milestone is a frontrunner in audio-video (AV) infrastructure and power in
Driven by societal (co-working and remote working) and technological (digital signage and streaming) megatrends, Milestone’s development relies on a business model similar to Legrand’s. This is built on:
- solid leading positions and well-known brands;
- a continuous stream of innovation backed by investment in R&D
- customer-centric sales support; and
- an active CSR policy.
Over full-year 2017, Milestone organic growth in sales stood at +3.0% – at the top end of the aim range announced7 – and adjusted operating margin was 21.8% against 21% in 20166.
More specifically, and linked to the mechanical impact of seasonal fluctuations in its business, the organic sales evolution for the last five months of 2017, corresponding to the period of time consolidated in Group accounts for the fourth quarter, was -2.1%6.
1 Automated Guide Vehicles.
2 Cobot: collaborative robots.
3
4 Digital infrastructure, energy efficiency, assisted living and home systems.
5 Based on 2017 sales including 12 months of acquisitions made in 2017.
6 For more details on Milestone, including 2016 performance, sales growth seasonality in 2017, and the company’s contribution to Group performance, readers are invited to consult pages 16 and 17 of this press release.
7 As a reminder, on page 10 of the press release announcing nine-month 2017 results (published
Moreover, short- and medium-term potential for commercial and cost synergies linked to the Milestone acquisition is confirmed at between 1% and 5% of Milestone’s 2016 sales. Against this backdrop, the Group set up, in particular, a new Audio-Video Division1 in
1 As announced on
2 International trade association grouping all players in home systems – manufacturers, designers and integrators.
----------------------
The Legrand Board of Directors adopted audited consolidated financial statements for 2017 at its meeting on
KEY FINANCIAL DATES:
- 2018 first-quarter results:
May 3, 2018
“Quiet period1” startsApril 3, 2018 - General Meeting of Shareholders:
May 30, 2018 - Ex-dividend date:
June 1, 2018 - Dividend payment :
June 5, 2018 - 2018 first-half results:
July 31 2018
“Quiet period1” startsJuly 1, 2018
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 €5.5 billion in 2017. The company is listed on Euronext Paris and is notably a component stock of the CAC 40 index.
(code ISIN FR0010307819)
http://www.legrand.com
ABOUT LEGRAND
*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 All communication suspended in the run-up to publication of results.
Appendices
Information on main impacts of tax changes adopted in 2017 in
1/ Changes in corporate taxation
In
- After the Tax Law for 2017 introduced a gradual reduction in the corporate income tax rate from 33% to 28%, taking full effect from
January 1, 2020 , the Tax Law for 2018 introduced a new gradual reduction in this rate to 25%, taking full effect fromJanuary 1, 2022 . - In 2017, a refund to companies by the French State of the tax on dividends paid since 2013 and payment by some companies of an exceptional income tax (partial financing of tax on dividends refund).
In the US
- Tax reform in the US includes in particular a cut in the federal income tax rate on American companies from 35% to 21% starting
January 1, 2018 .
2/ Non-recurring impacts on Legrand’s 2017 accounts
In
- Gradual reduction in the corporate income tax rate in
France to 25% in 2022.The gradual reduction in the corporate income tax rate announced in 2016 (from 33% to 28%) led to a mechanical revaluation of deferred tax liabilities on trademarks, accounting for most of the non-recurring non-cash tax income of €61.2 million booked in 2016.
The new gradual reduction in the income tax rate on companies announced in 2017 (to 25% in 2022) will have similar accounting effects, generating a €26.4m non-recurring tax income in 2017.
- The refund in 2017 of the tax on dividends (previously paid by Legrand) net of the exceptional income tax on French companies in 2017 generated a €18.3m non-recurring tax income in 2017.
In the US
- Tax reform, and in particular a reduction in the federal corporate income tax rate from 35% to 21% in 2018, generated in 2017 a non-recurring and non-cash net tax income of €40.8m in 2017, mainly due to the mechanical revaluation of deferred tax liabilities and assets.
Summary of non-recurring impacts on Legrand’s accounts in 2017 and comparison with 2016
€ million | 2016
reminder |
2017 | |||||
Tax income linked to mechanical revaluation of deferred tax liabilities on trademarks resulting from the announcement of reductions in corporate income tax rates, primarily in |
+61.2 | +26.4 | |||||
Tax income resulting from refund of tax on dividends paid since 2013, net of the exceptional income tax on companies in 2017 in |
0,0 | +18.3 | |||||
Net tax income linked to changes in corporate taxation in |
0,0 | +40.8 | |||||
Total non-recurring impacts | +61.2 | +85.5 | |||||
Information on main impacts of tax changes adopted in 2017 in
3/ Estimated recurring impacts on Legrand’s accounts after 2017
In tax-rate basis points | Starting in 2018 |
Starting in 2022 |
|||||
Estimated impact on US tax rate of changes in corporate taxation including the reduction in the federal income tax rate on US companies from 35% to 21% in 2018 | -11pts | ||||||
Estimated impact on French tax rate of the gradual reduction in the corporate income tax rate on French companies from 33% to 25% in 2022 | -8pts | ||||||
Estimated impact on Group’s tax rate |
-3pts1 |
-1pts2 |
|||||
1 Based on 2017 average exchange rates and sales including the full year impact of 2017 acquisitions.
2 Expected impact in 2022, considering the 2017 taxable basis and taking into account a full impact in 2022, as the corporate income tax rate is set to gradually change (31% in 2019, 28% in 2020, 26.5% in 2021 and 25% in 2022).
Updated information on Milestone (1/2)
Full-year 2017 performance
Consolidation
Milestone key figures |
2016 | 2017 | ||||||
Sales: | |
|
||||||
Adjusted operating margin: | 21%2 | 21.8% | ||||||
Sales
- Buoyant activity in the long run, but fluctuating by nature in the short term
- Milestone is in a buoyant market driven by societal megatrends (communications, security, co-working, remote working, etc.) and technological megatrends (digitalization, new display technologies, streaming, etc.). However its business is by nature subject to short-term fluctuations (projects, retail demand, etc.):
Jan. | Feb. | Mar. | Apr. | May | June | July | Aug. | Sept. | Oct. | Nov. | Dec. | 12 months | ||||||||||||||||||||||||||||||||
Organic growth 2017 vs. 2016 |
+19% |
-9% | +16% |
+1% |
+3% | +7% |
+12% |
-11% | +3% |
-4% |
+9% | -5% | +3.0% | |||||||||||||||||||||||||||||||
Q1 = +9% |
Q2 = +4% |
Q3 = +1% |
Q4 = 0% |
|||||||||||||||||||||||||||||||||||||||||
- 2017 growth in sales
In 2017, Milestone organic growth in sales was as follows: | ||||
January to December: | +3.0% | |||
January to July (pre-acquisition): | +7.0% | |||
August to December (post-acquisition): | -2.1% | |||
Performance over the consolidation period in 2017
Milestone
(5 months) |
||||
Sales | €187.5m | |||
Adjusted operating profit | €41.7m | |||
as % of sales | 22.2% | |||
1 See note 1.3.2 to audited consolidated financial statements at
2 Excludes non-recurring items.
Updated information on Milestone (2/2)
Financial fundamentals of Milestone’s acquisition
Annual cash impact (before synergies)
Announced in |
Impacts of US tax reform in 2017 | Announced in November after impacts of US tax reform | ||||||||
Normalized free cash flow generated by par Milestone1: |
|
|
|
|||||||
Annual cash tax benefit2: |
|
- |
|
|||||||
Financing costs: | - |
|
- |
|||||||
Milestone’s annual contribution to Group cash generation: | = |
= |
= |
Value creation (before synergies)
In addition to bringing highly valuable positions to the Group in a buoyant market and with solid fundamentals that are similar to Legrand’s, the acquisition of Milestone is, before synergies, value creative from year one:
Announced in |
Impacts of US tax reform in 2017 | Announced in November after impacts of the US tax reform | |||||||||||
Adjusted operating profit (21% of sales)1: | |
|
|
||||||||||
Income tax on adjusted operating profit: | - |
|
- |
||||||||||
Cash tax gain resulting from standard goodwill amortization2: | |
- |
|
||||||||||
Adjusted operating profit after tax + cash tax benefit: | (a) | = |
= |
= |
|||||||||
Gross price paid: | (b) | |
|
||||||||||
Return (including cash tax benefit) on invested capital | (a) / (b): | 7.4%* | 7.7% | ||||||||||
(* i.e., higher than the 7% WACC used when the acquisition was announced) |
|||||||||||||
Purchase Price Allocation (PPA)3 – non-cash impacts on the statement of income
Recurring non-cash impact from 2017 (5 months) through 2026: | |
|||
Non-recurring non-cash impact (2017 only): | |
|||
These non-cash expenses (with no impact on cash position) will have no impact on the Group’s adjusted operating profit
Synergies
Synergies: | between 1% and 5% of Milestone | |||
2016 sales | ||||
including medium-term commercial synergies (client cover, development of business in other distribution channels and geographical regions) and short- medium-term cost synergies (purchasing, production and administration).
Against this backdrop, the Group set up, in particular, a new Audio-Video Division in
1 Based on Milestone data for 2016 and excluding non-recurring items.
2 Cash tax benefit with no impact on statement of tax income.
3 See note 3.2 to audited consolidated financial statements at
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 months’ 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), reversal of inventory step-up 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
Calculation of working capital requirement
In € millions | 2016 | 2017 | |||||
Trade receivables | 564.2 | 624.9 | |||||
Inventories | 670.6 | 747.4 | |||||
Other current assets | 164.8 | 184.1 | |||||
Income tax receivables | 41.1 | 48.0 | |||||
Short-term deferred taxes assets/(liabilities) | 83.1 | 83.4 | |||||
Trade payables | (558.3) | (612.9) | |||||
Other current liabilities | (546.2) | (583.7) | |||||
Income tax payables | (30.8) | (37.7) | |||||
Short-term provisions | (82.4) | (75.3) | |||||
Working capital required | 306.1 | 378.2 | |||||
Calculation of net financial debt
In € millions | 2016 | 2017 | |||||
Short-term borrowings | 346.4 | 585.4 | |||||
Long-term borrowings | 1,550.7 | 2,457.1 | |||||
Cash and cash equivalents | (940.1) | (823.0) | |||||
Net financial debt | 957.0 | 2,219.5 | |||||
Reconciliation of adjusted net profit attributable to the Group before Milestone PPA, adjusted net profit attributable to the Group and net profit attributable to the Group
€ million | 2016 | 2017 | |||||
Adjusted net profit attributable to the Group before Milestone PPA | 567.3 | 641.7 | |||||
Non-cash after tax impacts(1) linked to Milestone Purchase Price Allocation (PPA), reflecting:
|
0.0
0.0 |
(5.8)
(10.2) |
|||||
Adjusted net profit attributable to the Group | 567.3 | 625.7 | |||||
Tax income linked to mechanical revaluation of deferred tax liabilities on trademarks resulting from the announcement of reductions in corporate income tax rates, primarily in |
61.2 | 26.4 | |||||
Tax income resulting from refund of tax on dividends paid since 2013, net of the exceptional income tax on companies in 2017 in |
0.0 | 18.3 | |||||
Net tax income linked to changes in corporate taxation in |
0.0 | 40.8 | |||||
Net profitable attributable to the Group | 628.5 | 711.2 | |||||
(1) 2017 non-cash impacts linked to the Purchase Price Allocation (PPA) of Milestone – after tax, converted into Euro and prorata temporis as far as the amortization of intangible assets is concerned (for further details on these impacts, see page 17 of this press release).
Reconciliation of adjusted operating profit with profit for the period
In € millions | 2016 | 2017 | |||||
Profit for the period | 630.2 | 713.2 | |||||
Share of profits (losses) of equity-accounted entities | 1.3 | 1.5 | |||||
Income tax expense | 218.6 | 224.2 | |||||
Exchange (gains) / losses | (6.5) | 8.3 | |||||
Financial income | (10.9) | (13.7) | |||||
Financial expense | 101.3 | 92.1 | |||||
Operating profit | 934.0 | 1,025.6 | |||||
Amortization & depreciation of revaluation of assets at the time of acquisitions and other P&L impacts relating to acquisitions | 44.5 | 79.3 | |||||
Impairment of goodwill | 0.0 | 0.0 | |||||
Adjusted operating profit | 978.5 | 1,104.9 | |||||
Reconciliation of EBITDA with profit for the period
In € millions | 2016 | 2017 | |||||
Profit for the period | 630.2 | 713.2 | |||||
Share of profits (losses) of equity-accounted entities | 1.3 | 1.5 | |||||
Income tax expense | 218.6 | 224.2 | |||||
Exchange (gains) / losses | (6.5) | 8.3 | |||||
Financial income | (10.9) | (13.7) | |||||
Financial expense | 101.3 | 92.1 | |||||
Operating profit | 934.0 | 1,025.6 | |||||
Depreciation and impairment of tangible assets | 97.1 | 99.8 | |||||
Amortization and impairment of intangible assets (including capitalized development costs) and reversal of Milestone inventory step-up | 77.9 | 116.1 | |||||
Impairment of goodwill | 0.0 | 0.0 | |||||
EBITDA | 1,109.0 | 1,241.5 | |||||
Reconciliation of cash flow from operations, free cash flow and normalized free cash flow with profit for the period
In € millions | 2016 | 2017 | |||||
Profit for the period | 630.2 | 713.2 | |||||
Adjustments for non-cash movements in assets and liabilities: | |||||||
Depreciation, amortization and impairment | 177.4 | 217.7 | |||||
Changes in other non-current assets and liabilities and long-term deferred
taxes |
(3.0) | (12.9) | |||||
Unrealized exchange (gains)/losses | (16.2) | 0.6 | |||||
(Gains)/losses on sales of assets, net | 0.8 | 0.1 | |||||
Other adjustments | 2.2 | 1.1 | |||||
Cash flow from operations | 791.4 | 919.8 | |||||
Decrease (Increase) in working capital requirement | 40.4 | (56.1) | |||||
Net cash provided from operating activities | 831.8 | 863.7 | |||||
Capital expenditure (including capitalized development costs) | (160.9) | (178.2) | |||||
Net proceeds from sales of fixed and financial assets | 2.1 | 10.3 | |||||
Free cash flow | 673.0 | 695.8 | |||||
Increase (Decrease) in working capital requirement | (40.4) | 56.1 | |||||
(Increase) Decrease in normalized working capital requirement | (8.7) | (16.7) | |||||
Normalized free cash flow | 623.9 | 735.2 | |||||
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 | ||||||||||
|
Balance sheet only | 5 months | 8 months | ||||||||||
Jontek | Balance sheet only | 5 months | 8 months | ||||||||||
Trias | Balance sheet only | Balance sheet only | 8 months | ||||||||||
|
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 | |||||||||
|
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 | |||||||||
|
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 | |||||||||
|
Balance sheet only | 5 months | 8 months | ||||||||||
Finelite | Balance sheet only | 4 months | 7 months | ||||||||||
Milestone | Balance sheet only | 5 months | |||||||||||
Server technology | Balance sheet only | ||||||||||||
Equity method | |||||||||||||
TBS(1) | 3 months | 6 months | 9 months | 12 months | |||||||||
|
Balance sheet only | Balance sheet only | 8 months | ||||||||||
(1)Created together with a partner, TBS is to produce and sell transformers and busbars in the
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 (
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.
Change in governance
From
Separation, on a long-term basis, of the offices of Chairman and of Chief Executive Officer:
As of
Franck Lemery Chief Financial Officer
Separation, on a long-term basis, of the offices of Chairman and of Chief Executive Officer with effect from
In this respect, further to Gilles Schnepp’s proposal and the recommendation of the
Consequently, the Board has decided to renew Gilles Schnepp’s appointment as Chairman of the Board of Directors, to recommend that his appointment as board director be renewed at the next General Meeting of shareholders which is to be held on
The appointment of
Following the board meeting on
Following his appointment,
As of
Biographies
---------------------
KEY FINANCIAL DATES:
- 2018 first-quarter results:
May 3, 2018
“Quiet period1” startsApril 3, 2018 - General Meeting of Shareholders:
May 30, 2018 - Ex-dividend date:
June 1, 2018 - Dividend payment :
June 5, 2018 - 2018 first-half results:
July 31 2018
“Quiet period1” startsJuly 1, 2018
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 €5.5 billion in 2017. The company is listed on Euronext Paris and is notably a component stock of the CAC 40 index.
(code ISIN FR0010307819)
http://www.legrand.com
ABOUT LEGRAND
*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 All communication suspended in the run-up to publication of results.
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 (
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.
In accordance with Regulation (EU) 2016/1055 of the
View source version on businesswire.com: http://www.businesswire.com/news/home/20180207006395/en/
Investor relations
Legrand
[email protected]
or
Press relations
Vilizara Lazarova
Tel: +33 (0)1 44 82 46 34
Mob: +33 (0)6 26 72 57 14
[email protected]
or
Mob: +33 (0)6 81 77 76 43
[email protected]
Source: Legrand
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