Legrand S.A.

Antoine Burel - EVP & Group CFO Gilles Schnepp - Chairman & CEO

Simon Toennessen - Berenberg Bank Gail Dubray - Deutsche Bank James Stettler - Barclays Capital William Mackie - Kepler Cheuvreux Andreas Willi - JPMorgan Andrew Carter - Royal Bank of Canada Andre Kukhnin - Credit Suisse

Thank you. And good morning or good afternoon to all of you.

Francois Poisson and myself are happy to welcome you to the Legrand 2016 first quarter results conference call. Let me first remind you that we have published today our press release, our financial report and a slideshow to which I will refer.

Those documents are available on our website. And let me also say that our conference call is recorded and is webcasted on our website.

Okay, today I would like to begin with a kind of a brief introduction before commenting to more details of our 2016 first quarter results. I will refer then to the slideshow, I start on page 4.

To me there are three main takeaways from our first quarter achievements. The first take away is that 2016 first quarter operating achievements are solid.

Group sales rose plus 1.9% organically, boosted by a particularly good relative performance in the U.S., outside of the U.S. organic change in sales were about flat.

As far as the profitability is concerned, adjusted operating profit showed a healthy plus 3.7% demonstrated our ability to create value. And the second takeaway is that consistently with what we said early Feb, we have been active in terms of M&A with six deals announced since the beginning of the year, including two new transactions announced today.

So all-in-all six acquisition totaling annual sales of around €130 million. The third main takeaway of this publication is that we confirm our 2016 targets.

Let's now start with another view of the Q1 sales on page 6. You see that total sales were up plus 2.1% driven, number one, by a 3% rise coming from acquisitions.

Number two, a healthy organic growth of plus 1.9%. And number three, a negative Forex impact of 2.8% mainly due to the decline in currencies of some new economies.

Let me now go into more detail regarding the like for like evolution of sales by reporting segment. Please refer to pages 7 and 8 of the slide show.

In France the organic change in sales in the first quarter of 2016 was minus 4%, but excluding the announced effect related to some order failing by distributors sales were down around minus 2%, a performance in line with the estimated trend in Legrand's market. As far as market segments are concerned, leading indicator for new residential construction are improving but this trend should only be reflected in Legrand's sales with a few quarter of lag, as usual I must say.

I also remind you that new residential activity represents 15% to 20% of Legrand's sales in France. Talking about other segments of the construction market, indicators call for a slow improvement.

The last comment on France to remind you that the second quarter of 2016 will be a demanding basis for comparison due to new product launches. That's for France, I'm moving on to Italy where sales were up 4.7% like for like from the first quarter of 2015.

2016 first quarter performance was driven by commercial successes in energy distribution and also benefited from a favorable basis for comparison. I remind you that the organic change in sales in the first quarter of 2015 was negative 1.2%, while 2015 full year organic growth was positive 0.8%.

More fundamentally the market trend seems to move from stabilization toward improvement. Moving to the rest of Europe, sales were up plus 4.5% like for like.

Several major countries reported healthy growth including Germany, Austria, Spain, Greece and Portugal. We also recorded some growth in sales in many new economies such as Turkey, Hungary, Slovakia and Czech Republic.

Over the same period sales in Russia showed a moderate decline. North and Central America now, one quick comment before entering the performance analysis, as announced starting Jan 1st this year the U.S.A Canada region became the North and Central America region and now comprises the U.S.A, Canada, Mexico and the other countries in Central America.

This change reflects our organization there. With all of these countries now headed by the same management which is consistent with the region's market structure.

Now, coming back to the performance, North and Central America organic sales were up 7.6% from the first quarter of 2015. This is for the total region.

In the U.S. alone Legrand recorded organic growth of plus 6.9%, outperforming trends in Legrand's market.

This was notably driven be one-off effects linked to the ongoing success of our digital lighting management activity, plus good showings in the non-residential segment. Excluding this one off effects, sales in the U.S.

alone showed an organic rise in the neighborhood of plus 3%, in line with the estimated trend in Legrand's market. One last comment, if I may, on the U.S., but I guess you all have this in mind as we have already talked about it many times.

I remind you that in the U.S. Q2 and Q3 of 2015 represent challenging basis for comparison as at that time our sales benefited from an inventory buildup by distributors following the announcement of the launch of a new generation of GFCI.

This is for the U.S. And in the rest of the region I see mainly Mexico, Costa Rica and Canada, sales as a whole were also well-oriented in the first quarter of 2016.

Let me now talk about the rest of the world where sales declined minus 2.4% like for like. Sales continued to rise in many countries including India, Chile, Colombia and South Africa.

On the contrary in some other countries including Brazil and most Middle Eastern countries we experienced a decline in sales due to unfavorable economic conditions. To finish on this region, a specific comment about China.

The change in sales was positive in the first quarter of 2016 as a result of one-off effects linked to both government measures aimed at supporting housing sales and a favorable basis for comparison, but clearly the Chinese market trend is still downward. Before commenting on the Group profitability three last comments on sales.

The first is on organic growth. As said, Q1 has benefited from one-offs notably in the U.S., Italy and China, just to name the most relevant items.

And conversely, Q2 and Q3 2015 are demanding basis for comparison, most notably for France and the U.S. The second comment is on the scope effect, based on acquisitions announced and they're likely that of consolidation, the total change in the scope of consolidation should boost consolidated sales of the Group for 2016 by over plus 3.5%.

And the third and last comment is about Forex. Taking into account exchange rates at April 30th, the full-year Forex effect would be close to minus 3%.

Let me now say a word on profitability. On page 9, where we compare Q1 2016 adjusted operating margin to Q1 2015 adjusted operating margin.

As you can see, adjusted operating margin, including acquisitions came to 19.1%, up 30 basis point on 2015 for the same period and the adjusted operating income was up 3.7% on Q1 2015. Before acquisitions, adjusted operating margin came to 19.2% in Q1 of 2016, to be compared with 18.8% in Q1 of 2015 which is a 50 bps improvement.

Sorry, 40 bps, yes 19.2% in Q1 of 2016 versus 18.8% i.e. 40 bps improvement.

As a preliminary comment on the profitability analysis, I would like to say that unlike in 2015, the inventory buildup of manufactured goods and the mix effect linked to strong growth in the U.S.A Canada region had no material impact on adjusted operating margin in the first quarter of 2016. Therefore, the improvement of 40 bps in adjusted operating margin before acquisitions is mainly due to good operating performance in the context of growing sales in several countries, including the U.S.

but also achieved in a context of ongoing adaptation initiatives such as [indiscernible] in countries affected by unfavorable economic conditions. And I remind you that we manage the financial performance on a country-by-country basis through financial performance contract which includes all the operating expenses and restructuring charges.

And coming back to figure on page 10, let's turn to net income excluding minorities which was steady at €127.4 million for the first quarter of 2016. This is made of a good operating performance that I have just commented and this good operating performance was offset by some items like mechanical decline in Forex results and a bit of rise in net financial expenses and in income tax.

It is interesting to note that excluding the impact of the Forex results for both periods, net income excluding minorities would come in the first quarter of 2016 close to 2% above Q1 of 2015. As a whole net income excluding minorities accounted for LC 10.7% of sales in the first quarter of 2016.

Moving to the left, a key indicator of the financial performance on page 11, as you all know regular cash generation is a key feature of Legrand's business model and it enables the Group to finance its development. And getting into figures, you see on the right-hand side of the slide that normalized free cash flow came to a healthy 13.1% of sales in Q1 which is in line with our ambition of generating normalized free cash flow of between 12% and 13% of sales.

On the left-hand side of the slide you see that this performance was supported by robust cash flow from operation of €181 million or 15.2% of sales. Investments and working capital requirement are under control and are on the right trajectory to meet our ambition.

When we're now on acquisitions on page 13, as announced early Feb Legrand has an active acquisitions pipeline in markets offering favorable economic conditions. Against this backdrop Legrand has announced six acquisitions since the beginning of the year, including two new deals today.

On top of the list that you see on the slide, Pinnacle Architectural Lighting, one of the U.S. leaders in architectural lighting solutions, for non-resi buildings, it complements our existing solution in lighting controls through our Pass & Seymour and Watt Stopper brands.

Second transaction, Luxul Wireless is a U.S. leader in high-end audio/video infrastructure products for residential buildings and small- to mid-size commercial buildings and this acquisition will complete our U.S.

offering of structured cabling for housing. We also announced two new deals when releasing our 2015 full year results in Feb.

You may remember that with Fluxpower in Germany and Primetech in Italy, both specialized in UPS. And today we announced two new transactions that together represent annual sales of around €10 million.

The acquisition of Jontek, a UK specialist in solutions for monitoring assisted living platforms that will complement Stinetex's [ph] offerings in the UK and the signature of a joint venture agreement to purchase Trias, an Indonesia specialist in cable management and distribution cabinets. All in all, six deals announced since the beginning of the year, totaling annual sales overall €130 million.

Turning now to the last part of my presentation on page 15. And as said earlier we confirm our 2016 targets and in more details Legrand confirms its 2016 target for organic change in sales of between minus 2% and plus 2% and its 2016 target for adjusted operating margin before acquisitions, i.e., at 2015 scope of consolidation, of between 18.5% and 19.5% of sales.

With this in mind, ladies and gentlemen, Francois and I are ready to open to questions.

Two questions from my side. The first one on your French business, obviously you talked about the comp effect in the second quarter and the residential market.

Can you give us a rough idea what you think the impact from the product launches was last year. I know it's much easier for you to comment on what the impact from restocking was, but if you could just have, give us a rough guide what you think last year the impact was on growth?

Just to have it a bit easier in terms of modeling there. And if you can just comment generally on France, maybe also for the second half, whether you would expect that to be in positive growth territory in the second half of the year?

And the second question on M&A, you have done quite a bit more since the beginning of this year than you have done in the previous year's often, even on the full year basis, how does the pipeline look for the rest of the year? Are you confident that you could do even more deals in the second half?

And in that regards particularly interested in the Pinnacle Lighting deal, if you can just talk a bit there about the strategy for this sort of product area and whether the, if you can say whether the margin of Pinnacle is roughly where the U.S. margin is, just to help us a bit there.

And your first question is about the French business and this basis for comparison of Q2 of 2015, I referred to. It's a bit difficult to really point out the specific inventory buildup you were mentioning, but maybe to give simple figures.

We said last year achieving minus 2.5% organic change in sales, in France that this minus 2.5% was in line with the market trend and minus 2.5% for the full year. And we also reported plus 2% for Q2 only and it's just a way to illustrate this challenging basis for comparison, plus 2% for Q2 only and minus 2.5% for the full year, a trend which was in line with market trend.

The second question is about the M&A dynamic. Then it was quite a good dynamic as announced in Feb 2016 and we're happy with the six deals managed so far or announced so far and of course we remain active.

Now, it's very difficult to provide [indiscernible] for the full year as you know that also the pipe remains active, it takes sometimes one week, one quarter, one year, I don't know how to continue this list, but - to close a deal because these questions are always very [indiscernible]. And then we want to take our time to make sure that on both side of table sellers and buyers are happy about the deal.

And it takes time and I cannot give you any [indiscernible] for the full year. But again the pipe remains active and we're happy of what we have done so far.

Your third question was about lighting, our acquisition of Pinnacle. And the strategy we have, the strategy we have remains the same.

You know that our remaining strategy is aiming at complementing our geographical presence, our channel presence, our product offerings and clearly Pinnacle is in this category. First, it was in the U.S.

and it's a country where the conditions for acquisitions are good today. And you may know that Legrand has already a strong presence in lighting control for non-residential buildings in the U.S.

on two of the three main technologies that are used for lighting control. The first one being wall solutions, Legrand in the U.S.A is number two in user interfaces under the Pass & Seymour business.

And the second technology we already had is the lighting control panel solutions. And you also may know that Legrand is in the U.S.

the leader in highly energy efficient lighting control. There is the Watt Stopper business that actually is doing very well.

And then Pinnacle is really for us a good compliment, as it will bring a significant presence in the cert technology i.e., control in lighting features.

And about the margin, if you can comment whether it's roughly where the U.S. margin fits?

Your question was both on the U.S. margin and the acquisition margin, if I am correct or maybe--?

Yes, just a rough guidance whether the - I know you're not going to comment specifically on Pinnacle business but whether the margin is relatively close to where the margin of your U.S. business is.

First, about the U.S. margin, maybe a first comment saying that they are still improving, thanks to, in a context of growing sales.

And then we continue to have this balanced strategy creating value, that's the first point. And today the performance of - if we look at the new region that we call North and the Central Americas, total performance or the total profitability of the region is now close to Group.

That's the first point. And second, as far as acquisitions are concerned we do not disclose in detail those profitability, but maybe two comments, Pinnacle has a good profitability and the fact that this company has a good position in the market in its segment is also a driver for having a decent profitability, that's the first point.

And second, it's an activity that is well balanced between gross margin and SG&A if I was to call it like that - well balanced, is that it's clearly a growing business, that we have to fuel with interesting SG&A and R&D but that is delivering a very decent gross margin. And as a whole, decent profitability as it is a good activity, a growing activity with its good positioning on the market.

The first question is on the margin trend or the margin trajectory in France. Apparently the Q1 margins are down almost 400 bps in France.

Can you comment on whether you're seeing some of your competitors perhaps being a bit more aggressive than usual or is it a function of maybe the need to invest a bit more than usual in marketing, selling or innovation expenses today to be pretty prepared for when the market really picks up in France possibly at year end. So that's question number one.

Question number two is on the pricing trends. Could you comment on the sort of price rises you achieved in Q1?

And in particular, I would like to see whether you still manage to pass on price rises in countries where volumes have been down like Brazil, the Middle East or even China. And if I can, a third question related to - or in relation to Pinnacle, I guess the question is shall we expect similar transactions in the future possibly in Europe.

I guess my question is whether you intent now to put more emphasis on the lighting feature and lighting control markets going forward in Europe compared to what you had done in the past?

The first question is about the margin trajectory in France. Your figures was correct.

Q1 2016 maybe it's a bit - yes, Q1 2016 France adjusted operating margin was at 15.4% vis-a-vis last year 19.7%. And you referred to around the 400 bps decline which is correct.

As explained in November and February, France margin is made up of two parts and this is very important to keep that in mind. The first part which is of course, the most important one to monitor or is the only one to monitor, if I may say, is the domestic activity which is under the responsibility of the France general manager.

And the second part is Group related activities made of intercompany sales and the support to all countries, the support being under the responsibility of SBUs and corporate functions. And as far as the Group related activity, then second part, then as far as this second part is concerned, it represents the largest impact with close to minus 300 bps, minus 270 to be precise and this includes a fluctuation of intercompany sales and Group function cost base which both in reality nothing to do with the France operating performance.

Therefore, what is relevant is the French domestic activity performance which is the balance of the figures I just mentioned, i.e. 160 bps.

And this evaluation of the margin for this French domestic activity should be seen in the perspective of sales down minus 4%. This is for margin trajectory in France.

And then you also mentioned are we more aggressive, investing more to prepare the recovery of the market. I would say we're doing a bit day-to-day business than continuing to invest to do good innovation and fuel the market as we have to do, as we're leader but not doing specific things that would change the margin trajectory of France.

The second question was about pricing trends, then maybe I start with the global picture and [indiscernible] picture. Pricing in the first quarter of 2016 was slightly above 1%, actually excluding pricing to compensate currency devaluation versus euro - you know that this currency devaluation occurred in some new economies, you mentioned Brazil for example and then wherewith.

But in Brazil we were able to increase our prices to compensate this devaluation, then pricing was positive in Brazil in Q1. And then excluding, to come back to my comment, excluding these pricing to compensate currency devaluation versus euro, pricing as a whole for the Group was slightly below 1%.

In front of that, price of consumption and it was not directly your question. But you ask about our ability to cover our inflation received and I'll give you detail.

Then price of consumption was down between minus 0.5% and minus 1%. And you also have to keep in mind that wage inflation was positive or is positive all across the world for Legrand.

And this is where we measure the effect of our pricing versus inflation, then at this adjusted operating level pricing effect covers all inflation received, actually with a very slight bonus in Q1 of 2016. So third question was about Pinnacle and what would be our strategy for that.

Then clearly what I have said, answering the first question is to add all what is technology to Legrand in terms of lighting control. Then again we represent two of the three main category and these category or these new acquisition is bringing us or providing us with a third category.

And this is the strategy we have. I would say convinced that lighting control for Legrand is a clear and a very good strategy providing not only growth but also profitability.

And this is the rationale for this acquisition that it's more a question of making sure that we're going to complement existing offering that are good and healthy for good growth and profitability. Then it's not I would call it a global strategy that we change that would be a new strategy of Legrand.

It is just a usual strategy that is finally the rationale for the acquisition of Pinnacle.

Just a follow up on the pricing trends in China. What you're seeing there?

In China, as in other countries, I, yes, answered your question about the Brazil. But first, Gail, that we do not disclose pricing management by country.

But I would say the rationale is the same that in slow products where we have finally really very strong dispersion in terms of consumption or commodity price categories and where we have good market share, it's easy for us to continue to match prices up. And then we have all other categories including in China, for example, in products that have - with a very high content of copper in China where we adapt our prices according to copper prices trend.

And you know that for example in China in Q1 of 2015 the currency variation of Chinese Yuan versus USD was very limited. And then it's clear that we have benefited in China of the decline of prices in copper.

And then according to that we have adjusted our prices to make sure that we're not pricing ourself out of the market. And this is really the - I would say the strategy we stick to everywhere in the world.

It's a slow category where we continue to have this pricing ability and all this other categories in which it is not a question of pricing ability, it's just a question of having products with a very high content of material and then in this kind of situation we adapt according to commodity prices trend.

I had two questions. First of all around CapEx R&D investment and just going back to the fourth quarter call where you spoke about the longer term ambition to be in the range of 3% to 3.5%, can you just take us where we were on the first quarter to think CapEx on its own was 1.4% of sales and this is where you are on sort of capitalizing R&D and perhaps a trajectory to the higher investment that would be associated with the Internet of Things and Eliot.

And the second question was on tax rate, with more U.S. profits what would your guidance be for tax rate for this year?

Your first question is about CapEx and the R&D investments. Your point is correct, but first about CapEx, the figures you have mentioned are correct, but first maybe one position to say that when we measure CapEx at Group level we measure them including capitalized R&D and then the figures you have to see in Q1 of 2016 is 2% and not below that.

And if you were to compare the CapEx investments of Q1 of 2016 to Q1 of 2015 you would see that finally there is a form of usual seasonality in CapEx, then Q1 is always lower and there is no change in our strategy. We'll continue of course to invest, to invest in new products, to invest in CapEx.

And what I said during my initial presentation is that we're, as far as CapEx and R&D concerned or working capital requirement or what is the ratio that we have to manage on the yearly basis and not on a quarterly basis, we're on the right trajectory to meet our ambitions. Your second question was about the tax rate, then maybe one first preliminary comment to say that if we were to be - or to look at what we call normative tax rate of Legrand depending on our geographical exposure or what would be the tax rate based on that, it is in the range of 35% and then like every companies we have some initiatives.

Of course without taking risk because this is a particular feature of Legrand to control the risk and manage the risk then it's opportunistic initiatives we're implementing to lower our tax rate. But without putting the Group at risk.

And then this is the reason why we reported in Q1 of 2015 not 35% but 32.6%. And your question was about the guidance for the full year.

It's always difficult to predict. But first the IFRS rules requires that we account for a tax rate in Q1 that would be consistent with the full year.

And this is what we have tried to do. And then the 32.6% for, sorry, of Q1 implies that we're shooting for something in the range of 32% to 33% for the full year of 2016.

And, sorry, just on the ambition of the CapEx and capitalized R&D. Do you think you will be in that bracket of 3% to 3.5% this year or is that more next year?

The 3% to 3.5% is more an average. You have to look at on the long term and then it does not mean that we're not going to be at 3% this year maybe we will reach this 3% or even 3.5%, 3.5% maybe is a bit too much for this year.

But, no 3% remains something I would call it achievable for 2016. Now, you have to keep in mind that CapEx like R&D, like other stuff like that cannot be really analyzed only on a yearly basis because you can have some particular investments in the last quarter of 2016 or in the first quarter of 2017 that could change the picture.

But clearly and this is certainly what you have to keep in mind, the 3% to 3.5% which is actually a performance much lower than what we experienced in the past is something now that is the right trajectory to manage the development of the group.

And I couldn't see the expensed P&L figure and I appreciate that the figures are probably out there but I haven't been - time to digest them all, did you release the expensed R&D in the first quarter in the P&L?

Yes, if you look at our statements you will find - if it is your question you will find in the cash flow statement for example, what was capitalized analyzing finally what is pure CapEx and what is CapEx coming from capitalized R&D. It's on page 6 of our financial statement, page 6.

Could you comment a bit on the margin improvement in the rest of the world? And then question number two, as you look across the portfolio and obviously you're making all these bolt-ons to address white spots, can you really talk about where you see further areas that you need to increase through acquisitions, where you think your presence is below where it should be?

Yes, your first question is about the margin improvement in rest of the world, but it's an obvious question but maybe one word first about the total profitability of the Group and very important to understand that we manage the Group on a country-by-country basis and not, I would say, region-by-region if I were to call it like for rest of Europe and the rest of the world. And then to come back to your question, adjusted operating margin is up 30 bps in Q1 of 2016, vis-a-vis Q1 of 2015, maybe I would have to say that it's 210 bps excluding acquisition, it could be surprising but it plays the other way round then as usual.

And, yes, it's a good performance in a context of organic growth by origin almost flat and some intra-company activity. This being said and my comment is not only for rest of the world, it's also for rest of Europe but you know that those are two regions are made of a mixed bag of about 40 countries each.

Each country again being managed through a financial performance contract. Each country of rest of Europe and the rest of the world have its own profile of profitability which relate on market shares.

And then the profitability of rest of Europe and rest of the world may fluctuate based on a sales trend from one country to the other creating a mix effect within each zone. And sorry for this answer, but this is really what is happening within these two world.

Actually rest of Europe is down 70 bps in the context where the total activity of the region is up in terms of sales and you have exactly the contrary in terms of, I would say, intuitive trends, having more sales and then expecting leverage in the rest of Europe. And then we have less sales and we could expect less margin in rest of the world.

But again, this is really due to the fact that we have this mix bag of countries. On a county-by-country basis the performance of Q1 of 2016 is clearly consistent with the one of the year before including organic change in sales.

Can I just ask you, is there any sort of relationship between the drop in France which is as you said linked to exports and the increase in the rest of the world?

Sorry, please, could you say again?

Is there any relationship between the drop in France which you say is linked to exports and the increase in rest of the world?

This is a good point. I cannot make the exact correlation but clearly and this is what we have stated in the past for Italy.

When you have an increase of the activity in some region of rest of Europe and rest of the world, sorry and if U.S. products are sourced from Italy or for France as you have this breakdown of margin between the two, you can have this kind of effect that you're referring to.

And then, yes, in France and this was part of my comment following the question of Gail, part of the explanation of the drop of the margin in France which is related to Group activity is due to that. Your question number two was is there any region where we think that we should increase our presence through acquisitions?

First, and this is something that is important to point out, we have no quota, then finally we look at our pipeline and we take acquisition by acquisition and see if it's a good opportunity for Legrand. Legrand, the global presence of the Group in the world is quite well in line with the world GDP and this is something we're clearly rebalanced over the past decades or past 15 years having now a good presence in the U.S., good presence in new economies and a less presence in other mature countries with this quite balanced exposure vis-a-vis world GDP and then we do not see any issue at this level.

And the third point which is driving finally is the activity of M&A and this is something that we have explained during the publication of full year of 2014 and full year of 2015, is that there is a strict correlation between economic conditions and opportunities. And you see the reason why.

For example, today we're doing well in the U.S. We were also able to make an acquisition in Italy, Italy is recovering.

And also one in Germany with Fluxpower and another one in Italy in the UPS activity, again two countries we're seeing that improving. And then to sum up we have no quotas, second we have quite a balanced exposure to - in terms of a comparison of world GDP to Legrand exposure.

And third there is a strict correlation between economic conditions and opportunities.

Firstly, on the guidance for growth that you've given for the full year the range still appears quite wide in the context of the Q1 performance. What do you envisage could happen to push you to the lower end of the range or rather why have you retained such a cautious downside in the guidance that you've given?

The first point. Secondly, I come back to the commentary you gave on the last question.

Can you just help us understand why against 5.4% underlying growth in rest of Europe the margin fell from 16.8 to 16.1. I understand the complexity of the many countries maybe just some flavor on what's happened there, is it Russia or something?

And then also with regard to margin evolution, help us to understand a little more of the margin development in the North America, Central America region. What was the level of drop-through you achieved from the growth within the U.S.?

Is that the principal driver for the margin expansion in Q1? And then in the U.S.

how sustainable is this growth? You mentioned a number of exceptional factors.

Will they also play out into the second quarter?

Your first question is about the guidance. I'm not sure you will be fully happy with my answer but it will be very synthetic.

You know that this is your feeling that our target could seem to be a bit conservative or cautious, then first the correlation between organic growth and change in margin is not as strict as automatic as you can imagine. Although, on a country-by-country basis it could be the case and I will come back on that commenting on your question about North America.

But as a whole this is not fully automatic. And second this is the most important part of my answer is that it is too early to revisit targets as one quarter performance is not representative enough to draw a trend on a full year.

Then clearly, we have explained in detail the rationale for our guidance for 2016 when publishing our full year 2015 result and then we stick to it. And now what is interesting to notice that based on the performance of Q1 we're able to confirm our 2016 target.

Your second question is about rest of Europe. Actually, I understand that's beyond your question and I will give you comment on the total figure, but beyond your question there is the question of a potential issue in Russia.

Russia being of course country particularly affected by current economic conditions. First about rest of Europe, yes, we have - we experienced a growth and we have minus 70 bps performance as far as adjusted operating margin is concerned.

Actually, if we look at the gross margin minus SG&A and excluding some of the items, it is up 20 bps, but this is not the main interesting part of my explanation. I just come back to this mixed bag of countries.

This is really the rationale for having the situation. And second, as far as Russia is concerned, the team is doing a very good job and adapting to current economic condition, i.e.

adapting its cost base to the situation but also managing pricing very, very closely to make sure that we adapt to inflation, as I mentioned earlier. Inflation in commodity or deflation, inflation in wage inflation and also because this is one of the explanation of the part of the pricing of the Group coming from currency devaluation and also for Russia adapting to - as a ruble variation vis-a-vis the euro vis-a-vis the USD.

And then to sum up, in Russia margin is under control and there is no deviation in margin in Russia in relation with current economic condition. And this is not - this will not be an explanation for having this slight drop of operating margin or adjusted operating margin in rest of Europe.

If I'm correct, your following question was about margin evolution in North America. Then for North America, there is two part in your question.

One is the margin and second is the sustainability of the growth. And then if I start with the U.S.

margin, we have - first if we start with figures, the profitability at 18% and this is a new region, it's not only U.S.A, Canada, it's the new region we're reporting on. And this 18% in Q1 of 2016 has to be compared to 17.2% last year and it's 80 bps and even more if we exclude acquisitions.

And clearly the good performance here is reflecting sales trend. And this is very much the way we manage country you - and again you know that we manage our country on a country-by-country basis with the financial performance contracts.

Actually, not only one but several depending on economic condition asking for depending on the existing margin of the country or concern, we can ask for leverage, we can ask for only value, we can ask for both. And in the context of the U.S.A, Canada - the North America, Central America climate.

This is now on this new climate that we comment on profitability. We have this balance approach between growth and value creation and leverage on margin and this is very well applied by the team there and the leverage on margin is coming from that.

Your last question was about the sustainability of the U.S. growth.

We have first, you know that that it's a particularity of our business and it applies to the U.S., no order book and no visibility. Now, it's very important for us and this is what we're doing to monitor what are or what could be the basis for comparison.

And first, if we come back to Legrand organic growth in sales in Q1 of 2016 we have outperformed trends in market indicators. And it was driven in particular by some one-off effects linked then to the ongoing success of the digital lighting management offering.

You know that we're talking about the highly energy efficient lighting control activity plus a good showing in the non-resi segment. And then excluding these one-off effect sales in the United State then showed an organic growth, as said earlier, in the neighborhood of plus 3%, in line with the estimated trend in Legrand's market.

But this is the trend of the market and this is the way we can compare our performance to the trend of the market. Now, I guess you all have in mind and again I already said during my presentation that Q2 and Q3 last year represent challenging basis for comparison.

Notably we launched a new generation of JCI last year in Q2 and we explained that the very good performance of Q2 of 2015 was partly driven by some selling from the distributors, distributors building up inventory in the two categories of JCI, the previous one and the new one. And to sum up, we expect the market, the U.S.

market to continue to grow. And this refers to the trend I explained earlier.

And that we will continue to have a good performance in this market. But now for Q2 and Q3 only the basis for comparison has to be taken into account.

And no issue in terms of sustainability of the growth in the U.S. as long as the market continue to grow, but adjusted for this basis for comparison, of course, the sales that will be reported could be lower than the market trend for a short period of time.

I have a couple of questions please. The first one on M&A dilution for the year.

I don't know whether I've missed the number earlier, but if you could give some indication what to expect now including these additional deals. The second question on geographic trends.

You highlighted the Middle East as having turned weaker, maybe you could give some more color on how much it's down and what your outlook there is in terms of expected pressure in the market. And lastly, if I look at the M&A business that you have announced, how would you characterize the multiples relative to kind of what you said in the past, what you pay for acquisitions and where your own stock trades, is that still in line with what we've learned in the past normally?

I will maybe start by the third one because it's very simple because the answer is yes. And I have no - nothing - no additional things to add to the answer.

Clearly, yes, there is no change, no deviation in terms of multiples. As far as your first question is concerned, M&A dilution, it's a bit difficult to predict, but let's say that it should be in the range of 20 bps for the full year based on what we have announced today.

Now, we have to start the consolidation process of all those activities, but this could be a good figure. Now, the second question.

I move to the second question, the Middle East. Clearly, you know that our activity is not directly related to the oil and gas business.

It means that we're not - there is no correlation between our sale or direct correlation between our sales and the investment that are made in this oil and gas industry, although we have lightened or very minimal business in this field. But now, our business is also driven or the trend in our business is also driven by the general state of the economy.

And in those region your question is how much it is down. I do not disclose figure of, precise figure by geography, but it was down.

And then without any surprise for us and then coming back to the fact that we manage on different scenarios, we were clearly conscious at the beginning of the year that we had to shoot for a negative scenario in this region. And the teams were prepared and are managing in this context.

And second about expectations, the second part of your second question, difficult to say but certainly it could last a bit because although oil price is improving since the beginning of the year, certainly the economies could continue to be affected in the next quarter. Now, this being said, it seems to us that it remains a very good region for the Group and not only for us, but for the Group, where the needs are there longer term.

And then we stick to our strategy, adapting our cost base with the current situation to protect our profitability, but also keeping a close eye on market shares as we do expect that these markets are going to recover. I don't know when, but are going to recover and are a very good market for the long term for the Group.

And I just have a couple of questions, please, both on France. Just in terms of the lower margin in the first quarter, should we be thinking that some of the factories in really more reliant upon exports that they might need to see some realignments or following the lower sales to some overcapacity in those factories going forward in future quarters?

And then the second one was just in terms of - we've already talked a bit about what's happening in residential new build markets. But I wondered if you could just give us a bit of an update on what you see more in sort of in non-residential new build and perhaps how big that is compared to residential and what you've been seeing in that market over the quarter?

About your first question and lower margin, it's clear that - and this is the case for France and Italy, that part of the industrial activity is clearly related to Group or international business. And then it's clear that when we have a bit less of activity during a period of time, we adapt.

Now we have to see it as a clear, I would say, a guidance of adaptation in the short term. We talk about adaptation of all line of the P&L for those plants or factories.

Now, we do not see any issue in terms of structural capacity not in France, nor Italy because we have done the job we did [indiscernible]. Then to make things clear, we continue to implement productivity.

We continue to adapt and we have exactly the same management for France and for other countries in terms of adaptation. And then this is for us a good way to watch productivity.

Now we do not see any structural issue in terms of capacity. The second part of your question was about the market sales and the fact that we have commented on the resi trend, but I will come back on that and your question was also about non-resi and as far as Legrand is concerned we talk about commercial segment as industrial is quite low for Legrand.

Then just to start with figures 40% is resi-driven and 60% is commercial-driven or non-resi-driven with a little bit being part of all the industrial, that's the first point. Second, within the resi activity, then what we have seen or what has been published by official bodies is that new construction are improving.

We talk about reasonable figures but it's good, it's good. It is improving.

And what I said during my speech is that as usual, of course, for Legrand sales are not immediately derived from this kind of trend as we have to wait for the building to be constructed before installing electrical devices. Then there is a lag effect and this lag effect should produce in the coming quarters, let's say, a few quarters lag, some positive.

Now, again when you talk about new resi activity, also there is a lag effect. We also talk only about 15% to 20% of Legrand sales.

About the non-resi and the commercial activity, here also figures are improving a bit, but more as far as permits are concerned than stuff. And if we look, for example, at the last 12 months of building stuff in the non-resi activity, I think they are still a bit negative and that what is positive is building permits and they have to be transforming building stuff.

And then after this building stuff phase, sales could come for Legrand with a - here also a few quarters of lag then. I guess that you understand from my comment that in the short coming period we have to be cautious because we have this lag effect.

And second as far as leading indicators are concerned for the non-resi, we talk about for the time being more about building permits than building stuff, but we take it as a good news, as it can produce in the future sales for Legrand, first coming from this housing starting the resi activity and second if those building permits are transforming the building stuff in the non-resi activity.

Yes, my follow up question relates to raw material or sourcing costs which currently beneficial as we had the price declines in commodities last year in the second half. What is normally the time delay in terms of both from the inventory side, but also from sourcing contracts and how it works through the supply chain, so when - have we seen the maximum benefit of lower raw materials this quarter or is there still more to come before it then, I guess, goes down again as raw material prices recently have started to move up again?

Your point was about what we said in Feb saying that we have observed or benefited from a decline in commodity prices in Q4 and we have - we had this benefit in Q1, I was referring to Q4 of 2015. We had the benefit in Q1 of 2016.

And to come back to your question, maybe the lag effect could be two to three months taking into account the inventory turn. We have been continuing to see some decline in some commodity prices in Q1 and then it should continue to benefit to Q2 and this is good news.

Although I'll come back to my initial speech that we have to look at balance of inflation within all lines of P&L pricing, commodity prices, wage inflation and so on. Then we stick to our overall strategy to have a slight bonus at the adjusted operating margin level when it is possible.

And then, but to come back to your point, certainly in Q2 we should continue to benefit from what we have seen in Q1. Now for the rest of the year, each quarter there are negotiations and then they are going to start for Q3 and then time will tell if we will see additional benefit or not in the coming quarters.

But finally what is interesting to note is that as we monitor that old with the P&L or - with the old P&L, sorry, finally for us, of course, we're happy when things are improving as far as costs are concerned. But what is very important for us is to be consistent between the top line commodity inflation or deflation and wage inflation.

And to have as a rule, a good management of all of that at the adjusted operating margin level. Hope that it helps.

Just a couple of follow ups, please and apologies if it's repetitive, I had some problems getting on the line. Just going back to the answer you gave on the other Europe evolution of margins declining and growth, would it be right to interpret this as just unusual quarter and then kind of the trend should come back to normal or is there a better explanation?

It's not neither normal nor abnormal I would say Andre, it's just because we have again a mixed bag of countries and what has been done as we always do during this quarter is monthly monitoring of the performance between what we call a Group finance control in each country and a quarterly review with [indiscernible] and the executive committee to decide with each country if we were to have to implement I would call it a B minus scenario, a central scenario, a plus scenario, depending on market trends. And then we do it country by country, again to adapt, of course, to sell or to - but both ways, it could be investment because sales are going up.

This is the case for example in Spain today, we continue to make some investments to fuel the growth. And some of the countries and I will refer to Russia for rest of Europe, where we continue to adapt to protect the fact that sales are down, in Russia.

Then it's not a question of seasonality, specific seasonality of 2016. It just happen to have this situation of this mixed bag of countries and the fact that the total of these countries and this unique management that we have on a country-by-country basis provided us with this result in terms of performance.

And again, I hope I answered your question, but what we say is that the performance of the rest of Europe was not an issue, managing a country by country basis. Although as a whole we had this slight drop in adjusted operating margin and I will not come back on the comment on the rest of the world where we're seeing the opposite situation and what I said for the rest of the world we do not have to think that there is a sudden improvement of the rest of the world as a whole, it's just a fact that depending on the mix of countries within this category we had this result.

Okay, got it. And just second question on Brazil, I know it's a small part of the business but are you seeing, what are you seeing there in terms of the very early indicators on the underlying construction market activity?

Yes, this is effectively something we not touched during this call. But as far as Brazil growth is concerned it's clear that for us the market is still in a double-digit down trend.

This double-digit downtrend started in 2015 and we do not see immediate sign of stabilization and maybe you also certainly heard from other competitors that they are seeing exactly the same situation and we're clearly in the mood for Brazil where we continue to adapt. Again, we're very vigilant in terms of market shares, because we think that certainly one day Brazil is going to recover, it is very important for us to have and to keep and to stick to our existing position.

This is what we have done in Italy, what we have done in Spain keeping this - some business model and do not do crazy things in the short term, TO be in a very solid position, when things are improving, but for the time being and for 2016 at least we think that the market should remain in double digit downtrend.

Okay, if there is no more question I will effectively go for the conclusion. Okay, then thank you very much to all of you for this participation to this conference call and of course Francois, Nicolas and myself remain at your disposal to comment on this set of results if it was needed.

Thank you very much. Have a nice day.

Bye.