Legrand S.A.

Antoine Burel - Chief Financial Officer

James Stettler - Barclays Capital Martin Wilkie - Citi Andre Kukhnin - Credit Suisse Lucie Carrier - Morgan Stanley William Mackie - Kepler Cheuvreux Andreas Willi - JP Morgan Jonathan Monsey - Exane BNP Paribas Gail Dubray - Deutsche Bank Graham Phillips - Jefferies Alasdair Leslie - Societe Generale

Thank you. Good morning to all of you.

Francois Poisson and myself are happy to welcome you to the LeGrand 2017 nine-month result conference call. Let me first remind you that we have published today press release, our financial statements and a slideshow to which I will refer.

Those documents are available on the LeGrand website and please note that this conference call is recorded and webcasted on our website. Let me start with an executive summary following which I'll comment into more details our 2017 nine-month results and achievements.

I first start on Page 4 of the slideshow with three main takeaways of today's release. The first takeaway is that 2017 nine-month performance is good.

Sales were up plus 7.7% in total coming with double-digit wise in adjusted operating profit, net profit as well as normalized free cash flow. We believe that due to the strong results that demonstrates once again LeGrand's ability to generate profitable growth.

The second takeaway is the sharp acceleration in LeGrand's development initiatives in order to fuel it's two growth drivers, namely organic growth and acquisition driven growth. LeGrand remains indeed very active in innovation with investments dedicated to new products up nearly plus 27% from the first nine months of 2016 and LeGrand has also accelerated the pace of its external growth with 2016 [ph] closed this year and highly complementary businesses supported by social and technological megatrends.

And the third main takeaway of this release, is that LeGrand is raising its minimum targets for 2017. After this brief introduction let's start with another view of sales on Page 6, so total rise in sales of close to plus 8%.

LeGrand's first growth driver is doing well with organic growth reaching plus 2.9% in the first nine months, driven by good showings in new economies sales being up there close to 5% on a like-for-like basis and solid increases in mature countries with sales up more than 2%. As you know the group's second growth driver is external growth which stood at plus 4.4% in the first nine months of the year and should reach over plus 7% for the full year of 2017.

I will come back in more detail on acquisition in a few minutes. Lastly, ForEx impacted almost flat in the first nine months of the year.

Now if we apply to the last three months of the year. The average ForEx observed in October 2017, then annual ForEx impact for 2017 would be around minus 1%.

Let me now go into more details regarding the like-for-like evolution of sales by reporting segment and please refer to Pages 7 and 8 of of the slideshow. In France first, organic growth in sales plus 2.3% in the first nine months of 2017.

These healthy increases in sales were driven by some growth in new residential construction. Non-residential new construction activities also grew but less regularly and finally renovation activity increased moderately.

In Italy, like-for-like sales growth was plus 3.5%. Good performance was driven in particular with by the success of our new products I'm talking about our new connected on pre-systems, My Home Up home system as well as Smarther connected thermostat.

In the rest of Europe now sales were up plus 5.4% like-for-like compared with first nine months of 2016. Performances were good in both Eastern and Western Europe.

For Eastern Europe this will not be the case in Russia, Romania and Hungary. In Turkey sales were also up driven by third quarter performance which benefited from favorable basis for comparison.

In Western Europe many countries also regarded solid growth such as Spain and Belgium. But the UK, after sustained increasing sales in the first half business retreated slightly in the third quarter.

Moving now to North and Central America where sales rose plus 1.5% organic basis and plus 1.5%. as a reminder 2016 full year in the third quarter in particular represent very demanding basis for comparison in the US, which is the main country in this region.

As a consequence, the good reviewing of our performance for North and Central America is certainly to be made over two years over two years then organic growth was plus 8.1% compared with the first nine months of 2015 and plus 7.1% compared with the third quarter of 2015. Due to strong achievements show a good relative performance and demonstrate the ongoing strengthening of our positions notably in the US.

In the rest of the region let's mention Mexico, where LeGrand reported double-digit like-for-like growth. Let me now talk about the rest of the world where sales rose plus 3.4% on the like-for-like basis in a number of Asian countries we achieved a solid performance including China.

Sales in India also rose compared with the first nine months of 2016 and driven by a good performance in the third quarter following the temporary slowdown at the end of the second quarter that was related to the implementation of the Goods and Services Tax, the so-called GST. It is for India.

And the group also reported robust growth in sales in North Africa. Last comment on Brazil, where sales have been continuing retreat due to unfavorable economic conditions and this is for rest of the world and organic growth.

Now let me say, a word on profitability and Pages 9 and 10 of the slideshow where we compare nine months 2017 adjusted operating margin to nine months 2016 adjusted operating margin then Page 9 first. Where you can see that adjusted operating margin before acquisitions came to 20.6% showing a rise of plus 60 bps on nine months of 2016.

Due to 60 bps improvement could be brought down into two parts plus 50 bps came from ongoing good operating performance as in H1 and 10 bps came from net favorable non-recurring effect. Lose 10 bps non-recurring effect are made of the loan plus 20 bps inventory buildup partial year set by minus 10 bps coming from some minuses.

Then plus 50 bps came from ongoing good operating performance as in H1 and plus 10 bps came from net favorable non-recurring effect. To conclude on this slide.

You also see including acquisitions the adjusted operating margin came to healthy 20.4%. On Page 10 now, talking now about value adjusted operating profit was up plus 10% reflecting LeGrand's capacity to create values with profit growth as well as ongoing productivity initiatives.

Consistently with our model by adjusting quarter-by-quarter our price list we have more than offset in absolute values impact of the marked rise in raw material and component prices in the first nine months. This is an area where we have improved sequentially our capacity to cover material and components inflation.

Thanks to a disciplined pricing and the quality of our leadership. Coming back to the first nine months then the LeGrand selling prices were up a bit more than plus 1.3% over the period.

Please note that as in 2016 and in H1 2017 this figure is excluding the impact of major currency fluctuation. Then a bit more than 1.3% on selling prices as far as raw material and component prices are concerned there were up a bit more than 3.5%.

On Page 11, I move to another key indicator which is net profit attributable to the group, you see that it was up 11.4% at €474 million for the first nine months of 2017. This robust increase is mainly the result of our good operating performance and also the result of the decrease of financial cost.

Besides the income tax rate is almost stable versus 2016. Moving to the last indicator of the financial performance on Page 12.

As you all know cash generation is a key feature of LeGrand's business model, on the left-hand side of the slide reminder of the main item driving high cash flow first cash flow from variations was robust in the nine months of 2017 up over 12% on 2016 reported by good operating performance. Moving to working capital requirement it remains well under control at 8.9% of sales and lastly CapEx up €11.5 million almost 100% rise being dedicated to new products for all types of segment or geographies.

The move upward should continue in CapEx driven in particular by new product momentum as well as by the investments in industrial and commercial productivity. Finally, you see on the right-hand side of the slide that normalize free cash flow up strong 12.2% compared with 2016 nine months, this year.

This is for the financial performance let's move now to the second part of this presentation dedicated to the sharp acceleration of our development initiative. Starting with acquisition driven growth on Page 14, you can see the LeGrand have actively pursued its strategy of bolt-on acquisitions with six deals already announced this year.

First, we're talking here our businesses mainly driven by technological and social megatrends such as digital infrastructure and energy efficiency. Second those deals are reinforcing LeGrand market position up as a closed to 78% of the sale of the acquisition of 2017 are made with products that are number one or number two on their markets.

Third, it should be noted that based on all acquisitions announced. The expected impact on the board of group of consolidation is more than plus 7% per year in both 2017 and 2018.

It means that over two years acquisition within group should boost group sales by close to plus 15% in 2018. 2018 being compared to 2016 and plus 15%.

And finally, as far as the impact of acquisitions on group profitability is concerned. For 2017 as a whole, dilution of the adjusted operating margin due to the acquisitions should be around minus 10 bps.

Now I'm moving on to milestone, you know that milestone is an important acquisition for LeGrand and we have prepared four detailed slides on milestone with both reminder of the key attractive fundamentals of the deals on Page 15 and additional elements on the next three pages. And before moving into details.

I would like to remind you that milestone estimate fix are 2% to 3% organic growth and 21% adjusted operating margin. The good news is that, current trading is slightly ahead of this form up, both top line and bottom line, although we had ahead of us demanding basis for comparison in Q4 and usual monthly fluctuation in sales growth I will comment on Page 16.

But let's start with Page 15 and the reminder of what we said in June. First on the top left milestone is a profitable and highly cash generative business.

I will come back on milestone high free cash flow in a minute, but please in keep mind that the healthy 12.5% free cash flow to sales ratio we're showing there is calculated before synergies and excluding the cash tax benefit related to the deal. On the bottom left of the slide, I indeed remind you that there is cash tax benefit of $400 million of coming from standard fiscal amortization of goodwill.

This will have no impact on our P&L but will represent yearly cash tax benefit of around $30 million from 2017 to 2026, a benefit that will decrease from 2027 onwards. On the top right considering EV to EBITDA multiple.

Accretion on EPS before PPA and value creation you can see that all LeGrand financial criteria are fully met even before synergies and finally on the bottom right, revenue that we expect synergies to represent between 1% and 5% of milestone 2016 sales. Turning now to Page 16 with additional elements on milestone.

And first an overview of milestone monthly sales pattern in particular in 2017. It is important to keep in mind that in the long run milestone operating market reported by both social and technological megatrends but in the short-term this is also a business driven by projects, retail activities that by their nature can materially fluctuate from one month to the other.

The table in the upper box of the slide presents milestone organic growth per month in 2017 and is a good illustration of how on our sales growth may materially fluctuate month-by-month. Also, as said earlier, Q4 of 2016 represents high basis for comparison as growth was particularly strong in this period in 2016 illustrating by the availability of sales month-by-month also in 2016.

As a consequence, you see that based on annual organic growth for the full year estimated between plus 2% and plus 3% in 2017 pace which is consistent with 2016 and also consistent with the key metric of milestone that I commented earlier, we end up in 2017 with two periods the first one being Jan to July of 2017 i.e. before the acquisition date with plus 7% growth and the rest of the year with organic growth that should range from minus 1.5% to minus 4%.

It is also interesting to note that on a full year basis in 2017 milestones performance should be in line with group organic growth target higher than LeGrand organic growth in the US and accretive on both group and the US subjected operating margin. I was talking a few minutes ago about milestones strong cash generation then moving now to Page 17 to talk about that.

One can clearly see that on the basis of milestone 2016 figures adding to that $30 million of annual cash tax benefit and deducting $12 million of annual financing cost. The acquisition of milestone will add annually $76 million to LeGrand free cash flow and it is before synergies.

My last comment on milestone relates to value creation before synergies on Page 18. Again, based on milestone 2016 figure than the 2016 normalized free cash flow generation.

Adding the $30 million of annual cash tax benefit and deducting the $12 million of the financing cost you see that milestone return on invested capital is above 7% WACC we use. On this basis, we are talking about value creation as soon as year one for milestone.

Now turning to our initiative to support organic growth on Page 19. As said LeGrand remains very active in innovation with the rise of close to 27% in investments dedicated to new products compared with the first nine months of 2016.

The group versus board it's offering with new solutions that fuel current and future growth I will not comment on all products showed on the slide, but as you can see there are number of products including on the under developed aerial [ph] program and there are more to come. This is the end of this presentation and I'm moving to Page 21, which is clearly important, and I hope also very good news.

As based on good performance seen in the first nine months LeGrand is raising its minimum targets for 2017. In more details and taking into account expected effects for the fourth quarter we set new targets for 2017.

First organic growth in sales of between plus 2% and plus 3%, it means that we're raising the low end of the initial range by two points as we were initially targeting between 0% and plus 3%. The second target is the adjusted operating margin before acquisition at 2016 scope of consolidation and this target becomes 19.8% to 20.1% of sales.

It means here that we're raising the low end of the initial range by 50 bps as we were initially targeting 19.3% to 20.1%. This brings me to the end of my presentation and with this in mind.

Francois and myself are very happy to open to questions. Thank you.

Two from me, first of all just on milestone. Can you just talk a bit about this volatility and what's driving it?

And again, just confirming that this is indeed in line with what you were looking at when you closed the deal? And the second question is, how do you think about Q4 especially in terms of the French market and in terms of potential upside to get beyond potentially your 2% to 3% full year growth.

Thank you.

Good morning, James. About milestones clearly what I was saying during my presentation is that, the activity of milestones is by nature fluctuating months over months because we're talking about two main activities one is driven by project, the poor activity, individual [ph] activity and the second is the retail activity where we have depending on months promotions, transaction you can have also usual to the - related to some period like Christmas and so on and so forth and this is something clearly related to the activity milestone that's the first point and second your point was about 2015 and if you look at 2016, if we were conscious about that at the time of the acquisition, it's interesting to note that in 2016 we have exactly this kind of pattern in terms of sales growth, then beginning of the year that was quite smooth in terms of activity and then suddenly with lot of promotion requested by retailers, very strong Q4 of 2016 which then represent high basis for comparison for this year.

But yes, this is clearly a pattern of the activity of milestone and this is not a surprise for us. And what is finally important is that, we have the scheme metrics plus 2%, plus 3% on a full year basis that we stick to.

Moving to the French market, then clearly what we've observed since 2016 is this improvement of the construction market and we're reporting good showing in terms of growth. [Indiscernible] knew that the five-year before was the five years of decline of this market, that's the first point.

Second, today there is clearly, and this was also said during my presentation three main pattern of this French market. First, the new resi activity which is clearly on the rise with a double-digit growth.

Second and this is you know that for us it represents 15% to 20% of our saving France, but this is solid trend of activity. Second, we have non-resi new construction here we have clearly a growth, but which is not regular and one quarter you have good trend, the quarter after you have negative trend and it's not regular pattern that can low forward clearer, I would say optimist figures in the very short-term we have to be cautious and to monitor that closely.

And second is renovation. Renovation is 60% of our activity in France and renovation is still slightly positive, very slightly positive.

Then we talk about the model, really moderate growth. Then to answer your question about moving forward, we believe that there is again strong good reason for thinking about the non-growing growth now talking about acceleration of the growth.

It will depend on the two markets that I was referring to as i.e. non-resi new construction and renovation because again it's more than 80% of the LeGrand French activity as long as good activities are not going to rebound more [indiscernible] it is difficult to expect any acceleration, although the performance of 2017 for the first nine months is really point of satisfaction for us.

Do you believe you're growing inline or above the market rate?

It's clearly a good performance at least in line with the market, that's the first point. And second if you were to compare LeGrand performance towards the period which is a bit complex because [indiscernible] effect because scope of activity, but I think that we can also here said, that we can demonstrate that we are at least in line with the market or even more.

Thank you.

Just a question on pricing. I think you said earlier in the call that you've seen 1.3% increase in pricing which is an acceleration to what you mentioned at the happier stage, is that increase now sort of stabilize?

So, is the pricing as we're going to Q4 essentially where it was during the third quarter or should we still expect net positive benefit from pricing as we go into the fourth quarter? And that was the first question and secondly just coming back on milestone.

Obviously, you have said there is basic comparison effect, there is some lumpiness due to projects and so forth. But I would like to think that there is no change in your view about the sequential growth in milestone.

It is simply sort of pattern effect in terms of what you've disclosed on the revenue growth.

Good morning, Martin. And first about the pricing, you rightly noticed that we were talking about an acceleration over the course of the year quarter after quarter of disability to cover inflation received on the raw material in components that Q3 was better than H1 and also in H1, we were already able to cover this inflation rating by pricing.

As far as Q4 is concerned, we continue to monitor the trend in terms of inflation received and to answer your question, first we do not expect any acceleration of the coverage also it should continue to be good as in Q3. Second, the raw material and components inflation in Q3 as stabilized versus H1 it seems that inflation is rising again in Q4 then it will impact on the LeGrand following of course certainly in 2018 due to the timing exact do you know between rise in purchasing prices and impact on the P&L due to the rotation of pattern [ph] and so on and so forth.

Then to sum up, good coverage in H1 and coverage. Acceleration of the coverage in Q3 certainly something like stabilization in Q4, we do not foresee any change in trend and time will tell for 2018, but certainly in 2018 we're going to see again rise in raw material and component inflation.

To answer very happily to your second question, no we do not consider that there is a change in the pattern of sales of milestone again it's interesting again to look at the second - sales in 2017, obviously we can't - sales in 2016 we have this up and down again related to projects related to retail promotion but neither I would say historical LeGrand guide is not the milestone LeGrand management considering that there is any change in pattern of sales on a monthly basis.

Thank you.

Just firstly on the targets for 2017. You added the word minimum in there, how should we treat that, obviously it's a range, so is it kind of minimum at the bottom end of the range or just interesting kind of to hear what your thinking is behind that please?

It's difficult to answer your question because clearly everything is embedded in our guidance or targets quote then, we are at the end of September 2017 at the high end or close to the high end of the range of the target set for the full year and plus 2.9% organic growth vis-à-vis high end of 3% and second, we are up 60 bps vis-à-vis last year when the guidance, the initial guidance at the high end of the range is 20.1% compared with 19.5% in 2016 i.e. also 60 bps, then you see that we're very close to at the high end of the range.

That's the first point. Second what we're saying is that we've to consider also what is coming ahead in Q4 then first, the calendar effect and second this basis for comparison in the US I was referring to.

Then this is the reason why we are very confident I would say with the bottom of the low end of the range, now we have to view so with the label, considering this Q4 the organic growth of the full year, then plus 2% to 3% is quite a narrow range, but a range that has to considered then which is absolutely valid then not the 3% but the range. And second, if we now move to adjusted operating margin it's clear that there is a correlation and it is a consistent range vis-à-vis the range of the top line, not to talk about the fact that we've also some non-recurring effect in the first nine months of 10 bps.

Does it answer your question, Andre?

Yes, that's very helpful color and I appreciate it. It wasn't easiest ones, just been rigged by the word minimum added to the target.

And I can just ask on North America in terms of hurricane's impact did you see a significant one from that, could you quantify it and is there any change in activity in Q4 in response to that.

No, we don't believe so and clearly, we do not consider that there is any material effect in the past months of sales of LeGrand either in the coming months.

That's very clear. Thank you.

And on milestone, sorry to labor it and thank you very much for the additional disclosure to point of monthly sales changes. But maybe could you just give us an idea on how great that differential was in growth between H1 and H2 in 2016.

In 2016 vis-à-vis 2015.

Yes, so how well is this comparing the ratio so it's H1 growth in 2016 on 2015 versus H2 growth in 2016 versus 2015, as by deal the two growth rates will be perfect, if not then at least the difference between the two would be great.

One way to answer your question is tell you that, the growth in Q4 of 2016 is not for the full H2, but not one quarter is significant what more than double-digit above double-digit.

Right and just beyond 2017 do you see milestone is that kind of 2% to 3% growth company or higher.

No, the 2% to 3% is good and maybe it's also for me an opportunity to come back and some thing is that, if we are because that maybe this 2% to 3% growth pattern or key metric could be considered as not so strong, but it is clearly what we knew at the time of the acquisition, first. Second, if we tried to be a bit factual on the deal it's not really only related of course to sales, but for deal valued less than nine times on 2016 EBITDA before synergy for business which is not dilutive to current group of any growth and this also important to note that, accretive to group margin, accretive mid-to-high single-digit on EPS before PPA this is what we will revenue [ph], creating value formula one and we maybe can say that such deal in our mind, it can certainly be qualified as a shareholder friendly.

Thank you and last one if I may, please. Just on balance sheet you've just refinanced that a very attractive rate.

Are you planning to kind of retire any of your existing facilities early or keep that as firepower?

No, we do not envisage that, when you - if your question is about for example the [indiscernible] facility it is something that we have very, very little cost on because we don't choose it today it's financing headroom, but as far as the young [indiscernible] is concerned there is no, I would say miracle in terms of financing. If we were to reimburse it today in advance first we would have to the agreement of on hold off and second we will pay the price because there is no free lunch stuff, then we wait, and we continue to refinance.

I can tell you in addition Andre that we have another bond that is maturing in 2018, €400 million bond that was with around 4% that is going to then mature in 2018 that we're going to also to refinance certainly with lower rate, but we do it progressively and we do not want to anticipate because there is again no free lunch and would have pay to the price of this anticipating refinancing.

Got it. Thank you very much for your time.

I've three questions. The first one is I was wondering if you could may be broadly just cast what you see as potential impact or benefit of the recent announcement we had in the US notably around tax reform and maybe give us some indication of the current rate you're paying right now in the US, that's question number one.

The two others are also on the US. We've seen one of your competitor in the US kind of signaling a slowdown in US non-residential expected for next year, so I was curious of your view there and specially also because and that's related to my third quarter.

Milestone seems to have a fairly high comp base going into 2018, so how should we think about kind of milestone specific development in 2018 in that context and also considering that comp base.

Okay if you agree, Lucie first good morning. I will comment first on milestone because we were just discussing milestone few minutes ago.

Just to tell you that we do not foresee that 2017 is going to represent high basis for comparison in 2018 where you're right is that, again looking at the second showings pattern of 2017 sales certainly the first half and in particular the Jan and March months than Q1 also part of Q3, if we were talk about July we have the counter party in August maybe that will be less difficult for in terms of basis for comparison, but to come back to your question. I think that on a full year basis, clearly if we were end up between 2% to 3% in 2017 this is for us a normal pattern in the current economic condition, now within 2018 we will have first part of the year and especially Q1 with high basis for comparison and maybe last part of the year that will be [indiscernible].

And moving to the question number two about activity and potential us trend I guess that if we look first at the GDP for the US I think that today the IMF is expecting stable GDP for 2018 or even a bit better 10 bps more in 2018 than 2017 that's maybe the first point. Second about non-resi activity or commercial activity.

According to our team we do not foresee any slowdown in the coming months in the US and our team is quite still excited, but I would say the coming months and the coming quarter and if we look also at NEMA statistics that are NEMA being the association of electrical manufacturers in the US. Here also they're quite optimistic in the continuation in the coming months or quarter of the good trend observed today.

Then it's clear that we hear from noise it was already the case last year, with the potential slow down because of the lens of the economic cycle in the US, but I guess that and because we cannot rely on other information that public information again the IMF or I'm not sure we can call them public, but the NEMA that are available to us are not claiming for this slowdown in the coming month or quarter. I come now to your question about the tax in the US then it's developing slowly, if I can say so as we're having news regularly on that.

We're talking here of the project discussed about nine months ago, talking about the border tax which is now an excise tax, it was abundant, this nine months ago and then it comes back to-date. At the time of the border tax answer was the following is that the first base on our experience and when you have a significant custom duty or effects of raw material prices changes, our market is generally passing through these changes and this I would say unfavorable impact on the input cost and it is quite mechanical and hurried [ph].

The impact going finally to the final customer and we had some example in the past of that and second, if we're to talk about more the long-term as far as manufacturing is concerned our industrial footprint is competitive and very similar to the one of main players in our market and we have proven that [indiscernible] whether long-term to adapt if changes were to last for long period of time. Then you know that corporate and it's not only the case for LeGrand continuously reappraise our industrial strategy, outsourcing, relocation based on many factors including custom or tax.

This being said, we will then monitor that very closely and knowing that certainly things could change again in the coming months and there will also maybe some counter party you know that as a counter party of this tax, that was discussed I think Friday in the US. We also talked about move from 35% to 20% federal tax rate and your question was about the current rate of LeGrand today we stand at including state tax rate, we stand at close to 40% and tax rate in the US as far as LeGrand is concerned and then if the tax rate was to reduce or contract a lot, it would be a good news for LeGrand.

Thank you very much.

A couple of questions, please. Firstly, last year I remember you had a great success in the USA reporting high single-digit growth on the back of number retail effects.

At the time you were good enough to strip out that one-off effect. But this year you have, are you able to give us an idea of the underlying growth in the US if you looked at the underlying trend just in the quarter, I've realized you've done it over a longer period of time and then with regard to the US, can you throw a bit more color onto the demand trends you're seeing between the various channels between resi, non-resi and if you're able to disaggregate between new build and renovation, so that's the first question.

And the second just follows up from Lucie, with regard to the US potential change in tax rate at the federal level, would that have an effect on your assumed tax shield associated with the milestone deals. So, in the event of the future change in tax rates, should we assume the milestone benefit associated with tax may become slightly lower.

While of course the potential profit and cash would benefit from the lower rate.

Good morning, William. Then okay I take the first question.

First as you wait and churn, we were quite vocal last year explaining for example that the reporting more than 9% organic growth in Q3 was strong performance in the US, of course I'm talking about the US, there was a strong performance but of course first boosted by some one-off in the retail activity and stuff like that. You may remember that we were talking at time about some breaks [ph] in the retail business with sub-loading effect in inventory.

Second, we benefited from last project and also very good activity and what we call the Digital Lighting Management business. Then big portion was non-recurring although the performance was very good and what we also stated at that time, if that the underlying trend of the market was certainly around 3%.

I'm talking about our accessible market, around 3% and this is what was the real performance on top of which we had this over performance including some one-off, then this is also the reason why William we are communicating today review over two years and if you were - you will find that in our press release, if you look for example at the US alone because the figure I commented earlier was for North and Central America region, but for the US alone, organic growth in the first nine months of the year was 0.6%, but over two years we're plus 7.6% and this is for us is the way we have to look at it because this basis for comparison is clearly to be taken into consideration and then to get rid off is basically comparison and the analysis of two years is for us quite more meaningful. And then 7.6% above two years for the first nine months and close to 7% over two years for the third quarter.

And this is maybe answering your question and this year in 2017 we are confident that we grow at the pace of the market at least and if we look over two years, if we consider 3% underlying market trend in 2016 and the same in 2017 it means that with a bit more than 7.6% over two years, we're even gaining market shares. It's difficult for me to give you very precise trend in our business segment by segment because first you know that more than 75% of our activity is in the non-resi business in the US, the resi business is bit more than 20%.

Then it means that within the 20%, the new construction is of course boost, although it has been less strong than expected in 2017, but the big portion of our business is related to the commercial and non-resi activity. And here, we have many, many businesses, channels, we now have audio, video channel that has been completed with milestone and we were already in this business with Middle Atlantic product.

We have all the lighting activity and within the lighting activity different businesses too, with the Digital Lighting Management that is doing very well again in 2017. As a whole by the way if we look at our lighting business it up this year in a market that I think was quoted by some player that is being stable in 2017 and LeGrand is achieving positive numbers in lighting.

We have Data Com business which is another channel and we have also the retail activity that is, something important for us, it could be physical or online and many, many channels and it's very difficult to make a full correlation between on underlying market as far as the resi, non-resi or new construction, renovation is concerned and this kind of differentiated businesses within the non-resi activity of LeGrand channel-by-channel it's a bit different than for example France, where clearly we will have this 60% renewed, 40% and within the new 15% to 20% resi and the rest is being non-resi. And about tax rate, your point it is absolutely, it's for the question actually not really a point made but answer - but your point about the impact of any change in the tax rate in the US, federal tax rate and impact on milestone benefit.

Yes, it will impact milestone benefit because the benefit is clearly calculating the first base on which we apply tax rate which is deductible and in the US. Now this being said, we talk here about $30 million per year where you can imagine that in the US where we have now more than one-third of our activity made there with profitability in line with group profitability of not far from it, you can imagine the profit before Tax Day that we are there is much higher than the goodwill on which we apply today the deductibility of milestone or the cash benefit of milestone.

To sum up on the one hand we would have less benefit coming from the goodwill amortization of milestone, but it would be I would say much less in terms of impact than the positive that we would have coming from reduction of federal tax rate. On the current profit before Tax Day that we have in the US.

Does it answer your question?

That's perfect. Thank you.

One follow-up, which relates to the guidance? In the first nine months clearly, you've sustained above the top of your range the level of profitability underlying at 20.4%, but your full year guidance remains at the top end of your range at 20.1%.

I know there is always an element of seasonality as you close the year, but that's still implies more than 100 basis point drop I think, if my calculation is close in the fourth quarter profitability compared to the first nine months. Can you just remind us of the normal seasonality if that calculation is right and why we should expect to drop in profitability in Q4?

Thank you.

No, you're welcome. First you mentioned 20.4% that would become 20.1%, I believe, then to be clear the 20.1% is before acquisition and you have to compare it to 20.6%.

It's even large decrease, but then we're at 20.6% at the end of September for the nine months and the high end of guidance is 20.1% and it means it's 50 bps less for the high end of the guidance versus what we have reported before acquisition at the end of September. This 50 bps is exactly what we had last year, you may remember that the profitability adjusted operating margin at the end of September 2016 was 20.1% and we ended up the year with 19.5% for the full year then you see we have this 25.

I say 21%, it was 20% at the end of the September and we ended up with 19.5%. It was exactly the same seasonality with minus 50 bps and it's not something special relating to 2017, it's normal seasonality.

Perfect. Thank you.

Most of the questions has been answered already. I just wanted to clarify on the M&A dilution.

I think you said 10 bps in Q1, 20 bps in Q2, you didn't have anything in Q3, but you say 20 bps for nine months, so how does that reconcile. And I think you guided for 10 bps for the year or it was that for Q4.

So, I just wanted to clarify what's implied for the acquisitions that you have already done. On the UK, you mentioned that the market has turned down as it was not a very big business for you, but maybe you could give us a little bit more information around that also in terms of the pricing in that market.

I assume you have positive pricing given you need to import products into the UK, so volumes must be down quite a bit then and now as a run rate in Q3. Thank you.

Then first, M&A dilution, I understand that the figures have to be maybe detailed. Then your point was correct, it was 20 bps in H1 it remains 20 bps for the nine months but including rounding figure to say difference available whether slightly above 20 bps in H1, we're slightly below 20 bps for the first nine months.

It means for the third quarter alone we have no dilution and certainly we can expect something in line with that for Q4, then you see the reason why on a full year basis we're shooting for minus 10 bps and the maybe the question was not asked, but based on those acquisition that we've already announced it could be the same range for next year. That's for your first question.

The second about the UK I cannot give you any detail about pricing because we do not disclose pricing country-by-country. What I can tell you is that first you mention that it is not a bit big for LeGrand, you're right we're talking about a bit more than 2% of group sales.

Second, although it is only 80% we're of course we would like to [technical difficulty] now clearly what we're seeing in Q3 is slight decrease of sales and it was not meaningful, but it was a slight decrease and certainly we can say that what macroeconomist were expecting from slowdown of the UK economy is certainly translating in our figures starting from Q3. Now again and we're finally maybe happy with that, if not very big for LeGrand, time will tell for the coming months.

Maybe just on the milestone I mean the comments you made about Q4 last year as a tough comp, explains probably big figures, you expect but was there also kind of channelled stuffing by the previous owners before they passed the business onto you, that explains some of their kind of change from the strong H1 versus the weak trends, then you own [ph] it.

No and you know, first if I come back to the figures it was more than double-digit growth in Q4 last year, this is more than double-digit growth was clearly close to 100% was related to the retail activities and it's not the decision made by, I would say the supplier, it's the decisions made by the customer and in this kind of situation, and that's the first one. Second, you can imagine that we had the discussions with the seller for a long time ago in a quarter alone we'll not have changed the picture about discussions for [indiscernible].

If we come back to the figure that I quoted earlier about multiple paid, I think it remains quite very good deal and to sum up I think that over the course of 2016, growth was between 2% to 3% then 2016 was not special year in terms of total growth. Second when you add the seasonality month-by-month due to then retail activity and third, it did not change finally, discussions we had with the seller and these are in terms of the appetite of LeGrand for doing this to know about the price.

Thank you very much.

Maybe others had different numbers. But I was expecting the free cash flow to be a little bit stronger and I guess when I look away, why it wasn't.

It's related to investment. I'm just trying to understand it is the level of investment that's going into the business assumption of the need to follow the Eliot program.

You talk about investment in CapEx for new products, is that part of - is this the new run rate? Is it one or two years of heightened investment then it will drop back or is this now the permanent levels that are needed to support.

I don't know connected products the onset of the Internet of Things as it relates to building and construction. If you could just comment on what we should expect going forward for our internal investment in new product for CapEx and OpEx.

Good morning, Jonathan. You're right in saying that and this was clearly mentioned by myself during the presentation that CapEx were on the rise in the first nine months and also in H1 vis-à-vis last year and we talk about €11.5 million.

And 100% or close 100% was dedicated to new products and the point is clear and we are very happy about that second question [ph]. As we - you know that innovation is clearly a growth driver of that, we have to fuel.

Second, what is important, and this is your point is, are we going to finally have any long-term deviation in terms of CapEx, is there anything special due to the change or the nature of new products we're putting on the market. I would say no and the story of CapEx and this is by [technical difficulty] story of seems like acquisition is not early story.

I would just like to come back on the free cash flow, first before moving into CapEx. To tell you that the normalized free cash flow is up more than 12%, what does it mean.

The normalized free cash flow is including CapEx. That it means that, the rise in the free normalized free cash flow of more than 12% to be compared with rise of sales of 7.7%.

This was in normalized free cash flow is including CapEx. Higher reported free cash flow is down.

It is due to the working capital requirement and it's not really the reason for the CapEx, the main reason is working capital requirement. Is there any deviation there, no?

we clearly quoted in February that we ended 2016 at an historical low level due to some factor including inventory that was exceptionally low at the end of 2016, we ended the year with 6.1% of working capital requirement to sales and we stated too, that it was non-recurring being of course obliging to recover a bit I would say in particular in terms of inventory. Then the reason why the free cash flow is a bit down vis-à-vis last year, the reported free cash flow and not normalized is mainly the working capital requirement.

Now I come back to your point about CapEx with 2.7% of sales at the end of September. You know that we have long-term ambition which is ratio of CapEx to sales ranging between 3% to 3.5%.

it is a long-term ambition that we have quoted a long time ago this is of course average calculation because again we cannot look at the CapEx on yearly basis then you may remember that for example between 2012 and 2015, when organic growth was maybe flat or even a bit down for 2012. Our ratio was around 2.8% ratio of CapEx to sales and now that market conditions are more supportive that we have opportunities to accelerate.

We're accelerating and then we're maybe both we can be, maybe go a bit of the range, but again we have to look at this on average and it's not only the question of new products, it's also question of productivity. Productivity could be localization of production and we have some projects that are in progress today.

It could be also digital investments for promoting our products, we're talking about digital investments not only for new products but also for front office productivity, when you have more digital marketing where you can have also shows, we are absolutely convinced that if we want to boost sales, it's important to put our product into situation to have nice room to welcome electrical installer that our main specifiers of our business and to trend them in our shows. And I stop there because I can have a long list like that.

But when economic conditions are more favorable it's clear that there is a form of acceleration because the market is more or better receiving our initiative. Now if you take the past period that was below as ongoing period that could be bit above in average we stick to this ambition of 3% to 3.5%.

Sorry, so just to understand that, the interpretation at the end. So, the 3.5% it could be above that level for a while, is that, that's what you're saying the top end of the range that's an average, so it could be say 4% for a while, is that what you mean?

I'm not saying 4%, but I say yes, yes it could be. Yes, of course.

Okay, thank you.

I've a couple left. I'd like to follow-up on the French market.

Do you think that some of the upcoming product launches like the Céliane with net at more range could actually trigger some inventory build-up in the coming quarters in the channels starting with Q4? So that's question number one.

Question number two is on the inventory built up, you mentioned what was the impact on margins in Q3 and would you actually expect these two partially reverse in Q4? Also, a follow-up on the CapEx side.

Shall we actually see this as more of an indication of your confidence on both the upcoming sales growth and also on the potential productivity gains that you could generate in the coming years? Thank you.

Good question, there. Good morning.

About the French market and the launch of the Céliane with net at more in 2018, we do not anticipate any boost in sales in Q4 due to inventory build-up from distributors. Second, I'm going to quick on that because there is not so much to say.

Second inventory build-up, yes it was you may remember to be precise that we did not mention anything at the end of H1 saying that some pluses and some minuses that was more or less some of the wash. We have at the end of September 20 bps inventory build-up offset by 10 bps of all the non-recurring items i.e.

net-net positive impact of 10 bps and for Q3 only, the performance was boosted maybe by 20 bps of this inventory build-up, is not so much a non-recurring effect, what does it mean? It means that in H1 we reported 50 bps before acquisition 50 bps improvement before acquisition with no particular boost.

In Q3, we report 70 bps before acquisition because there is no dilution from acquisition but 20 bps boost, it means that 50 bps without the boost and for the first nine months we say 60 bps before acquisitions with 10 bps of boost from non-recurring items like inventory build-up. It means that we have a form of stable 50 bps operating leverage recurring operating level and this additional boost coming in Q3 and in the first nine months.

Moving onto Q4, it is too early to say what we can say is that, the boost came from inventory build-up also because we started the year at a very low level then a big portion of the inventory we have to-date is related to I would say recovery in terms of inventory that was a bit low, now we continue to work, it's part of the productivity of LeGrand, it's part of the financial discipline to control capital employed then maybe we will have a slight decrease of inventories there in Q4 of 2018, but for 2017 basically embedded in our guidance today and there is no so much change to be anticipated and at least, if you look at our guidance everything is in it. The third part is about CapEx then I think your question was about, are we - I would very optimistic about the future because of this acceleration.

What we should do, and this is our responsibility to look at current figure and clearly the economy have started to recovery now for any quarter and our responsibility is to be very reactive and to fuel the market, with innovation. Maybe you remember what we were saying for Italy, when we were a bit challenged about the fact of the other side that the CapEx was very low 2.8%, do you have finally some issue with form of inability to fuel the market with new products.

We explained at that time that when the market is contracting quite strongly or with no growth, it's difficult to come with good innovation because the market is not relative. Everybody is focusing on the margin and it's a bit difficult to fuel the market with innovation.

Today things are better, we're growing in all region. We're looking at - of organic growth of LeGrand and then, yes, we're very active everywhere not to talk about the fact the connected building is very good opportunity for us, to fuel the market not only with traditional or interconnect [ph] product, but also with I would call them new innovation.

If I can say so, in evaluation with these connected [ph]. Also for me an opportunity to come back on this CapEx because we - you were questioning not Gail but Jonathan before, the fact that it could accelerate a bit for one, two, three year I don't know how much but what is important to understand is that, this is here to fuel the market, but will not affect our ambition in profitability and this maybe, but we will finance it.

In other words, it means that tomorrow if we can have a bit of additional cost related to higher CapEx, the way to do it is to it will be passed to customer but not to shareholder and it's important also to have in mind that in front of the CapEx we have sales first and second, with the sales we stick to our ambition in terms of profitability then it is self-financed.

That was great. Thanks very much, Antoine.

Two quick questions, hopefully. Just firstly on milestone.

What is the capital intensity of that business like in terms of the CapEx to sales and R&D cost? And what sort of impact that may have on your range guidance of 3% to 3.5%.

And then just in France, as mentioned in your comments you think you're performing the market. Well you obviously don't have some good statistics to sort of say what the underlying market actually is running at, but if we do look at Rexel, they're doing much better in terms of organic growth.

I know there's probably adjustments that you say that need to be done. But where is your market share with Rexel, has it gone up, down are there new distribution channels taking place in that country?

Good morning, my first concern will be very quick. No, I do not anticipate any material impact neither on the CapEx ratio nor R&D, but what is clear is that the discipline at milestone and this is what something that we have said in June - at milestone in terms of profitability and free cash flow you have seen what we have remained it today, they have 12.5% normalized free cash flow to sales, it demonstrates that they're quite also discipline in terms of CapEx and R&D expenses.

Although it's important also for them to fuel their growth. Moving to France, yes, I clearly said that we're getting share, and this is what we believe, I know that all competitors are maybe getting that, but this is something we're doing, this is an analysis that we're doing and we're in this, you know that one of the key PI of LeGrand and when we open for example budget meeting with a country, we started with that.

We start with economic conditions, competitive landscape and market share because it's a key determinant of our profitability but also our growth. Then when we talk about gaining or not gaining market share this is something that we have really analyzed it is not something is the feeling.

Second, it's always difficult to compare performances between market players because you know that again the coverage in terms of activity as a number of days between a supplier and a distributor could be different. So, coming back to the comparison that you were mentioning Rexel first achieved a gain, a very good in France in 2017 including fantastic third quarter then they're doing well.

if we look at the figure themselves because this was your point, I think they have reported in France at current number of days because again it could be difficult to have a comparison current constant between them and us, but 3.5% growth including one point, two points coming from copper and it would be for the first nine months 2.3% and 2.3% is also our performance for the first nine months in France. Then I'm again saying that it's difficult to compare, now as you're comparing our performance to Rexel's one which is again a very strong one I get that we're in line excluding copper and then as I was saying that Rexel is doing so well in France.

I get that matching Rexel's performance for LeGrand means gaining share.

Okay, thanks very much.

First question is just around operating expenses, other operating expenses items rose to 2% of sales versus 1.7% the year before and miscellaneous items of vast majority, I think 1.9% of sales. I was just wondering if you could comment a little bit on what's driving that?

I remember in Q4 last year this was equivalent to 2.9% of sales and you have a very easy comp heading into the final quarter. Thank you.

Maybe to make sure that we are talking about the same figure. Do you agree if I'm saying that for the first nine months of 2017, we have 1.8% and we compare to 1.7% last year then it's more or less stable or even we have 10 bps more?

And we tell for Q4, yes last year we had some non-recurring items that we commented also saying this is clearly a line that has to be analyzed on a yearly basis and maybe at group level because from one quarter to the other and one region to the other, we can have from situation wise because if we talk for example about provision and stock order [ph] on customer when you have confer it, you confer it, it's not something that you have or you spread over the year, we confer it on the given months. Second talking about restructuring initiative.

It is exactly the same story. When we prepare our restructuring initiative you have no cost during the preparation time, it could last one to two quarter then you on seat, you book in your account segment, 100% of what is announced, and this is the reason why we have this kind of fluctuation.

Then for Q4, time will tell if we have an easy base for comp, now what we also said last year this data, you remember well is that, on a full year basis in 2016 the number that we reported was around 2% and we also stated that it was clearly in line with historical figures of LeGrand and Q4 was a bit high for the reason I've just explained, but on a yearly basis, we were more less in line with historical level. Time will tell for 2017, but we will - if you we'll rediscuss that in Feb, but I do not consider that 2016 on a full year basis is an easy base for comp again because it is in line with historical level.

Okay fair enough and if I could have just a follow-up question on France. I mean when we look at the prospects for recovery in France and return to growth.

How should we think about reinvestment needs? I mean looking back obviously over the last five years organically sales I think are down to somewhat 15%.

The number of front office employees that you kind of breakout is actually up 4% over that same period 15% overall employees, which I guess would suggest you might not need to reinvest significantly in sales to support a rebound in the market, maybe at least initially. I'm sure there's probably some offset in terms of investments in new products innovation etc.

but maybe you can just talk a little bit about investment needs in France over the next 12 to 18 months.

Your point is correct about the minus 15%, then this is the level of sales we have to today vis-à-vis 2017 on the like-for-like basis. Now if we're - I first take investments and production capacity we do not have any issue for I would say managing potential recovery in France.

What we're investing in France is again new products and productivity on the initiatives for new products and productivity, but we do not have any capacity issue as far as the staff is concerned. We also we do not have any issues, of course if things were to accelerate we would maybe need more direct labor if we need for example to move from one shift, to two shift in a given factory but it's part of the cost that we include in the leverage that we have when things are going, when sales are going.

The same goes for front office staff. If we were to have a recovery and we will have to fuel a bit staff with front office member, but this is not that story and this will go along with top line very good gross margin, very nice profitability this is not something we disclose the possibility we have on the domestic market, but you can imagine that with the market share that we can have there, we have a fantastic profitability in front and then yes of course, we would have to fuel a bit business with some staff but would not create an issue as far as margin is concerned.

Okay, thank you.

Can I just come back to the AV installation equipment market and sort of milestone related, but more broader on that? And just on the fundamental drivers for the high profitability in that segment.

Our understanding is that, it's the channel and it's the professional installer, but maybe could you share with us whether that's right and if it is maybe some of the sort of features that maybe are common to your more traditional low voltage products like percentage share of total value of the project that is commanded by the AV installation equipment and whether there are activities that are similar kind of in that space to gain traditional level in terms of the channel training, the installers and similar to that. If kind of quite a broad question, but just trying to understand that new segment a bit better.

Maybe first, what we try to explain in June is that there are a lot of similarities between the milestone business model and the LeGrand business model. Why because if we start with the profitability that you reminded, this profitability is coming first from their fantastic positions in the US market, maybe you have in mind what we presented but if I take three of the main brands of milestone Chief in the commercial audio, video mounts.

They're number one. If I take Da-Lite, in audio video projector screens a big portion of their business too, they're number one.

Talking about residential audio, video mounts in the retail activity with Sanus brand. They're number one.

Then this is the story of milestone, they're [indiscernible] strong worshipped and they're clearly benefiting from that in terms of profitability and they're also entertaining that, and this is also very, very similar to LeGrand, but we talked about the customer-centric approach with an excellent delivery then they explain that they're best in class service delivery is based on four pillar responsiveness and sorry for - but as you've asked question, I come back on that. But they say that more than 80% of [indiscernible] less than 30 seconds.

About quality, if we talk about the customer satisfaction surveys, less than 5% of core [ph] and chats [ph] I'm talking here about the customer service quality. About availability, these customer service is available seven days a week and so on and so forth.

And this is clearly one essential I would say key feature of milestone discussed in customer-centric approach. Another customer-centric approach again like LeGrand is the twining of the installer, then you know that for LeGrand what is key for us is to have of course very good relationship with our distributors, our channels, all specifier, but within this specifier, we talk about the electrical installer and this is people with whom we spend a lot of time to train them, I would call that educate them to our products and this is exactly what is done by milestone and if we sum up that for milestone, with what is called Net Promoter Scores to measure our brands of milestone as preferred by AV installer, they have a score more than 50% which is very good and they are preferred partners to 80% within the top 50% audio video integrators.

And I stop there, but closer maybe it's not it's a bit too long, but there is a clear rationale for adding this profitability and just to finish, there is also a very interesting complementarity with LeGrand, not only about talking about key feature of the model, but also about the products because you know that we have already a number one position in the US with Middle Atlantic product in audio video enclosures. Also number two position in our audio video provider with Middle Atlantic product not to talk about the fact that there is also complementarity with the electrical infrastructure because when electrical and digital infrastructure as LeGrand per se it means that when you install for example digital signage you will have to power of course screen and then you will need a socket for that and then Gilles was having a meeting last week and he showed a very interesting photograph with one mosaic supplier socket, one mosaic digital supplier socket then to - supplying the data and then it was just between two mounts for the installation in a new build of new screen, then it's only one example, but just to show you that there is complementarity, I was also showing in August sorry for this detail but it's a good example to show you how it works and in two rooms where I was showing in August with Francois we had a very big screens with audio, video conferencing.

Two screens were mounted to the wall with Chief products and within the cabinet or within the room we had a Middle Atlantic product cabinets and frankly speaking at that time, when it was installed the audio video installer was not aware, but the fact that milestone and Middle Atlantic product would one day part of [indiscernible] to sum up, key feature that I was say, that are explaining profitability very disciplined, financial management for high cash flow generation and then big complementarity with the business of LeGrand.

Very clear. Thank you very much.

Thank you and thank you very much to all of you for your questions and of course Francois and myself we'll remain available should you have any additional questions. Thank you very much and speak to you soon.

Bye.