Legrand S.A.

Thank you. Good morning everybody.

Franck, Ronan and myself are happy to welcome you to the Legrand 2021 nine months results conference call and webcast. We have published today as usual a press release, financial statements, and a slideshow to which we will refer.

Those documents are available on the Legrand website. Please note that this conference call is recorded and webcasted.

After a few opening remarks, Franck and I will commend into more details the 2021 nine months results. I begin on page four of the deck with two key takeaways.

First, amid tensions and supply chains that have intensified, Legrand recorded a strong rise in financial results in the first nine months of the year. Sales grew plus 15% year-on-year and plus 5.7% over two years, driven by a strong organic rise of plus 16% over one year or plus 4.4% over two years.

Adjusted operating margin came to 21.4% of sales and net profit rose plus 42% from the first nine months as of 2020 or plus 12% from the same period of 2019. These very good results testify once again to the soundness and resilience of our unique model value creation and confirm our continued capacity to improve competitive positions on our markets, despite strong headwinds.

Second takeaway, given the sudden showings recorded in the first nine months of the year, but also significant pressure and supply chains with a volatile pandemic environment, we are specifying the full year 2021 targets. Getting now into details, we are moving to page six, diving first into sales first.

Over nine months, sales rose totally in all regions. Organic growth reached a significant plus 16%, at double-digit levels in both major countries with plus 13.2% and new economies with plus 24.7%.

Over two years, organic sales grew plus 4.4%. This strong performance confirms Legrand's continued capacity to improve its competitive positions on its markets as pressures built on supply chains, especially in the first -- in the third quarter.

At end of September, this performance is not driven by good demand in residential as well as sales in faster expanding segments, namely data centers, connected solutions and our energy efficiency programs. This is for organic growth.

Acquisitions contributed to an increase in sales of plus 2.7% and exchange rates had a negative impact of minus 3.4% over the first nine months period. Applying September average ForEx rates to the rest of the year, this exchange rate effect should theoretically be about minus 2.5% in 2021 as a whole.

Let's now move to page seven to go into more details regarding the like-for-like evolution of sales by geographical zone. In Europe, organic sales grew plus 21.8% in the first nine months of 2021.

Europe's major countries growth was plus 22.3%, including plus 4.3% in the third quarter alone. Over nine months, the steep rise recorded included strong showings in France and Italy with many commercial successes, notably in faster expanding segments.

Sales in Europe's new economies were up plus 19.2% including plus 11.9% in the third quarter alone with very good showings in Turkey and Eastern Europe over nine months. Moving now to North and Central America, organic sales increased plus 7.9% in the first nine months.

In the U.S. alone, the organic rise in sales was plus 6% with a slight decline of minus 0.9% over the third quarter alone.

Over nine months, these trends reflect marked sales increasing solutions for data centers and residential spaces, while demand for other nonresidential spaces grew slightly. Let me now move to the last zone with rest of the world where organic sales rose plus 22.4% over nine months.

In Asia-Pacific, sales increased plus 18.9%, including plus 5.4% in the third quarter alone. Over the nine-month period, China and India both grew double-digit.

In Africa and Middle East, sales rose plus 16.6% with plus 5.7% in the third quarter alone. The region's nine month's performance was supported by strong gains in Africa.

South America, sales increased plus 43.1% with plus 22.8% in the third quarter alone, reflecting continued significant growth in many countries. These were the key elements on sales.

I am now passing the mic to Franck for another view of our financial performance.

Thank you, Benoît and good morning to all of you. I hope you're doing well.

Going to page eight. Adjusted operating margin before acquisitions in the first nine months stood at 21.6%, meaning an increase of plus 2.9 points from the end of September 2020.

Inflation in raw materials and components reached nearly plus 10% over the nine months period, nearly plus 15% in the third quarter alone. Despite the significant inflation, our profitability increased, reflecting in particular strong leverage on expenses, together with group pricing initiatives.

After acquisitions, the adjusted operating margin for the first nine months of 2021 was 21.4%, setting the adjusted operating profits just over €1.1 billion or up plus 31.5% from the first nine months of 2020. Going now to page nine, regarding the net profit attributable to the group.

At €699 million, it grew plus 41.7% compared with the first nine months of 2020. The main driver is the strong growth recorded in the operating profit, trend in the financial results is also favorable and these positive items were partially offset by an increase in value of corporate income tax, while the corporate tax rate was slightly down from the first nine months of 2020 at 28.5%.

Moving now to page 10, with a few comments on cash and balance sheet. As a percentage of sales, cash flow from operation was up plus 2.3 points at 19.7% of sales, above €1 billion.

It's driven first by the rise in cash flow from operation and second as expected an increase in working capital requirement and then the free cash flows stood at a solid 15% of sales in the first nine months of 2021. Now, when normalizing working capital recurrent by issuance on the right hand side of the slide, the normalized free cash flow stands at €859 million or 16.6% of sales in the first nine months.

One last point I wanted to share on this slide. End of September, Legrand successfully issued its first Sustainability-Linked Bond index -- sorry indexed on our carbon neutrality category and this trajectory is validated by SBTi.

This conclude the key topics on our first nine months strong financial performance and I'm now passing the mic back to Benoît.

Thank you, Franck. Moving now to the second part of the presentation regarding the 2021 full year targets that we are specifying today.

We are on page 12 of the deck. Given solid showings in the first nine months of the year, but also significant pressure on supply chains with volatile economy environment, Legrand is now aiming for the following full year targets.

Organic growth in sales of between plus 11% and plus 13% compared to at least plus 10% previously; the scope of consolidation effect of nearly plus 3%; and adjusted operating margin of between 20.0% and 20.5% of sales, including acquisitions consolidated in 2021 compared to about 20% previously. The group also aims to achieve at least 100% of its CSR roadmap for 2021, testifying to its ongoing deployment of a bold, exemplary approach to ESG with a particular focus on the fight against global warming and the promotion of diversity.

Let's now move to the last part of the presentation, we are on page 14 to comment briefly on last CMD where we reaffirmed our ambition to accelerate value creation. As you can see on the left hand side, Legrand's strategic roadmap is supported by the strong pillars of our unique business model and by our solid integrated performance.

Building on these strong assets, we accelerated growth initiatives, in particular in what we name faster expanding segments. We target to raise the share of good sales made in this promising fields from 31% in 2020 to 50% in the mid-term.

Going to page 15, few additional words on two important aspects of our strategic roadmap. First, we will continue to do build on our performance-driven close-to-market organization leveraging our operational excellence, talent promotion, and strong employee engagement, which stood at 80% this year, rising strongly from 2017 results.

Secondly, we intend to keep on deploying bold and exemplary approach to ESG, which as you know, is driven by demanding CSL roadmaps with a fifth one starting in 2022. I am now moving to slide 16.

We have confirmed our mid-term targets regarding gross margin, cash flow, and ESG. In terms of capital allocation, Legrand will continue its balanced policy dedicated more than half of free cash flow to bolt-on acquisitions on average, while maintaining an average dividend payout ratio of about 50%.

As you know, the full event presentation and the replay webcast can be found on our website. Franck, Ronan, and I are now ready to open to questions.

Thank you.

Hi, good morning. Thanks for taking my question.

I have three questions. They're relatively quick, I hope.

First, wanted to ask you regarding if you could comment a little bit in terms of your distributors. If you see them restocking, how sell-in versus sell-out -- I know in the past, you've commented on that.

Second, on your inventory build-up in Q3, can you talk about how much of that is just finished goods waiting to get out of the door because of supply chain issues? And then the final point just checking regarding restructuring -- Q3 in terms of restructuring expenses was relatively low.

When you look into Q4, do you see any need to raise that given like the situation that you mentioned in terms of supply chain or shall we assume it remains relatively low going forward? Thank you.

Hello Daniela. So, on the first question, I'm sure that our distributors would like to do some inventory, but given the constraints on the supply chain, I think they can hardly do so.

So, no, we haven't seen significant change in their inventory in 2021 and they are not able, unfortunately, to build back some inventory. Now, it compares 2021 -- compared to a situation where the level of inventory in 2020 was really low.

So, even with the current level of inventory and without even without building back some inventory, there is some positive impact on the topline coming from industry. But again, I don't believe that their inventory is particularly high, they would be happy and pleased to build back some inventory, and unfortunately, they cannot.

As far as our own inventory, well, it's coming back to normal. We had a level of inventory, which was very low in H1, given the very strong surge in demand and in sales, which was somehow unexpected.

And I thought to answer to the demand, so it's now coming back to normal. So, it has a mechanical, let's say, negative impact on our net working capital, which we expected to happen and we clearly guided the market when we released our H1 number, saying be aware that as far as in net working capital is concerned, the free cash is concerned, the situation will somehow deteriorate little bit in H2 compared to H1.

So, it was completely expected, but it's more coming back to normal than building local inventory. Now, let's make things clear.

If we have the ability to build further inventory in order to cope with the difficulty to get components and raw materials, we will. In other words, the strategy for Q3 and Q4, probably going into 2020 is to do whatever it takes to serve our customers, even at the expense of extra inventory.

Unfortunately, it's a bit difficult given the current scarcity of resource, but we will not hesitate in building a bit more inventory if needed to better serve our customers. As far as restructuring is concerned, I think that as of the end of September, our level of restructuring is about €18 million, which compared to a €55 million -- or €17 million, sorry €17 million compared to the €55 million at the end of last year.

The key message is that we are coming back in 2021 to a sort of normal level of restructuring, i.e. a level of restructuring between, let's say, €20 million to €30 million or €20 million to €25 million, which is sort of historical level of restructuring.

So, you shouldn't expect anything exceptional in Q4. It should be more or less in line with what we have done so far since the beginning of the year.

Last year level of restructuring was sort of exceptional given, of course, the crisis. I have to specify that the numbers I'm giving you are excluding the sense of asset and you remember the last year in Q1, we saw the big asset for €50 million in South America.

So, €17 million as of the end of September, €20 million to €25 million or €30 million for the full year. Q4, we should be consistent with the rest of the year.

Thank you very much.

Thank you.

Yes, good morning, everybody. Thanks for the questions or the opportunity you're giving me to aske questions.

Look on the -- if I look at the performance in Q3, the organic sales on a two-year basis were up 4%, but then if I look at the midpoint of your guidance, it implies that in the fourth quarter, the organic sales would actually be down by about 3% on the same two-year basis. So, I mean, why do you guide for such a sequential deterioration?

In particular, did you see some disruptions from supply chain challenges going into the fourth quarter, more disruption actually than there was already in Q3?

Well, it is true that the plus 11% to plus 13% organic growth for the full year implied Q4 which would be over one year between minus 2.7% and plus 4.7%. And over two years, between let's say stronger decrease to almost a stability.

So, this is a range we are shooting for the plus 11% to plus 13% and as you are rightly mentioning the big uncertainty is coming from the supply chain. The situation has clearly deteriorated in Q3.

On many fronts, it has become increasingly difficult to get to electronic components, for example; it has become increasingly difficult to get containers and transportation capabilities or capability to get the goods out of the custom quickly in a number of places. And it has also been the case for more traditional raw material.

The situation has deteriorated. We'll see how it is in Q4, but this is the big uncertainty, let's say between the plus 11% and the plus 13%.

Now, I believe that the plus 11% to make to make things clear, is somehow bit conservative and it's clear the low end of the guidance and it assumes a very strong deterioration in the supply chain in Q4, which may not happen. But this is a clear, let's say variable, or input that can change a bit the profile of the Q4 compared to compare to Q3.

Last word, beyond the supply chain constraints, don't forget that Q4 2019 was a very strong quarter. So, when you compare over the two-year period, yes, Q4 2020 was not very strong as such, but Q4 2019 was really strong, both in terms of absolute growth and in terms of comparison with our peers, especially in North America.

So, it may also negatively impact the Q4 2021 performance.

Okay, thanks for this. Maybe a longer term question.

At the CMD, you highlighted that you were seeing some new growth opportunities emerging in the past COVID world, for example, the upgrade of meeting rooms for hybrid meetings, including both virtual and in-person capabilities. And that was something you were seeing increasing the value of the Legrand products per meeting room by a factor of nearly 10 times.

So, could you elaborate a little bit on this upsell potential in the office market? Is this a marginal trend or do you really see today already a lot of inquiries on this?

And what's your guess on the proportion of meeting rooms that could potentially be upgraded in the next five to 10 years? I know it's a difficult question to answer to, but any help on this would be appreciated?

Well, it's indeed quite a difficult question to answer. Well, it was a mid-term comment not a comment for the next couple of quarters.

And I think that the first priority is for people to get back to the office, which again, is not the case everywhere. If you look at the big metros in the U.S., for example, the work from home is still prevalent in many places.

So, I could hardly tell you that we have done -- in the pending quotes saying that there is a structural change in the value of office space. So, it was more a mid-term comment than a shorter comment.

Now, we are very confident it will happen because it is supported by a number of requests and plans from people, for example, the fact that office spaces need to be greener, and there is a company six happening with the U.S. coming back to the to the table.

it is sure that this will help. The fact that more and more spaces will need to be connected to support AV conferencing or remote conferencing is a fact that you will need more and more connectivity whether wired or wireless, to accommodate for more needs.

It's a fact, the fact that the number of people will require not only to have a desk to work, but also a number of social spaces, a lot more than before will also happen. So, plans will somehow materialize.

Frankly speaking, I have no precise number to tell you X or Y percent of office space will need to be modelled for the additional value of Y. So, we'll see.

If I may say it's not yet happening because this is a long-term trend, but we are very confident that it will materialize.

Okay. Thanks very much.

Good morning. Thank you very much for taking my questions.

Can I please start with extending the math that Gael run on your organic growth rates and what's implied for Q4 to the implied profitability for the fourth quarter. Because if my math is right, then even at the top end of your organic growth and margin guide, you're employing around 17.5% margin for Q4, down 200 basis points year-on-year.

So, I just wanted to check id that math is right and would love to hear your reasoning behind it as well?

Yes, of course, well, the math is almost right. Our guidance imply Q4 in terms of adjusted operating EBIT all-in including acquisitions between 15.3% in the low end of the guidance up to 17.9% in the upper end of the guidance.

Well, three comments. Number one 17.9% is not -- never seen.

Q4 margins are always lower than the rest of the year. It's a seasonality to peak and if you look at the past five years, margins around 18% or let's say 18% to 18.5% were not -- never seen.

In 2015, Q4 margin was 18.4%; in 2016, it was 18.1%. So, the structure -- I didn't say our Q4 margins are lower than our nine month's margin and 18% EBIT margin is not -- never seen.

Number two, there is the strong squeeze happening since the beginning of the year, which is not a surprise to you between selling price and purchase price, which worsened in Q3. Maybe I can give you the precise number.

In the first nine months of the year, purchase price increased by close to 10% and selling price were up plus 2.7%. And those numbers were plus 7% for the purchase price in H1 and plus 1.9% for the same price.

So, it implies the Q3 which is at nearly plus 15% as far as purchase price is concerned and plus 4.3% as far as selling price. So, you remember I told you in July that in H2, we would have purchase price, which would be a double-digit and selling price which should be between 2% and 4%.

Well, it's more than double-digit, let me say why, its double-digit, but it's probably more than expected, it's plus 15% for purchase price and as a result, we did some pricing at the upper end of this -- of the sort of guidance I gave you, plus 4.3%. What to expect in Q4?

Well, purchase price will probably be at a level of Q3 or even worse. So, you could very much put in your estimate purchase price could be comprised between plus 15% and plus 20% even though we have no crystal ball, this is the order of magnitude we could expect.

And the selling price should be approximately at the same level as the one we recorded in Q3. So, it will be something around the plus 4%, plus 15%.

So, if you take those two numbers and I remind you that raw material and components represent about one-third of our sales, you can see the sort of squeeze we are currently experiencing. So, this is a reason why having a 17.9% EBIT margin early in Q4 or less and that is not something which is out of the playability and it's very much consistent with the squeeze we have in front of us even though, of course, we are doing many things, we have some cash control, we have some restructuring charges, which as pointed out by Daniela will be lower than last year.

So, we have many things that will partially compensate for that, but the squeeze is significant. Third comment, the difference between the low end of the margin guidance and the high end of the margin guidance is clearly coming from the topline.

And whether you have, let's say, minus 3% in Q4 -- plus 5% in Q4, of course, does not have the same impact on the margin. So, the topline evolution in Q4 will be a driving force behind the 20% to 20.5% EBIT margin that we are shooting for.

Thank you very much for such a comprehensive answer. I really appreciate all the details you've given.

Just one more question in the conscious of time. Could I ask in the rest of the world, you've seen a really healthy acceleration on kind of two-year stock basis in Q3 versus Q2 or H1?

Could you talk about maybe what regions or maybe product lines, what drove that and how sustainable it is, please?

Well, so rest of the world over two years. So, rest of the world over two years, you took that the quarter is plus 8.7% and the nine months is plus 6.4%.

So, yes, indeed, you have the bit of acceleration and I could hardly say that it's a big acceleration. And it's mostly coming from India, which is positive single-digit over two years in Q3, and which is still negative single-digit over nine months over two years.

So, you remember that in India, the COVID crisis is more 2021 H1 topic than 2020 topic as opposed to most of the rest of the world. So, India has progressively recovered from the COVID crisis as many countries did last year.

And again, it represent most of the changing trends let's say, between H1 and Q3. If you look at the other places, Africa is doing also very well, both in Q3 and in nine months.

China is doing very well, both in Q3 and in nine months. All my comments are over two years, of course and rest America also.

The place which is a bit more difficult is the Middle East, which is down over nine months and over Q3 over two years. To make a long story short, it's good.

All the zones expect in Middle East and the change in trend between H1 and Q3 is mostly coming from India.

Very helpful. Thank you very much.

Yes, good morning Benoît and Franck. Thanks for the time.

I wanted to follow-up on the guidance discussions we've had. As we in early November already and you assume in your range, a pretty material further deterioration in the supply chain.

So, maybe you could comment what you have seen in October so far and how much visibility do you normally have in terms of components stock at hand and so on? Would this imply a dramatic deterioration basically into the year end to get to the middle or the lower end of the range?

Or have you already seen a further deterioration in October? That's my first question.

Well, you know the rules of the game Andreas, so no, I will not comment on October. But again, just looking at Q3 I can confirm that situation is tough.

To give you orders -- I mean to give you sort of a feeling of what we are facing in front of us, we had, for example, to reallocate couple of -- some of our IND team to do sort of redesign to supply. So, to start redesigning a number of products, to incorporate components that were more available than the ones that the products currently have.

We have task force of supply chain people meeting weekly all the topics, we have daily discussions with our suppliers. So, no, it has -- it was in Q3, but particularly difficult.

We have probably lost a couple of tens of billion euros of sales. Difficult to be more precise in terms of quantification, because -- well, because at the same time, we probably had a couple of distributors who ordered a bit more than they needed.

When you want to make sure to get the 10 products, you tend to order 15 or 20. So, as a result, you think you are more sure if I may say to get the 10 you really need.

So, you had many factors at plays, it's difficult to give you a precise number, but we have probably lost a couple of tens of billion euros of sales over nine months. And again, yes, plus you never assume that there will be a strong deterioration in this situation.

And as I said a bit earlier, this is somehow a bit conservative probably. So, no, I cannot be more specific on October.

You know the rules of the game, we are not commenting months, we are commenting quarters.

Thank you. And my second question is on North America, maybe you could give a little bit more granularity on the trends there in terms of volume growth, where volumes are now versus two years ago?

I assume U.S. has also seen -- North America has also seen pretty high price increases this year.

So, where our volumes versus 2019 And what are you seeing or have seen in Q3 sequentially in terms of the growth trend momentum in the market in res versus non-res? Thank you.

Well, we're not commenting price on a region-by-region basis, but I can tell you that the absolutely no reason why we do more price in North America and elsewhere. And I saw a couple of releases where people were stating price increases of 5% or 7% or 9%.

This is not the sort of price increase we are seeing in North America. So, we're not increasing prices in North America more than elsewhere.

As far the trends are concerned, not much new things to tell you compared to what we told you in H1. Over nine months, data centers and residential are doing very well over the first nine months of the year with a strong double-digit increase over two years.

As far as other non-residential spaces, which represents 60% of our sales, I remind you that is totally negative over two years. However, the two-year plan is improving in Q3 compared to H1.

So, drop in sales over two years is not as strong to Q3 as it was in H1. And the result of that is that there is a slight growth over nine months compared to 2020.

So, still a strong drop in sales over two years. A slight growth over one year and if you compare H1 to Q3, Q3 is better than H1 over two years.

Well, -- so that's what I can tell you. There's again nothing specific as far as the pricing is concerned in North America, neither between the values pieces of our business residential, non-residential data center nor when comparing North America with the rest of the world.

Thank you very much.

Yes, good morning gentlemen. Thanks for taking my question.

I have a couple of follow-up actually. The first one is a follow-up on the question from Andreas just right now on North America.

When you speak about slight growth in the third quarter in non-res in the U.S., is it in volume terms or is it in value terms? Just so we kind of, know what we're talking about.

Well, it's in value terms?

Okay, so slight growth in value terms in the third quarter?

Yes, slight growth in value terms.

Are you able to give us an indication how we might look at in volume terms?

Well, we are not giving pricing per region. Now, again, you can assume that the pricing we are doing in North America is not much different from what we're doing elsewhere.

So, you can come to the conclusion by yourself, but no, we're not giving precise pricing per region.

Okay. Thank you very much.

My second question was around the logistic or transportation costs that you're facing. Are you able to tell us, kind of, how much they represent, generally speaking, speaking as a percentage of sales?

And also when you think about your procurement and whether this is procurement of components or procurement of finished products, how much of that is really dependent on what we call sea freight rather than just kind of more traditional transportation, and specifically, coming from Asia into Europe into the U.S.?

Well, the transportation is slight -- transportation cost is slightly above 3% -- well, slightly about 3% of group sales in fiscal year 2020. And, of course, it includes domestic transportation where inflation is pretty reasonable, low single-digit with transportation that they see or inflation could be as high as times four or five or six forecast of container, for example.

And the only significant let's say flow we have big one is between Asia and the U.S. We already discussed that two years back when we discussed the time to tariff, year ago when we discussed COVID, this is biggest, let's say, flow of products or components from one continent to another.

Now, I'm turning to my colleagues, are we able to give more precise breakdown of those 3%, not sure we can.

No, Lucie, unfortunately, we cannot -- I don’t have that material, but you see 3% of sale is not a lot. As Benoît said, looking our footprint, it's more domestic transportation than what you call the sea flows, intercontinental flows.

And further our products -- moreover, the one traveling from China to the U.S. are very small products, where the freight -- percentage of the cost or instead of sales are minimum.

So, this is why the question is how much the transportation is arming our P&L. It's not material today.

And last maybe comment as far as increasing price of transportation, it's pretty consistent with what I told you about raw materials and components. It's a bit higher than what I told you raw materials and components.

It is little bit lower for energy, for example, but it's pretty consistent.

Thank you very much. Very helpful.

And then maybe my last question is -- and this is maybe a more theoretical question, but do you see across the value chain in construction, whether this is you as a supplier into this market, labor costs and so on? Do you see potentially that the price increase or the inflation acceptance is becoming more difficult?

Do you think this is a risk for this industry in terms of demand as every single bit of cost across the value chain seems to be increasing?

Well, I don't -- today, I don't see that as a short-term risk because there's such a shortage in components and materials that the people are eager to continue the renovation of construction work and not really stuck by inflation, which currently has somehow negatively impact in our topline, which again, is difficult to size and to evaluate. But when you have no wood for wooden construction, or when you have no concrete, for example, you have no wood, you have no switch to install.

So, this in fact is extremely difficult to evaluate, but it's probably happening here and there. Now, of course, if the construction cost was to increase by, I don’t know, 30%, 40%, it could potentially -- you're right, it could potentially, over the mid-term, have a negative impact on the market itself.

That's not what we are seeing so far and I believe that part of this negative impact would be more than offset by all the positive trends which are already mentioned. Whatever the cost of the goods, if there is strong political and social willingness to make the buildings greener, lot of innovation work will happen.

Whatever the cost of raw materials and components, if you need to install system at home to remotely work, you will. So, I believe that this will more than offset any potential, let's say, negative coming from the cost of construction.

But it is being said, our prices increasing by 2.9%, it's not increasing by 10% or 15%. And, of course, also the price of other inputs is also increasing.

But today, I don't believe that that price for the total renovation, for example, price for big construction is increasing by 30%, 40%, 50%. And it's not something we have never seen to do a price increase of plus 2.9% -- sorry, 2.7%, that's the point.

So, I wouldn't be sure. So, theoretically, could happen.

Frankly speaking, number one, given the level of pricing we see today in the market, which is not plus 10%, 15% or 20%, or closer what we are doing plus 2.7%. And number two, also mega trends, which will materialize, I don't believe it will really happen.

Thank you.

Yes, thank you. Good morning everyone and thank you for giving me the opportunity to ask question.

On the -- sort of, continuing on the pricing point, just wanted to get your thoughts on you said that you will potentially continue to take pricing action into fourth quarter as well. How much do you see that supporting sales maybe early in 2022?

And also just wanted to get your thoughts on the supply chain issues and supply shortages? What is your outlook or thoughts on this situation?

How do you see that developing? Or let's see how long do you expect these constraints to last in the markets?

And maybe last question a little bit more medium or long-term is related to the European renovation market. Are you starting -- how do you see that developing in the context of the Green Deal as well as the Recovery Fund?

Are you starting to see demand and funds flowing into the market now? Thank you.

So, well, I'll tell you there will be carry. So, as I said, Q4 pricing should be around plus 4% compared to Q4 2020.

So, pretty much what we did in Q3. And of course, this will have carryover impact on -- into 2022, well, so will the cost of materials and components.

You have, of course, the negative impact of price of input. Well, it's far too early to discuss 2022 guidance, we'll do that in February when we release our 2021 numbers, but of course, you know our mid-term guidance, which is 5% to 10% topline growth on average per year excluding for an extension and about 20% EBIT, so -- which we repeated and redirected at the end of September.

As far as the supply chain constraint, well, I have no crystal ball and I have to listen to specialists and read studies and what most people say is that you have a very sort of conceptual seeing to the issues, which for example, is about containers and a number of traditional raw material such as polypropylene and most people say that this should ease in the coming months or quarters, but most of the specialists also expect the semiconductor issue and component issue to last until the beginning of 2023 because it will take time for semiconductor, especially, to build the capacities -- extra capacities, additional capacities to answer to the demand. So, that's what most people say.

Transportation and traditional raw materials and components should be a matter of months and for components it should be -- it should last a bit longer than that. As far as the third question is concerned, well, it's too early to see the European renovation wave.

We see a number of initiatives locally taken by local governments such as, for example, [indiscernible] in France. And we see similar initiatives in a number of countries including Italy, but the big of the so-called renovation wave is still to come and smaller topic for the years to come, not a 2021 topic as you know.

It always take a bit of time between the time initiative is announced, is structured than it is voted by the European Parliament, then it is voted by the local parliaments, and then the flow of money is getting out into the market. So, the renovation markets were pretty positively oriented in 2021, but it's not coming from any stimulus plans, it's coming from the fact that following the lockdowns, a lot of people decided to renovate their home, because they felt that it would become the new place, they would like to leave -- a place where they would need to be remotely connected to their doctors, to their office and so.

So, renovation is pretty well-oriented in 2021, but it's not coming from the renovation wave or the Future 55 or any of those programs. It's coming mostly from the need of individuals, and to a certain and lower extent, from local incentive plans that were announced one or two years back.

Okay. Thank you.

Thank you very much.

Thank you.

Yes, good morning, everyone, Benoît, Franck. Thanks for taking my questions.

I have two if I can, maybe do them one at a time. Lots of my questions have been asked about price and roadmaps, and maybe I can shift to mix.

You've often had the strategy of getting positive mix impact on sales from trading up over time. I wondered if you could comment on how mix impact of sales lift in the first nine months and whether that was in line with historic trends?

Well, you know that for us it's always difficult to identify a mix. We have on one hand pricing, which we can quantify and measure very accurately and then we have volume and mix and it's been difficult to split between volume and mix.

And we are doing the analysis over nine months. So, it's difficult for me to answer.

What I can tell you is that when we look at the values part of families, the sectors which we notified as -- or labeled as faster expanding segments, areas, products, data centers, and then the green programs, grew faster than the rest of a part of it. Now, I have no more precise number to tell you.

We haven't seen the big change whereby for example, given the increasing price of products, customers would shift from added value products to simpler or access the product. No, there is not such a move and we don't expect this move to happen.

But I have no more comment to give you. We're not doing this kind of in-depth analysis on a nine-month basis.

Keep in mind that we have a 300,000 SKUs. So, every time we want to dig into -- bit more precisely into the numbers, byproducts, I mean it's a big, big machine, we have to we have to put in place.

I understand. My second question you may have already touched on, but it's just on the fast growing segment and the strategy there.

Could you comment on the different speeds between the three buckets of data center, connectivity, and energy efficiency this year? I'm not trying to be precise, but do you see a pecking order in terms of fastest to slowest?

Now, it really depends on the -- the main driver if I may say what would rather be the geographical driver. That for example, U.S.

non-resi excluding data center, as I said it's still strongly down double-digit over two years. So, even if connected products or green products are doing better, well, they are not growing 20%.

So, all products families in non-resi in the U.S. somehow suffer from the fact that people have not yet gone back fully to the office and that the renovation work are not really -- not actually happened there.

Taking the other side, Western Europe and residential market which is booming. Its booming on those three segments as well as inflation product.

So, no, I cannot make a difference between, let's say, data center, connected products, and green, it really depends on the region and it really depends also the basis for comparison. What I can tell you the taken as a whole, putting together, they're going faster than the plus 16% that we are showing for the for the total group.

Any way you can quantify that positive spread?

We are usually doing it on a yearly basis not for nine months. So, I -- let's say part your question and ask you to [indiscernible].

All right, I well. Thank you very much.

Hi, good morning. Thanks.

Just a question on pricing. So, key free pricing came in at the top end of the 2% to 4% guidance range.

I think you were talking about for H2, which I think to a certain extent was going to be dependent on tactical pricing initiatives. Does that mean that it's kind of been harder for you to execute on those -- on that kind of pricing strategy to boost growth may be due to the supply chain environment?

And whether there's maybe implications for your growth expectations in the short-term? Does it delay that at all or should we kind of, not really read too much into that?

Thank you.

I mean to make things -- to be sure that you get the numbers right. In July, we said 2% to 4% in pricing for H2 and now we are saying it is going to be more 4% than 2%, because it was 4.3% in Q3 and we are shooting for 4% in Q4.

So, we are sort of precising the pricing guidance. The 2% to 4% is becoming now 4%, which is -- what is never granted, because you're always -- you could always give some price out to your customer.

But given the pricing initiatives we have launched until then, we are very confident our ability to reach these plus 4% in Q4. If your question is, why aren't we doing more?

The answer is we could. Especially in the current context, we could do a 5%, 6% or 7% price increase instead of 4% in Q4.

I don't believe it would be a wise decision for Legrand because even though everybody's increasing its price, I think that it will put us somehow at a competitive risk. So, pricing, it's always a small balance you have to find between protecting your profitability and protecting your competitiveness.

And we believe we lack a few managers who are really driving these price increases. We jointly believe that plus -- 4% plus, if I may say, in H2 in Q4 is best balance we can have today.

Okay. Yes.

Thank you.

It's not because we cannot do more, it's because we don't want to do more.

No, exactly. I just -- that's kind of what I wanted to check on that effectively even at 4%, you were -- there was a sort of an element of tactical portion within that allows you to gain share and boost growth.

Thanks for that. And maybe just quick follow-up then on U.S.

non-resi. I was just wondering whether you're sort of seeing any signs at all of projects getting pushed to the right, maybe due to labor or component shortages?

Well, it's always difficult to say. I think they are not pushed to the right, they are pushed ahead of us and that's why I'm not negative for the U.S.

for 2022, 2023, 2024. Now, we'll see it is true that the labor shortage is a fact.

It impacts actually not only people at -- contractors, for example, but it also something we have to manage in our factories. Well so far, I think this is not a topic, the topic is more the fact that the recovery is as expected a bit slow.

It will take a bit of time before the people get back fully to work and also renovation work are performed. Again, Q3 is already showing some sort of improvement compared to H1, both in value and in volume.

And hopefully, this will materialize in the months to come.

Great. Thank you very much.

Yes, thank you. Good morning.

This is Martin from Citi. Just a question on customer behavior relative to the pricing.

I appreciate your price is only at 4%, but presumably, for a certain product line, you selling a lot more than that. And are you seeing any indications of customers reacting to that either -- obviously, Legrand typically had premium product, are customers choosing to sort of move to cheaper products as a result of pricing?

And also if you remind us what percentage of your products are specified by specialists such that the electrical contractor has no ability to choose somebody else if they can find a product is cheaper than Legrand just to understand if pricing can have effect on competitor dynamics as well? Thank you.

No, no, we are not seeing such a move whereby given the price increase, the end users or contractors would go to cheaper solutions. If we look at, for example, premium ranges of wiring devices, in France, even now in Italy, connected products, high end panel boards, also they are doing very good performance, growing nicely and some times faster than the rest of the product offering.

So, we're not seeing such a move throughout simpler products. And again, the answer be -- the reason be that when you are doing some renovation work, when you ask a contractor to come, the cost of product would be 10% of the total cost of his work.

Out of this 10%, probably 3%, 4% would be the components and then you have cables, lighting fixtures, and many other topics. So, if and those 2% or 3%, you're increasing your price by 4%, 5%, 6%, it's not such a big deal for the end user.

It's not a reason not to do the work. Well, it could be a reason for the contractor to switch us to competitors, that's why we're doing plus 4% price increase and not plus 10%, but it might not be a reason for the end user to tell the contractor let's stop the work, its pressing too much for me to invest my money is in something else.

Also more as don't forget that during the year 2020, in many countries, people saved a lot of money. I see the total savings for -- and I don't remember the exact number, but it's €120 billion or €150 billion of money, which was saved.

So, no, to make a long story short, I don't see this kind of behavior whereby there would be a migration, let's say, toward cheaper product. All the more as all of the factors are seen to play, the fact that your product need to be available, today clearly, there is a rush to one products which are available.

So, it is also the opportunity for us if we can be smart to gain a bit of a market share. So, we're not seeing this move.

As far as the percentage of product that would be specified, it's the large minority of products. A lot of our products -- a majority of our products -- difficult to shoot a precise number, but the majority of our products would be chosen either by the contractor or by the end user.

The end user being either an individual or property or company more than by an engineering office typically or by design build an architect. Now, again, when it is a contractor choosing or the end user choosing, are they usually choosing lower value product?

The answer is no. And you have to get steel seller, added value products to those guys.

If I may add maybe one factor the current cost in fees or pricing fees of energy, which by the way, is not a big topic for Legrand because I think that I'm telling to my colleagues, they can confirm the number, but I think the energy cost is 0.5% of our sales. So, you see it's a couple of tens of billion euros, it's not big.

So, it's not a bigger, let's say, cost point for us. It can even provide additional opportunities and push people either in engineering offices, contractors, end users toward buying a lot more energy-efficient solutions.

When your heating costs is increasing by 20% or 30% and statistics show that in France, it represent €1,200 a year, well, maybe this is a good opportunity for you to buy a thermostat which you're going to pay a €250 or €200 at best and -- which would help you to save 15%, 20%, 25% of your bill. So, not only we are not seeing any negative mix effect coming from the current, let's say, supply chain crises that are -- double that, it could even provide a number of opportunities, either in terms of market share if you can be better than your competitors or in terms of selling more products to help people to reduce their energy bill.

Thank you very much.

Yes, good morning. Thanks for taking my question.

I got two if I may. The first one regarding the products you mentioned, the faster expanding product, your most successful product like connected product solution for data center, et cetera.

Do you think you've got more pricing power with this type of product than the product of the Legrand? My first question.

And I got a second one regarding 2022 next year. In a scenario with further inflation next year, do you think you would have further room for the leeway to offset that inflation in terms of pricing, cost cutting, restructuring?

Or would it be -- would it be too much for Legrand?

So, as far as the first question is concerned, we have neither more nor less pricing capability in those faster selling segments than elsewhere. I don't see there is a specific difference, except that they are growing faster.

So, no, I wouldn't tell you that we have more pricing power. As far as 2022 is concerned, we're -- again I'm not happy to say that we are very confident in our ability to deliver our mid-term guidance, which should mid-term on average 20% EBIT.

But on top of that, given the fact that we are pretty reasonable in terms of pricing, that's the feeling I have, I'm not doing too much of pricing, that's probably a bit more margin for maneuver for 2022 if we need it. And as far as cost management is concerned, we have reinvested into cost expenses, wherever needed in 2021.

So, again, if needed, we will have the ability to put cost under little a bit more constraints. So, I'm not giving any warning for 2022, we will give a guidance in February 2022.

And you can expect that mid-term guidance will be will be expected. Maybe one indication on our cost base, which I didn't give and which can be useful.

I told you that -- I mean you know that our like-for-like says over nine months increased by 16%. Our like-for-like expenses, i.e.

production expenses, and SG&A increased by 8% in nine months of 2021. So, at the same time, you have one of the reason why we can compensate the increase in the raw materials and components not only for pricing, but also to leverage and on top of that, you can see that we are punctually reinvesting into -- especially SG&A wherever it is.

So, we are not catching our cost, we are putting some cost back into the machine. Well, part of that is because, of course, viable but part of it also fixed cost.

So, I wouldn’t give you today specific warning or concern for 2022. Of course, our budget process is going on and we'll tell you more in February 2022 when we release our full year numbers.

Thank you.

Yes. Thanks for fitting me in.

So, yes, on the first question, maybe back to the same topic you were talking about there. I think about Q4 and the guidance you've given what it implies for margins.

And the conversations we were just listening to around pricing and how far to push it and how pushing it much further which you could do would probably ultimately hurt your market share, which seems to be something you don't want to do. If that's the case, then you're kind of a bit boxed-in in terms of pricing from here, at least for a while.

And margins are obviously under pressure in Q4. And I just -- as we go into Q1 and Q2 of next year, is this just something we have to weather?

I listened to your comment around confident that you can recover the margin to 20% on the mid-term and is that really how we should read things that the exit rate next year can be 20%? But honestly as we move into the early part of next year, we're going to have to accept margins sub-20% for a while because you can't pull the lever of price without market share?

Or is there an alternative such as a more aggressive restructuring campaign that we could see announced shortly as a different level you could pull to offset the headwinds you now seem to be experiencing?

Well, I told you that I didn't want to comment in detail 2022, I might go one step beyond of commenting Q1 and Q2 2022. Again to gauge the performance of one quarter and it applies -- my comment is more for Q4 2021, you don't have price increase to me.

And delivering 17% or 18% or even 16% EBIT margin over quarter is not a big concern, provided, number one, I put in line with my yearly guidance and the 20% EBIT margin. Number two, I'm doing what it takes to serve my customers, accelerate my topline rules, and reinforces the good positioning.

So, well, I know that it will not precisely answer your question, but again, we'll discuss the 2022 guidance in February.

Okay. But I guess --

You should trust a bit Legrand when we are telling you that that we will do whatever it takes to deliver on our mid-term guidance.

Yes. I give up.

--which is something we intend to achieve earlier of course.

Yes, I have confidence on you recovering the 20% margin, I just know that the exit rate is going to be something closer to 17.9% I think you've said as we leave 2021. On the -- maybe a different topic, acquisitions, obviously, originally, you were guiding to 3%, I mean, we can never be sure about the scope exactly the timing that deals land or indeed when you choose to start consolidating deals that you do.

How is the pipeline looking right now? Can we expect the usual sort of 4% contribution to the topline next year?

Or is it becoming more difficult to get deals across the line in this sort of inflationary environment?

Well, we are indeed saying that the scope of consideration should be nearly 3%, but actually does not depends on sales to be made, it depends on how fast will it consolidate those were already announced. Namely, to install Ecotap.

Either we can consolidate then before the end of the year and the scope of consolidation will be slightly above 2%. Or we can't, and the scope of consideration will be slightly below 3%.

Frankly, speaking, it's not of big deal, and we're not rushing to consolidate. For me, it's not an absolute mess, to be exact, that 3.1% and I can very much leave with a 2.8%, for example, because we wouldn't have much to merge in consolidating.

So, that's where the -- that's why the wording is nearly depends on the ability to consolidate fast, which does not only depend on us, but also on the state of the financials and readiness of the companies to be consolidated. As far as our sort of mid-term scrub effect, what we said during our Investor Day was that fleet was plus 4%, including the big deal milestone, and excluding milestone, it was 3%.

So, we are not changing that altogether, we are shooting let's say, between plus 3% or plus 4% depending on whether or not we are doing a bigger deal. If we could do more, if we could do given year 5% or 6%, then we would of course be delighted to do so, provided we are buying the right company.

Third comment as far as our pipeline is concerned. Well, we still have a number of discussions going on.

So, I'm not afraid about our liability to do further this in the quarters to come. We have quality discussions.

Of course, sometimes, prices are a bit high because plenty of cash on the market. Now, it has always been Legrand core assets to be able to buy quality companies at reasonable prices.

That's what we did this year with Ensto and Ecotap and that's what we intend to do in the quarter to come. So, no, there's still a number of discussions going on.

I couldn't be precise on when they will materialize because until you have signed the acquisition contracts and even sometimes closed the deal, you're never sure to make it. So, I couldn't be more specific except to tell you that that the pipeline is not empty.

Thank you.

Yes, good morning, everybody. Thanks for taking the questions.

My first one is just maybe a bit more clarification on the organic growth guide, can you specifically about the comps you're seeing in the U.S. in the fourth quarter?

I think last year you were down 11% in the U.S. versus the minus 1.5% decline in Q3.

So, you're facing significantly easier comps. You're saying non-resi is improving sequentially.

So, I would that think the U.S. should grow very nicely for you in Q4.

So, how should we read this into your quite conservative implied Q4 guide? Secondly, on China, you're saying in the presentation, it was up double-digit in the first nine months?

H1, you said it was up double-digits, but maybe you can talk a bit more about how Q3 was maybe even throughout Q3. I know it's small for you, but just interested in that.

And then lastly, can you comment a bit on your customer churn in anyway over the last say 12 to 18 months, has this changed in any way given pricing strategies? Thanks a lot.

Well, as far as a Q4 is concerned for the U.S., the fact is that it was qQ4 2019, which was very strong, especially compared to our competitors. And if you look at Q4 2019 compared to 2018, all of our listed peers, namely the ABB, [indiscernible], Invent, all those guys went down pretty significantly.

And our performance was a lot better. I think our performance was something like plus 2% in Q4 2019 compared to Q4 2018 and all of our peers were down sometimes 3%, 4%, 5%, 6%.

So, I think the performance in Q4 2021 will have to be compared with Q4 2019, which is sort of two-year comparison, which is -- must to be done all our areas in 2020 given the very specific, let's say, pattern of the year 2020. So, that's why we don't expect fantastic growth in the U.S.

because the basis for comparison for two years is pretty difficult. As far as China is concerned, when I told you that first nine months prior and the Q4 was positive.

If you look over two years, first Q3 and nine months were up double-digit, while it is true that Q3 is couple of points less than nine months, but nothing to be worried about the pattern is still a very, very positive. What to expect going ahead?

It will depend very much on the, of course, Chinese economy and Chinese GDP. If I may, we are so small in China, remind you that it represents 4% of our sales that we should be able to pursue our growth strategy, even if the market is not super positive.

It's not saying that we will grow in China, wherever happens, but it means that for example, we will continue to look at potential acquisitions in China. We've done two in the past four years and we remain interested to do more and we'll keep investing into new products and I'm pretty confident in our ability mid-term to keep going nicely in China.

So, to make a long story short, nothing specific between H1 and Q3. No precise guidance for the rest of the year nor for 2022 because it's too early.

And number three, we intend to pursue an offensive growth strategy in China because we believe that we should grow this 4% to something bigger. As far as customer churn is concerned, we haven't seen significant customer going down, I mean going out of business in 2020 because of financial constraints.

So, it's not the reason why customers are changing and we continue to work with over the big guys and the three being -- these are big distributors, DIY, purely intellectual player, professional distributors as well as be contractor and subcontractors. So, I don't see there's anything specific coming from customer churn that would be worth mentioning.

We have a pretty solid and stable customer base and I haven't seen a big shift from one customer to another coming from the crisis. Again, I mentioned in pricing, -- and I don't want to repeat things, but seeing price pricing such as the one we are seeing is a plus 2.7% in our nine months or the plus 4.3% in Q3 is not everything Legrand is doing.

We have several years with pricing at plus 3% or plus 4%. So, I wouldn't want you to think that this pricing is so exceptional, that it is completely changing the mind of the market or changing the players that are in the market is something we saw from time-to-time in the past years.

Thanks Benoît.

Good morning and thank you for the time. I wanted to ask another question on the USA, please just if you can help us understand.

If I think about the year and how it's developed, I think in Q1, you've had 4% growth and non-resi declined. In Q2, you had 15% growth and again, your non-resi was nearly unchanged.

And in Q3 in value terms, you're reporting a 1% decline, but you're saying that non-resi in the nine months has slightly grown? So, can you be a bit more specific about why there was such a drop?

It seems to be if we assume pricing was plus 4% in Q3, then there's a volume drop of about five percentage points, non-resi was growing according to your commentary. So, why is there such an apparent drop in Q4 around data centers and residential?

Or perhaps I'm reading it the wrong way? How would you describe the trend in the segments in Q3 across the business lines?

Well, I was more commenting over two years than over one year because when it comes to topline, the year 2020 is so, let's say, strange, if I may say, then then when your comparison doesn't make a lot of sense. For example, in Q3, the resi in the U.S.

was super strong in Q3 2020 because there was sort of consequences from the -- those lockdowns happening here and there. So, the basis for comparison in Q3 residential is strong.

And as a result, the Q3 performance in 2021 for residential is a bit smooth, but again, it's not coming from any negative trend, it's coming from the basis for comparisons. That's why I'm, as much as possible, analyzing the numbers over two years.

And over two years, that's where I can tell you residential up -- strongly up -- I mean up double-digit in nine months; up double-digit in Q3 with about the same number. So, over two years, no change in trend for resi.

Data center, very, very strong growth over two years in Q -- in nine months. Very strong years -- strong growth over two years in Q3.

Not slightly lower in Q3 the number in nine months, but it's not significant and is going fast. Now, other than resi, its down double-digit in H1, is down single-digit in Q3 and as a result, it's still down double-digit in nine months, but less than in H1.

And further numbers I'm deriving the comments I'm making on trends saying price in resi are still good. Even though looking at Q3 alone over one year, it's smooth, but it's basis for comparison too big, the market itself is still a supportive.

The market, which is very supportive for data center and for other than resi, there is some sort of improvement because -- there's is a decrease in sales is more or less cut by half between H1 and Q3. So, we see that as a sort of sign for improvement even though it remains negative over two years.

Is that clear?

Perfectly clear. Thank you very much

Thank you.

Well, thank you very much for your patience and for the time you dedicated to Legrand. And have a good day.

Thank you very much. And of course, Ronan Marc, [indiscernible], Franck Lemery and myself will be available to the end of the week to answer any additional questions you may have.

Thank you.