• Organic + M&A Sales Growth: Up 3.9% in 2024.
• Adjusted EBIT Margin: 20.5% after acquisitions.
• Net Profit: EUR 1.2 billion, representing 13.5% of sales.
• Free Cash Flow: EUR 1.3 billion, 14.9% of sales, with a conversion rate of 111%.
• Net Debt-to-EBITDA Ratio: 1.5 at year-end.
• Proposed Dividend: EUR 2.2 per share, up 5.3% from last year.
• Data Center Sales: Represent 20% of total sales, with a 19% average annual growth over the last five years.
• Acquisitions: Nine acquisitions announced, adding EUR 430 million in annual sales.
• R&D Investment: 4.5% of sales in 2024.

• Warning! GuruFocus has detected 4 Warning Sign with BOM:526423.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Legrand SA (LGRDY) achieved its 2024 targets with a 3.9% increase in organic plus M&A sales and a strong adjusted EBIT margin of 20.5%.
• The company reported a robust free cash flow of EUR1.3 billion, representing 14.9% of sales with a conversion rate of 111%.
• Legrand SA (LGRDY) has a strong position in the data center market, which now represents 20% of its sales, with an average annual sales growth of 19% over the last five years.
• The company has a solid balance sheet with a net debt-to-EBITDA ratio of 1.5, reflecting its strong cash generation and acquisition pace.
• Legrand SA (LGRDY) set ambitious 2025 targets, aiming for sales growth between 6% and 10%, driven by both organic growth and acquisitions.

Negative Points

• Sales in Europe fell organically by 2.3% in 2024, with the building market in retreat across most geographies.
• The company experienced a sharp decline in sales in China due to a steep decline in construction markets.
• Legrand SA (LGRDY) faced a negative scope effect from Russia, impacting sales by -0.6% in 2024.
• The company anticipates only a maximum of 1% pricing increase in 2025 due to a non-inflationary environment for raw materials and components.
• Legrand SA (LGRDY) expects continued challenges in the European residential and US office markets, with recovery anticipated only towards the end of 2025.

Q & A Highlights

Q: Can you provide more details on the organic sales guidance for 2025, particularly the contribution from data centers and pricing assumptions? A: Benoit Coquart, CEO, explained that the sales growth guidance for 2025 is between 6% to 10%. M&A is expected to contribute 4% from completed acquisitions, with potential additional acquisitions adding 0.5% to 2%. Organic growth is projected to be 2% to 4%, with pricing contributing a maximum of 1% due to a non-inflationary environment for raw materials and components. Data centers, which grew 15% organically in 2024, are expected to continue double-digit growth in 2025.

Q: Is there a trend towards larger data center projects at Legrand, and how does this affect your pipeline for 2025? A: Benoit Coquart, CEO, stated that Legrand has been involved in large projects for some time, and the market consists of many large projects. Legrand's product offering allows it to address all types of projects, from hyperscale to smaller edge data centers. The company sees significant sales potential in large projects but also values smaller projects. The pipeline remains strong, with continued growth expected in 2025.

Q: How does the acquisition strategy impact organic growth and like-for-like growth in Q4 2024? A: Franck Lemery, CFO, clarified that acquisitions do not materially change the like-for-like growth of the group quarter by quarter. The data center segment showed an acceleration in growth throughout 2024, with a slight decrease in Q1 followed by significant increases in subsequent quarters.

Q: What visibility do you have on data center backlogs and how does this impact the start of 2025? A: Benoit Coquart, CEO, mentioned that data centers provide some visibility due to order backlogs, which increased sequentially from Q3 to Q4. The book-to-bill ratio remained above 1, providing confidence in continued growth for the next couple of quarters. However, orders can be canceled or delayed, so precise numbers are not provided.

Q: Can you clarify the sales growth guidance of 6% to 10% and the role of M&A in this? A: Benoit Coquart, CEO, explained that the guidance includes a 4% contribution from carryover acquisitions, with potential additional scope from new acquisitions. The guidance excludes FX effects, which could add a positive 1.5% impact. The company aims for the upper end of the guidance range, with organic growth expected to be 2% to 4%.

Q: How should we think about the cash margin and free cash flow for 2025? A: Franck Lemery, CFO, stated that while Legrand does not provide yearly guidance on free cash flow, the target remains to deliver free cash flow between 13% to 15% of sales, consistent with past performance.

Q: What are your expectations for the European residential and US office markets in 2025? A: Benoit Coquart, CEO, noted that the European residential market is expected to bottom out in 2025, with a potential recovery in H2. The US office market may see a slight recovery in late 2025, driven by factors such as vacancy rates and low construction levels. However, these are based on expert predictions, and any earlier or stronger recovery would positively impact organic growth.

Q: How does the competitive environment in data centers affect Legrand, and what trends are you seeing in South America and the Middle East? A: Benoit Coquart, CEO, described the competitive environment in data centers as similar to the building industry, with both large and small competitors. Legrand maintains a strong position and sees opportunities for acquisitions. In South America and the Middle East, growth has been strong, supported by data center projects and strong market positions in several countries.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.