Legrand SA

PAR:LR

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to today's Legrand 2018 First Quarter Results Conference Call. [Operator Instructions] For information, this conference is being recorded. At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart; and CFO, Mr. Antoine Burel. Sir, please go ahead.

[Benoît Coquart, Chief Executive Officer]

Thank you. Hello, everybody. Benoît speaking. Antoine Burel, François Poisson and myself are happy to welcome you to the Legrand 2018 Q1 Results Conference Call. Let me remind you that we have published today our press release our financial statements and a slideshow, and we will refer to this slideshow during this call. The documents are available on the Legrand website. And as usual, please note that this conference call is recorded and webcasted on our website.So let me first start with an exec summary, following which, Antoine and I will comment into more details of results and achievements. I will first start on Page 4 of the slideshow with the 3 main takeaways of today's release. The first takeaway is that 2018 Q1 performance is solid. Sales were up plus 9.6%, of which plus 3.9% organic, driven by both mature and new economies. More specifically, organic growth was very good in Italy and rest of Europe partly due to one-off effects. Adjusted operating profit and net profit attributable to the group were up double digits and the solid results demonstrate, once again, Legrand's ability to generate profitable growth.Second takeaway. We have actively pursued a number of growth initiatives by continuing to launch new products, both non-connected and connected. And we have also continued to leverage on the geographical deployment of both international programs and Eliot. The group also benefited from the successful overseas development of businesses recently acquired in North America.Finally, the third main takeaway of this release is that Legrand confirms its targets for 2018. After this introduction, let's start with another year of sales, and I'm going to Page 6 of the slideshow. So as I said, we have recorded a total high in sales of plus 9.6%. Our first growth driver is doing well, with organic growth reaching a solid plus 3.9% in Q1, driven by healthy rises like-for-like in both new economies, where sales were up plus 5.7%; And in major countries, where sales were up plus 3.2%. So the good showings benefited more specifically from very good growth, in part one-off, recorded in Italy and in some economies in the Rest of Europe. As you know, the group's second growth driver is external growth, which stood at plus 14% in Q1 2018 and should amount to over plus 7% full year. Lastly, ForEx impact, as expected, is negative at minus 7.5% in Q1 2018. If we apply to the last 9 months of the year, the average ForEx observed in April 2018, then annual ForEx for 2018 would be around minus 5%. Of course, as you know, this is a theoretical computation. And of course, time will tell what will be the actual ForEx impact on sales on a full year basis.Let me now comment with more details our like-for-like evolution of sales by reporting segments, and I'm referring to Pages 7 and 8 of the slideshow. Before going into detail into European countries on Page 7, let me first indicate that our performance in Europe, as a whole, so including France, Italy, and Rest of Europe, is very strong with a total organic growth recorded in Europe of plus 6.2%. Now moving into each zones. In France, organic growth in sales stood at plus 2.7% in Q1 2018, which is a good performance, driven by very positive momentum in energy distribution and home systems. New products also contributed to growth, notably the Céliane with the Netatmo range of connected user interface, as well as the range of the structured cabling which is called LCS3. Moving to Italy. Like-for-like sales growth was plus 6.3% which is very good performance. It's supported by innovation, including all the new products that were launched over the past quarters, which continued to perform well in Q1 2018. And our robust rise in sales in Q1 also benefited from a favorable basis for comparison effect. I remind you that for the full year of 2017, we recorded like-for-like growth of plus 4% in sales, and Q1 2017 alone was up only plus 1.9%.Last reporting segment in Europe, the Rest of Europe. Sales were up plus 9.3% like-for-like compared to the first quarter of 2017. This is a very strong growth overall, which was driven by both mature and new economies, with a notable increase in sales in countries like Spain, the Netherlands, Greece, and an activity which was almost stable is the United Kingdom compared once again to Q1 2017. In new economies, we recorded very good showings, overall in part one-off, specifically in Turkey, Romania and Hungary.Now on Page 8, moving to North and Central America. Sales rose plus 1.7% like-for-like. So in the U.S., where sales were up plus 2.5%, performance was good in both user interface and lighting solutions. Q1 rise in sales was also driven by solid achievements of Milestone, which grew mid-single-digit in Q1 in spite of a challenging basis for comparison. As said in the previous publications, Milestone has fluctuating businesses with ups and downs on a quarterly basis. And in Q1 2018, activity in retail was particularly strong.Finally, sales in Mexico retreated due to high basis for comparison in 2017. Maybe a side comment on [indiscernible]. If we combine organic growth and perimeter effect, growth in North and Central America, in local currency, was almost up plus 50% between Q1 2017 and Q1 2018, which is obviously, a very impressive achievement.Coming back to organic growth and talking now about the Rest of the World area. In this area, sales rose plus 3.2% on a like-for-like basis. In a number of countries, we achieved double-digit growth in sales. This is notably the case in China, where we did very well, in South Korea, in Peru, in Saudi Arabia and in Algeria. Sales in India declined due to high basis for comparison in Q1 2017. The last comment on Brazil and Colombia where sales decreased in Q1 2017.Now I pass the mic to Antoine for an overview of our financial performance.

[Antoine Burel, Executive VP & Group CFO]

Thank you, Benoît, and good morning to all of you. I start with the profitability on Page 9, where we compare adjusted operating margin between Q1 2018 and Q1 2017. And as you can see from this slide, adjusted operating margin before acquisitions came to 20.4% showing a rise of plus 70 bps on Q1 of 2017. And in the context of growing sales, it mainly reflects first, our good global operating performance; and second, the group's ability to adjust its selling prices to inflation in raw materials and components. And to put figures and words on this last point, Legrand's selling prices were up plus 1.4% in Q1 2018 and raw material and component prices were up plus 2.5%. And as said, it demonstrates our ability to have a good coverage of inflation on raw material and components. But please note that we even benefited from a slight bonus in Q1 due to a lag effect between an immediate selling price increase and a progressive rise in raw material and component prices. This is for the adjusted operating margin. On Page 10, talking now about value. Adjusted operating profit was up plus 11.9%, reflecting Legrand's ability or capacity to create values for profitable growth. Moving on to Page 11. Another key indicator of value creation, which is the net profit attributable to the group. You see that it was up plus 17.7% at EUR 175 million for Q1 of 2018. And this strong increase is mainly the result of our robust operating performance, but not only, it also embeds a decrease in net financial cost in spite of higher debt and it is thanks to very competitive recent refinancing conditions. And the last favorable item contributing to this performance in net profit is the group income tax rate. And as announced, our group tax rate is down by 3 points, thanks to the decrease in corporate taxation in the U.S. Moving to the last indicator of my presentation on Page 12. As you all know, we also clearly focus on cash generation. Our key indicator there is normalized free cash flow. It was up 20.3% (sic) [ 21.3% ] in the first quarter of 2018, to reach EUR 219 million. And this performance was mainly supported by the growth in cash flow from operations. On the left-hand side of the slide and as far as working capital requirement is concerned, please note that the rise in Q1 is mechanical as it compares to a low level of working capital requirement at December -- at the end of December 2017. And this being said, at the end of Q1 2018, the working capital requirement remains well under control at 9% of sales. And to sum up on my presentation, I believe that we report a good set of financial metrics in Q1 2018 and close to 10% growth in sales, significant improvement in adjusted operating margin and also strong growth in adjusted operating profit, close to 12%; net profit, close to 18%; and normalized free cash flow, with plus 21%. Thank you, and I give now the mic back to Benoît.

[Benoît Coquart, Chief Executive Officer]

Thank you, Antoine. Let's move now onto the next topic of our presentation, in other words, our ongoing growth initiatives, and I'm turning to Page 14. As shown on this slide, we remain very active in terms of new product launches in Q1, both on non-connected products and on connected products. You have here a few examples on non-connected products, products such as the Practibox cabinet in Brazil, Logix floor boxes, Keor multiplug UPS and many others. And as far as connected products are concerned, we launched, for example, Céliane with Netatmo, Mosaic with Netatmo both in France and Yiyuan in China. A word on Céliane with Netatmo because we talked a lot about this range in last quarters. The new range has been well received with already close to 2,000 connected installations, managed through our Home + Control application. This is just the start, of course, but very good and very encouraging start. On a broader basis on connected products, the deployment of other [ area ] products such as the Classe 300X door entry system or the Smarther thermostat is also doing very well. Moving to Page 15. We are also successfully pursuing the deployment of international programs that we launched recently, including, for example, the high-performance structured cabling system, LCS3 and UPS systems. In the meantime, we also benefited from the successful overseas development of Raritan, Finelite and Solarfective, all companies we acquired recently. Finally, on the right-hand side of the slide, we announced today a very small but nice deal in digital infrastructure for data centers in Germany; a deal that rounds out of existing operations in Europe, the U.S. and Asia.Coming now to the last topic of this earnings release on Page 17. Based on Q1 2018 achievements, Legrand confirms its targets for 2018, i.e. organic growth in sales of between plus 1% and plus 4% and adjusted operating margin before acquisitions at 2017 scope-of-consolidation of between 20% and 20.5% of sales. To conclude, Q1 2018 showed solid performance. All growth initiatives are delivering well and will continue of course. And lastly, we confirm our 2018 targets. With this in mind, Antoine and François and myself are ready to answer any questions you may have. Thank you.

[Operator]

[Operator Instructions] We have our first question from James Stettler from Barclays.

[James Edward Stettler, Managing Director]

Can you talk a bit -- give a bit more color around Milestone and, indeed, how that has impacted the margin for the U.S. operation? Secondly, just on lighting controls. I mean, clearly, a lot of your lighting peers are having more issues. You highlight lighting controls being a positive driver in the U.S. in the quarter. Can you talk a bit about that? And then finally, when you look at your top line guidance of 1% to 4%, I mean, versus when you set up the guidance in -- back in February, are you feeling more confident to be at the higher end or has that not changed at all?

[Benoît Coquart, Chief Executive Officer]

Hello, James. Benoît speaking. So on Milestone, we are -- we recorded a good 2018 first quarter with, as I said, mid-single-digit growth in sales and a slight improvement in profitability. So it's a good quarter. We are just making this kind of cautious statement saying be careful, do not overread performance, quarterly performance at Milestone because there is some variability in quarterly sales. So Q1 is good. We are extremely positive on the docking of this company, which is a great addition to Legrand, but of course, Milestone is not growing 14% over 2 years on a permanent basis. But once again, Q1 was strong and good. As far as the acquisition impact on the N&CA margins, over Q1, it's neutral. So including all acquisitions, it has no impact on the N&CA margin. Second question, as far as lightning controls is concerned, I can confirm that both lighting controls and lighting fixtures have recorded good growth in Q1 2018. It's always difficult to compare ourselves with peers actually because we are not in the big lighting segment, and we do not intend or pretend to fight against the big lighting players. We are active on a very specific niche in the U.S. which is both lighting controls and highly specified architectural lighting for commercial buildings. And this niche maybe represents 10% or 15% of the lighting market in North America. So it's hard to compare ourselves with other lighting companies or with lighting companies. And I wouldn't extrapolate that we are gaining a lot of market shares over those players, just that we are not comparing apple to apple. But overall, our Q1 performance for lighting in the U.S. is very nice. As far as your question, the top line guidance is concerned, we insisted a bit in the release and in our comments on the fact that even though Q1 organic growth is good, it is impacted by some -- what we have qualified as one-off. Typically, Italy, the Q1 2017 was 2 points below the trend of the full year. So it gives us sort of a theoretical advantage of 2 points for performance. And number two, as far as Rest of Europe is concerned, we believe that the underlying markets are closer to the pace they had in 2017 than to 9%. So I'll let you do the math. But taking that into account, Q1 performance is completely in line with our plus 1% to plus 4% guidance.

[Operator]

Next question comes from Andreas Willi from JP Morgan.

[Andreas P. Willi, Head of the European Capital Goods]

I have a couple of questions. I would like to start with the recent press article that was about the market structure in France and competitive behavior. Maybe a few of you want to use this opportunity to comment on that. Second question, you mentioned the acquisition dilution that didn't affect North America but the 30 basis points overall was maybe a bigger number than I had expected. What should we expect for the full year? And why was the dilution then so large in Q1? And if you look at North America, you elaborated on lighting and Milestone having good results. And you mentioned Mexico. But what's the gross rating, kind of the core heritage Legrand U.S. business outside basically Milestone and lighting, which has been kind of acquired partly at least over the last few years?

[Benoît Coquart, Chief Executive Officer]

Hello, Andreas. So I'll take question 1 and 3 and I will take Antoine answer on the dilution impact of acquisitions. As far as the first question is concerned, my answer is going to be extremely short, because we do not comment on press articles. This being said, I, of course -- should it be necessary, I confirm that our sales policy is fully in compliance with competition now, obviously. On page -- sorry, on question 3. As far as North America is concerned, let me maybe remind you the numbers. So if you take N&CA as a whole, our sales were up plus 1.7%. If you take the U.S. alone, our sales were up plus 2.5%. Now it's always interesting to look at the performance over 2 years or sometimes even longer. And typically, for the U.S., for example, Q1 2017 was up 3.5%. So in the U.S., over 2 years, our performance is going at a plus 3% per year pace, which, if you compare to other players, even though the comparison isn't easy because we all have different payment of activities, it's a good performance. So I confirm that we are not losing shares in the U.S. We are growing, on average, in the past 2 years, at a 3% per year pace which is good, with many different units. Wearing devices is nicely up; lighting and Milestone are up; and you have other businesses, amongst 10 or 15 businesses we have there that are business-supportive, and even sometimes going down for good reason that we know. So overall, no warning in the U.S. We believe both in terms of absolute terms and in terms of relative terms, that our performance is good. The Mexican situation is a bit special. It is down in Q1, but we had a very strong start last year, plus we launched a nice, new range in Mexico, and we had a bit of inventory buildup at the distributional level at the end of the year. Our teams remain positive in Mexico, and we believe we're going to achieve a good year. Now turning to Antoine for the second question on dilution.

[Antoine Burel, Executive VP & Group CFO]

Yes. Thank you, Benoît, and good morning, Andreas. First, I would start by saying that we have no issue there. And effectively, we talked about a 10 bps margin dilution expected from acquisition on a full year basis. This is what we said in February 2018. And I remind you that we talked also at that time that we were shooting for a 7% scope effect on sales and a 10 bps dilution on margin, 7% effect on sales. You may have noticed that in Q1 2018, the scope is not 7%. It is 14% and twice a year annual effect just due to the seasonality of the acquisition in 2017. Then mechanically, the 10 bps dilution become 20 bps. And on top of that, there is some seasonality observed in 2017 in the profitability of the businesses we have acquired. And we consider that this seasonality represents around 10 bps. Then, on this basis, the Q1 30 bps dilution is consistent with about the 10 bps dilution on the full year basis, and then which is still valid. And to sum up, 10 bps at full year dilution, 10 bps scope effect in Q1 and 14% versus 7% on a full year basis. And third point is seasonality observed in 2017 for around 10 bps. But this is also important to note that this is also the reason why we consider that the performance in operating margin in Q1 should be read before acquisition impact because of course, taking into account 13 bps -- 30 bps in Q1 and not 10 bps on a full year basis, it creates [ some obvious] on the operating margin analysis on a reported basis in Q1. And then to sum up, we consider that this analysis should be done before acquisition due to the seasonality and the margin dilution over the course of the year.

[Operator]

Next question from Lucie Carrier from Morgan Stanley.

[Antoine Burel, Executive VP & Group CFO]

And maybe, sorry, just 1 additional point to make sure that my long answer was clearly understood on this subject that what we say and to sum up is that the 30 bps in Q1 is consistent with the 10 bps on a full year basis. Okay?

[Lucie Anne Lise Carrier, Vice President]

I have a couple of questions. The first one actually is a follow-up on the one-off effect you mentioned in Rest of Europe in the -- for the Rest of Europe segment in the first quarter. Can you give us maybe a bit more kind of color on what this one-off is and why you think they are not necessarily sustainable? That's question #1.

[Benoît Coquart, Chief Executive Officer]

Maybe -- Lucie, if you don't mind, maybe ask all your questions and then we will address them.

[Lucie Anne Lise Carrier, Vice President]

Okay, sure. So that was the first question. The second one. I was curious to know whether you had seen some kind of restock effect in some specific geographies in the quarter, because from some of your competitors or distributors, we've kind of heard of some restocking momentum, so I was wondering if you've seen that. And if so, how it had affected you. And then, the last question was around M&A. There has been, of course, a little M&A done in the first quarter. I was curious of your objectives now whether you are a bit on the slow mode for '18 as you integrate Milestone or whether we should expect an acceleration and, if so, considering you've done quite a lot of M&A in the U.S. over the last years, so maybe the other area or the new area of focus for you on the M&A side?

[Benoît Coquart, Chief Executive Officer]

Okay. Thank you, Lucie. So typically, what we saw in Q1 Rest of Europe in a few countries that are listed in the press release are a number of effects which we do not consider as being a recurring effect. For example, there have been, in a few countries, a bit of inventory buildup from the distributors in this area. There was a couple of big project also. And as a result, we do not believe that the 9% growth rate recorded in this area is sustainable, and that we should record such kind of high growth rate for the full year. So nothing, let's say, exceptional in [ our trade ]. It is just that when zooming on a given quarter and zooming on a given area, those kind of effects, inventory buildup, big project, basis of comparison and so on, can play. Moving to your second question. Yes, a bit of inventory buildup in a few countries in Rest of Europe area. Now we haven't seen in other geographies anything meaningful in terms of restocking, neither destocking actually from our distributors. So it takes place a little bit of the over-performance in the Rest of Europe area, but it does not come into play for the other zones. As far as M&A is concerned, don't read the fact that we are announcing only a very small deal in Q1 as a sign of anything as far as our M&A strategy is concerned. We remain extremely eager to make deals, and we have a pipeline which is full of opportunities. We are spending a lot of time reviewing opportunities, meeting targets, qualifying targets, negotiating with some of them. And I hope that we'll be able, in the coming quarters, to do more deals. It is just that the timing is not fully in our hands. And you can have 1 quarter with many deals and even last year, a quarter with a big one and quarters with very small deals and even no deals. So it does not imply that we are decelerating as far as M&A is concerned. We remain on the acquisition mode in the U.S. and elsewhere. And if we find a good acquisition opportunity, fitting with our criteria, a good leader, good brand, good management team, solid product offering, with the ability to be docked within Legrand with a significant synergy potential, we will, of course, do it.

[Lucie Anne Lise Carrier, Vice President]

Just the second, I have a follow-up on the first one on the one-off in Rest of Europe. So I understand some big project and some inventory rebuild. And I think you were suggesting earlier that you saw the underlying growth in the market was more around low single digit. Is that correct? So how much do you think the inventory buildup kind of contributed to the bridge from low single digit to the 9% organic growth?

[Benoît Coquart, Chief Executive Officer]

No, I was more implying when commenting this area that the trend was -- the underlying trend was probably closer to the trend we experienced in the full year 2017, which I remind you was 5.5%. But don't see that as a guidance of course. This is just a qualitative comment on the fact that we do not believe these plus 9.3% is a sustainable growth rate.

[Lucie Anne Lise Carrier, Vice President]

And how much do you think was the inventory buildup effect versus the project effect?

[Benoît Coquart, Chief Executive Officer]

It's part of the gap that I'm mentioning between the plus 9.3% we recorded in Q1 2018 and the plus 5.5% we recorded for the fall of 2017. It's in the bag of all those many small one-off that happened. Don't forget that this area is made of 40 countries. So it's difficult to notify only 1 phenomenon from 1 country. So it's part of the mixed bag of phenomenon that explains the gap between Q1 performance and full year 2017 performance.

[Operator]

Next question from Andre Kukhnin from Credit Suisse Securities.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

I'll list them out in one go. So firstly, on the margin drivers, you mentioned that you exceeded raw materials inflation with price in Q1 because you raised prices early and raw material increase has been gradual. What's your expectation for the full year on that net price effect on the profit bridge? Secondly, on the margin drivers. Just in terms of labor inflation you're seeing with the rates kind of negotiated for the start of the year, what is the level you're seeing and how does that compare to your expectations of that last year? And then another question I had was on Amazon acquisition of Ring. Does that now make them a direct competitor of your Eliot connected doorbell offering? And does that change anything for you from perspective of Amazon as a channel or from any other perspectives? And very finally, on the last question that was asked, calibrating that other Europe, you said 5.5%. I've got 6.5% in the model. I just wanted to double check if 5.5% is what you see as the organic performance for 2017 for other Europe?

[Benoît Coquart, Chief Executive Officer]

So I'll take the question 3 and 4 and I will let Antoine answer question 1 and 2. So for the fourth question, I confirm that last year growth like-for-like, by destination in the Rest of Europe area, was plus 5.5%. So I don't know where your plus 6.5% is probably by origin. Maybe it was by origin or...

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

By origin, sorry.

[Benoît Coquart, Chief Executive Officer]

It may be [ upset ] by origin. But sales by destination is clearly, that was prices in February, plus 5.5% organic, sorry. As far as the Amazon acquisition of Ring, 2 comments. Number one, I believe that Ring and Legrand are not exactly in the same segment of the market, even though from the outside, you might think that the products are the same, but I don't believe that is the case. Ring is in the consumer electronic product. Legrand is in the infrastructure, professional grade, technical products, a bit for individual housing, but also for a flat, apartments and so on and so forth, products that are embedded into the world, connected to a complete electrical infrastructure. So it's not exactly the same segment. So we don't see Ring as a direct competitor to Legrand. We rather see Ring as an additional door opener for our products in a sense that the more companies will teach end users that it's good to have smarter products at home, the better it will be for Legrand. And some of those customers that are contacted by Ring and by other players will buy out-of-the-shelves ring-like products. And some other will call their contractors to have professional grade install products. And if we are doing a good job, part of those products will come from Legrand. So on a competitive landscape point of view, it's -- we don't really see Ring as a competitor. And as a result, we're not really impacted by the Ring acquisition from Amazon except that it will -- a little bit like it was Google Nest. It will hopefully make more popular in the mind of end users that it's good to have smart connected products at the entrance or at the gate rather than the doorbell. Now, second point, Amazon is, of course, also a customer of Legrand, a growing customer, nice customer, small customer that we are happy to have as a customer. Now turning to maybe Antoine for question -- the 2 questions on the margin drivers?

[Antoine Burel, Executive VP & Group CFO]

Yes. Good morning, Andreas. Then you know our typical answer as far as anticipation of raw material and components inflation is we don't really know that as we negotiate that on a quarterly basis. And as far as then selling prices are concerned, of course, we will follow this trend observed in raw material and components inflation. What we only said during this presentation, however, is that we have benefited in Q1 of a slight bonus due to the fact that we negotiate some raw material prices in the quarter before any potential selling price increase. This is what we have done in Q4 of 2017. Then country managers anticipated some price increase in Jan, and it happened that the raw material inflation was a bit lower than expected in Q1. But we try to be very consistent with the market on that in what we say; that this bonus should not last because, of course, we will be on a full year basis consistent between inflation received and selling prices increase. Then that's the first point. And maybe to try to quantify that, we are talking about a few million euros of bonus, but it's not so meaningful. That's the first point. And I hope it answers your question. The second one was about labor cost inflation. Two things. Your question was about expectation and about comparison vis-à-vis last year. I can say that vis-à-vis last year, we are seeing, in some countries, a bit more labor inflation and this is not specific to Legrand, you know that very well. It's a question of market practice or market situation, for example, labor shortage. And second, was it anticipated by Legrand? Mostly yes and not by Legrand as a group but by Legrand as a country manager. And the labor inflation is fully embedded in this financial performance contract of country manager. And to sum up on the second question. Yes, a bit of inflation above last year; second, anticipation was done; and third, it is financed with the financial performance contract of the country manager.

[Operator]

Next question from Sébastien Gruter from Redburn.

[Sébastien Gruter, Research Analyst]

The question coming back to the one-off because you are usually good at stressing the positive that boosted the performance, but as good at stressing the negatives that has weighed on the quarter. So could you talk a bit about those negatives? I'm talking about the calendar, the weather effect maybe? Everything that weigh on the quarterly performance?

[Benoît Coquart, Chief Executive Officer]

I mean, it's -- Sébastien, it's a broad question. We don't believe, for Q1, that there was -- as far as the number or the calendar is concerned, or the number of days is concerned, it's already extremely difficult and not mechanical to hit the impact. And we can more easily do it once the quarter is completed than computed that to a degree in advance. What we could see for Q1 2018 is that even though theoretically, you had a few minus 1 day here and there, it did not really play on the performance. So we don't believe that our performance was really negatively impacted by the number of days on the quarter. But once again, with a cautious statement that it's always not mechanical in our trade and a bit difficult to it. For example, in the U.S., you had 1 day less. Did it have an impact on Q1? That's not what we feel and that's not what was reported by our team. Now -- and the same will go forward looking. If you ask me, for example, what will be the impact of the calendar on the French market in Q2, you are not living in France, but I can tell you that the month of May is like Gruyère cheese. In France, with a lot of days off here and there, it's extremely -- example, this week and next week, it's extremely difficult to know now what will be the impact of those days off. We will have a lot more ability to comment when we'll comment Q2 performance. Now as far as the other negatives of the quarter are concerned, we mentioned a number of areas where our sales are down. But even in these areas, we are not pessimistic. We are not worrying about our market shares. Take India, for example. India is a fantastic country for Legrand. We have never recorded in India a negative organic growth rate on a yearly basis. We have always recorded growth in India organically. We've always been able to find interesting complementary opportunities. We have very solid market shares. We have nicely profitable operations there. So we are not worrying because Q1 is slightly down. It's really coming from the basis for comparison. And we are extremely optimistic on our ability to record growth in India in 2018. Same would go for Brazil. Even if our sales are down in Brazil, we don't see that as a loss in market share. It's just that even though the macroeconomic environment is a bit better in Brazil, you still have a lot of uncertainties coming from the political situation, and our market is still depressed. Less depressed than it used to be 2 years back, but it's still depressed. So even in these areas where our sales are down, we are not negative on our market shares, and we have action plans to recover in the quarters to come. I don't know if it addresses your question?

[Sébastien Gruter, Research Analyst]

Yes, yes. And just weather, this -- I mean it would be like clearly a calendar, but have you seen a weather impact in the West for instance in the quarter?

[Benoît Coquart, Chief Executive Officer]

Not specifically in the U.S. So maybe a little bit in France, we hear here and there from some people that the weather may have impacted Q1. But frankly speaking, it wasn't so clear. And forward looking, same comment. I would prefer to give you a straight answer saying yes, the weather had an X impact or 0 impact, calendar at X or 0. Strikes in France will have X or 0. The reality is that it's a lot more difficult to read. Our feeling for Q1 is that it did not have a very material impact on the main geographies.

[Operator]

[Operator Instructions] We have a new question from Gael de-Bray from Deutsche Bank.

[Gael de-Bray]

I have 2 questions, please. The first one is about the growth difference between France and Italy because Italy has now outgrown France for perhaps 3 or 4 consecutive years despite the macro conditions not being comparatively much more supportive. So I guess my question is how do you explain the gross difference between those 2 geographies? And the second question is more for Benoît. Is there anything you would like to change now in terms of the way the group operates? I mean basically, are there any specific areas you'd like to improve either in terms of organization, in terms of structure, geographies, businesses, well, anything?

[Benoît Coquart, Chief Executive Officer]

So hello, Gael. As far as your first question is concerned, it's always difficult to compare from one country to another because even though those 2 geographies are important and big geographies for Legrand because cumulative, they represented 25% of our sales last year. Our market position is not exactly the same. The market drivers are not the same. Market structure is not the same and so on and so forth. The only hint I can give you is that for example, when you saw the crisis in 2008, 2009, and then the so-called W in 2012, 2013, Italy, for example, decreased a lot more, both the market and our operations than France. So it is not a complete situation of pricing, given the difference in the downturn, if I may say, between France and Italy to have Italy recording higher growth than France. Now what is important is that for both countries, our relative performance versus competitors, even though once again it's difficult to really analyze the relative position on a only 1 quarter, it's much better to do it on a yearly basis, or even over a more significant period of 2 or 3 years, but even if we zoom on the quarter, relative performance versus competitors, both in France and Italy is good. Coming to your second question. When I took over the position 3 months back, I clearly signal that I intended, as much as possible, to respect the basics of business, whatever, for Legrand. Because not only I contributed to build this business model in my various positions, but more importantly, I'm strongly convinced that this is a winning business model, both in terms of top line, bottom line, return on capital and ultimately, share price and benefit for the shareholders. So since I believe it is a winning model, I committed internally and vis-à-vis the professional community to work hard to implement -- aspect and implement this business model. Of course, this does not imply that nothing will change and you always have few people changes, slight changes in organization and so on and so forth. But this is the day-to-day life of a big company like Legrand. And what is important for our shareholders I think, and it was pretty much appreciated during the road shows we did 2 months back, is the fact that as the CEO of this company, I will make sure that this winning model keeps working. Gael, just as a side comment, I was in a road show and an investor told me, "Ah, Benoît, interesting. This is a bit boring." But he added, "Boring is good." So I'm not sure that our shareholders are expecting from the new management team to completely change the model.

[Gael de-Bray]

Well, I guess I appreciate fully that the business model is a great business model and no one is going to argue against that. But I guess, even in a great company like yours, there are always a few things that need to be even slightly improved. Maybe in terms of geographical positioning or in terms of businesses, maybe your presence in protection devices, circuit breakers and the like, that sort of things, that was more the thinking behind my question.

[Benoît Coquart, Chief Executive Officer]

Well, at Legrand, we have medium-term plans which are 5-year plans, which are structured, obviously, every year. From both a bottom up and a top down approach, putting together our strategic team, the countries, the views and we formalized this plan which is -- which shows where we intend to go in terms of organic growth, in terms of new products non-connected, connected, Eliot, potential acquisition targets and so on. And definitely, I've been part of the evaluation of this midterm plan for years, I even owned this midterm plan when I was head of the strategic team at Legrand. This is being said, this is obviously an internal plan, which we have -- which we do not expose externally. But I hope that in the quarters to come, you'll see more development into Eliot, potentially more acquisitions and so on. So I'm sorry not to be more specific, but, of course, the strategic direction within 5 years, are something which is a Legrand plan. And needless to say, this midterm plan is, of course, fully consistent with the Legrand model.

[Operator]

Next question from Martin Wilkie from Citi Investment Research.

[Martin Wilkie, Director]

It's Martin from Citi. Just one question on the U.K. business. You mentioned that the U.K. is relatively flat year-on-year and I think it had been down very slightly in the second half of last year. I mean, we're hearing from other companies in similar business areas that the U.K. is down mid-single digit or even up to 10%. I'm just wondering, similar to the question you had earlier on the U.S., is it just a bit of the U.K. market that you're in, or how come U.K. seemingly is so resilient for you when for many of your peers, it's a much weaker business?

[Benoît Coquart, Chief Executive Officer]

It's always difficult, once again, to compare to peers. And whether this is a kind of structural comparison seems to be working for or against Legrand, we are always extremely cautious because you hardly compare apple-to-apple in our trade. What I can tell you is that our U.K. market is almost stable on the basis for comparison, which wasn't easy. We have very solid positions there in a number of businesses, not so much in the traditional Legrand business, but we are, for example, very strong in what we call assisted living. We are also strong since the acquisition of CP Electronics in lighting controls. We're also strong in cable management. So we have solid leaderships. But of course, it doesn't make us immune from cycles. So our teams did a good job in Q1. What will it be going forward? It's extremely difficult to read. And nobody can really predict what the impact of the Brexit will be. So our teams remains extremely, let's say, motivated to adapt. Should the market deteriorate, we will have the flexibility to adjust. But we can hardly tell you that the market is doing 0 minus 5, plus 5, and we can, of course, hardly tell you what it will be going forward. Now remind that the U.K. is less than 2.5% of our sales. So even if the situation was to get worse or to deteriorate, the impact on the Legrand sales and P&L and profit will be limited.

[Operator]

Next question from William Mackie from Kepler Cheuvreux.

[William Mackie, Head of Capital Goods Research]

A follow-up on the trends in a number of your -- or your countries in emerging markets. Could you just describe the development within the Middle East? I notice you said that Saudi Arabia was up, which is a change in trend over a number of years given that the constraints that we've seen on a number of budgets there. So how that's generally trending in the Middle East, particularly Saudi. And also, on top of that, if you've seen any effects in Russia from a geopolitical environment? Secondly, on structure. Obviously, 14% impact in Q1 and 7% guide for the full year, there's still a significant impact in the second quarter. Would you be able to guide on the level of structural impact or scope that you see in Q2? And lastly, I may have missed it when you discussed North America. But when we talk about North America, could you just update us on how Milestone developed in Q1? I notice from the figures you gave at the end of last year, when you gave monthly organic growth at Milestone, you talked about 9% growth in Milestone in Q1 in '17. So a tough comparison. So how did Milestone compare within the U.S. figures in Q1 '18 versus '17?

[Benoît Coquart, Chief Executive Officer]

Hello, William. So starting with your -- I'll take question 1 and 3 and leave the #2 to Antoine. As far as the situation in Middle East is concerned, once again, be careful not to extrapolate what we are telling you as a market trend because, especially on a given quarter, where you can have a lot of different impacts that explains that performance. And on top of that, our market positioning might not be -- might be on a few market segments and not in the whole of the market. Typically, Saudi, for example, we are mostly active in cable management and in a bit of wearing devices and protection products. But we hardly have the 80 or 90 product families that we sell at a group level. But I confirm that Saudi is growing nicely double-digit, and our teams remain pretty optimistic for the rest of the year even though it's extremely difficult to predict. UAE is also up even though the pace of growth is slower than Saudi. But then you have different situations. Lebanon is in a good situation. Well, it depends on the countries. But you should take Saudi and United Arab Emirates as Q1 was a good quarter. As far as your third question is concerned, you are right to recall that Q1 2017 for Milestone, even though the company wasn't consolidated at that time, was up 9%. So last year, we said be careful. The basis for comparison is going to be tough for Q1 2018. Despite this difficult basis for comparison, sales were up mid-single digit at Milestone in Q1. My sort of cautious statement earlier in the call was to say that it does not imply that Milestone has a sustainable growth rate of about 14% or 15% over 2 years. That's not what we think. We think that you still have a lot of variability from 1 quarter to another in the Milestone business. So Q1 was very strong, notably due to the fact that we did very well in the retail piece of the market. But again, don't take into account -- don't extrapolate that into the remaining 9 months of the year. Milestone is a very good business, very solid business. We've always talked of a growth rate of a sustainable midterm growth rate of 2%, 3%, not 15%, not 7% of course. And we also have, of course, the benefit of the synergies, a bit in the U.S. but also a lot outside of the U.S., because part of the synergies will be to deploy, as we are doing with high [indiscernible], for example, to deploy the Milestone sales outside of the U.S. So to make a long story short, good performance in Q1 for Milestone, growth mid-single-digit. But the model remains extremely solid but with variability from one quarter to another. Yes, so you also had a question on Russia. Russia did pretty well in Q1 with a mid-single-digit growth. And our market positioning there is extremely strong. What will it be for the rest of the year? My same comment as we usually do: no order book and in a country like Russia, it's even harder to predict that in a lot of other countries, so difficult to say. But at least Q1 was up mid-single digit and it's a good performance. Now Antoine, maybe on question 2?

[Antoine Burel, Executive VP & Group CFO]

Yes. Good morning, William, a very simple answer then. Q2 scope of consolidation should be more or less the same in Q1. Then it would lead to a close to 14% scope of consolidation for H1. And we expect H2 to be 0, 0 plus towards this average of 7% on a full year basis. This is quite consistent with the fact that our main acquisitions we have made last year midyear.

[William Mackie, Head of Capital Goods Research]

Just another clarification actually while you're there if you could. I think the currency's, obviously, been a very big feature of Q1 and will be in the first part of Q2 and is moving quite a lot actually at the moment in the last few weeks. But what's your best assessment of the currency effects whether there are any transactional as well as translational factors that may come up to challenge some of those financial contracts you have with all the countries?

[Antoine Burel, Executive VP & Group CFO]

This is a very good question, William, and this is something we have constantly reminded the market is that finally for Legrand, except a specific situation 2 to 3 years ago with a very strong appreciation of the dollar, but at that time, the margin of our [ lindsay ] operation were less close to the average of the group and narrow. What we said at that time is that it could have a slight effect on the profitability of the group. This is not the case today. We consider that despite the trend we had in currencies today, the impact on group profitability would be not only limited but it is equal to 0. And the only impact we have is an impact of the translation and a mechanical impact due to the fact that we have operation outside the euro zone. And when consolidated, our data into euro, we have this consolidation effect. And to sum up, no transactional effect, no impact on margin, but just a mechanical effect due to this contraction of non-euro operation into euro operation or euro value.

[Operator]

We don't have any question for the moment. [Operator Instructions] We don't have any question. To you for the conclusion, sir.

[Benoît Coquart, Chief Executive Officer]

Well, thank you, ladies and gentlemen, for taking -- for having taken the time to attend this conf call. Should you have any follow-up questions on the Q1, please feel free to get in touch with François, Antoine and myself. We'll be happy to give you more details. Thank you very much.

[Antoine Burel, Executive VP & Group CFO]

Thank you, goodbye.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.