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Good morning, ladies and gentlemen, and welcome to today's Legrand's 2022 First Half Results Conference Call. All participants are in listen-only mode. Later, there will be a question-and-answer session. For your information, this conference is being recorded.
At this time, I would like to hand the call over to CEO, Mr. Benoit Coquart; and CFO, Mr. Franck Lemery. Please go ahead, sir.
Thank you. Hello, everybody. Franck Lemery, [indiscernible] and myself are happy to welcome you to the Legrand 2022 H1 results conference call and webcast. As you know, this call is recorded. We have published today our press release, financial statements and a slide show to which we will refer. Those documents are available on the Legrand website. After a few opening remarks, we will comment on the results into more details.
I'll begin on Page 4 with the key four takeaways for this H1 results. First, Legrand recorded strong overseas sales. Second, results were very solid despite an unstable and high inflationary environment. Thirdly, we announced today, two new bolt-on acquisitions in datacenters and four to five 5 items, we have raised our 2022 full year sales targets.
So moving now to Page 6 to 7 with an overview of sales on the first six months. Our sales grew by 18.5% driven by a sustained organic rise of plus 10.9%. Organic trends in the first half reflected on many commercial successes, local pricing power and is still very active management of the supply chain, which remains as a strong pressure of over the second quarter, particularly for electricity companies.
On top of organic growth, the scope effect was plus 2.4% based on acquisitions completed and their likely dates of consolidation, the impact should be around plus 3% for the full year in 2022. Now last component regarding sales is the FX effect. It was also favorable at plus 4.4% on the first half and would be close to plus 4.5% on the full-year 2022 based on average rates in the months of June 2022.
On Page 7, focusing now on organic growth by area, each of the three regions achieved a high level of growth. In Europe, the pace was a bit at plus 11.3% over six months with both mature and new economies growing strongly. In North and Central America, sales were up plus 11.2% with a high level in the U.S. at plus 11.3%, where business for non-residential applications recorded a remarkable growth.
Finally, the Rest of the World area grew plus 9.7%, driven by very sustained growth in India and double-digit increases in many African and Middle East countries. Focusing on Q2 trends to loan growth, organic growth was also at the strong base of plus 10.7%.
I am now passing the mic to Frank to provide insights on our results.
Thank you, Benoit, and good morning to all of you. I will start on Page 9 with the adjusted operating margin. Before acquisitions, it stood at 20.8%. This is a limited retreat of 1.2 points from the first half of 2021. The solid profitability in the first half reflects the Group efficient management of both expenses and sales price while the environment was strongly inflationary. As an illustration being administration (ph) points of all the inflation of around plus 17% on raw material and confidence in the first half of 2022. Including acquisition, the adjusted operating margin for the first half of 2022 was 20.5%.
I'm now turning to Page 10, regarding the net profit attributable to the Group. With EUR548 million, this represents a growth of plus 13.9%. This was primarily driven by the rise in the operating profit of EUR73 million and Group corporate tax income -- income tax stood at 27%.
I'm now moving to Page 11 with a few comments on cash and balance sheet. As a percentage of sales, cash flow from operation was down 1 point at 19.2% of sales. The free cash flow stood at 7.8% of sales for the first half. This includes the continued strengthened coverage of inventory in order to serve our customers in this context of sanction (ph) and shortages. Normalizing working capital requirement, so with the normalized free cash flow, it stood at 16.8% of sales in the first six months. On the balance sheet structure side, net debt-to-EBITDA ratio was 1.6 at the end of June.
This concludes the key financial topics I wanted to share with you and I now passing the mic back to Benoit.
Thank you, Frank. Turning to Page 13 now regarding M&A, following the acquisition of EMOS early this year, we have announced today two new bold-on acquisitions. First, Systems, that is a briefly datacenter specialists that of cooling solutions and racks to help their customers reduce their energy consumption and therefore their carbon footprint in their data centers. The second is Voltadis, a French player that offers a comprehensive support and definition of tailored power supply systems for datacenters grey rooms. Together that brings a (ph) sales of around EUR24 million and both strengthen our position in adding value solutions for datacenters, a field buoyed by the rise in data flows.
On Slide 15 now, as I said at the starting this fiscal, we have raised our 2022 full year sales target. Before going into the figures, as you know the currently perspectives are getting increasingly uncertain. In this context, the book is laid with groundwork to first see any cost opportunity, particularly by leveraging the quality of our positioning in segments, partially driven by digitalization in energy savings, but also by continuing to invest in innovation, while pursuing bolt-on M&A. And second, we are working actively to limiting cost for economic slowdown, sales to the ongoing optimization of our cost base or intact pricing power and teams that are quick to respond and fully in tune with the markets.
Now our 2022 targets. In 2022, Legrand is pursuing its strategy of profitable and responsible development laid out in its strategic road map. Taking into account notable achievements in the first half of 2022 and the current macroeconomic outlook, Legrand has revised the full year target itself for 2022 and is now aiming for: gross sales at constant exchange rate raised and now anticipated between plus 9% and plus 12% compared to between plus 5% and plus 11% previously, with organic growth of between plus 6% and plus 9% compared to between plus 3% and plus 7% previously and the scope of consolidation effect of around plus 3% compared to between plus 2% and plus 4% previously. This was for sales.
And as far as margins are concerned, we are shooting for an adjusted operating margin of about 20% of sales, with a margin of between 19.9% and 20.7% before acquisitions, i.e. at 2021 scope of consolidation and dilution from acquisitions of between minus 20 basis points and minus 40 basis points. The group also aims to reach around 100% of CSR achievements for the first year of its 2022 to 2024 road map, testifying to its board and exemplary approach to ESG.
So this concludes today announcement on first half 2022 results, and we are now ready to open to questions. Thank you.
[Operator Instructions] Our first question comes from Andrew Wilson from JPMorgan. You are now unmuted. Please go ahead.
Hi. Good morning. Thanks for the time of taking my questions. If I could start with a question around the pricing dynamics that you've seen in the first half. I don't know, if you're prepared to tell us the kind of the split between volume and price, but I'm also interested in terms of how your pricing expectations has changed for 2022 and how that plays into the raised guidance this morning, please?
Well, I can take your first question. I can start by the numbers. The pricing in H1 was up 9.1%. So you have slightly more pricing in Q2 compared to Q1. Q1 pricing was plus 7.8% and Q2 pricing was plus 10.4%. So in total, it leads to this plus 9.1%. So obviously, you can conclude that volume-wise, the volume growth in H1 was slightly below 2%. When it comes to the full year, well, of course, many things can happen, and you know that pricing is extremely dynamic as Legrand and we have the ability to move pricing paying down on a regular basis depending on the price of improved as well as our competitive position. So many things can happen.
Now if we are taking the [indiscernible] or, let's say, carryover impact, I see if we take the price level that we have now and if we push it to H2 without any changes, one way or the other, the total pricing effect for 2022 would be plus 8% approximately. But again, this is a pure mechanical impact. Now the reason behind the raise in our top line guidance is that H1 is somehow better than expected in value, not necessarily solid inflation. And even though we remain cautious for the remaining six months of the year. We don't believe that the past guidance was credible any more. So it was a duty to raise our targets. Does this answer your question or do you need more information.
No. That’s very clear and indeed. If I can just squeeze in just a follow-up just on your last comment around the staying caution in terms of the second half. And obviously, just your comments as well around being ready to take actions if needed. I just wanted to see, if you've seen any change in any of your markets relative to the very strong development you've seen in the first half, I guess, particularly thinking on the resi side where we've seen, obviously, I guess, some slightly more negative data points? Thank you.
Well, it's difficult for us to identify early signs. You know that we don't have a lot of visibility on what the market will do next. A couple of comments that I can make though. Number one, well, volume-wise, you will have noticed that Q2 is a little bit less supportive than Q1. So overall, we are growing in volume in the three zones on H1. But if you zoom in Q2 alone, our volumes are slightly down in Europe. Most of it is actually coming from Russia. If you exclude Russia, volumes are flat in Europe in Q2. They are flat plus in North America. In Q2, they are still growing, mid-single digits in the Rest of the World. Now if you take the whole of Legrand (ph) it is a fact that the volumes are about flat in Q2, and they were growing in Q1. This is for the sort of dynamics within the semester.
What does it mean for the second half? Nothing special, unfortunately. Because, as I said, it's difficult for us to anticipate any trend. Now if you look at our guidance, the 6% to 9% growth, it implies that H2 between, let's say, plus 1% to plus 7%, approximately like-for-like, plus 1% for the low end of the guidance, plus 7% for the high end of the guidance. Well, we cannot provide the precise guidance on pricing or in volume because it depends on many things. But these guidance more or less implied in the upper end of the guidance, flattish volumes. It could be flat plus, it could be flat minus, depending on the pricing. And in the low end of the guidance, so mid-single digit drop in volumes. So this is a set of dynamics that we see for 2022.
Gross volume in Q1, flat volume in Q2 for H2, let's say, between mid-single digit down to flattish. Now again, take those sort of guidance with cautiousness. As you know, we are the best company to tell you what the economy of the market will do. Now, how do we deal in front of that? Well, as usual, at Legrand, we are preparing different scenarios internally and we have just reviewed the performance and the forecast from our main countries. And as you know, they are prepared to react whatever the scenario.
So at the same time, investing whenever needed in order to capture growth, and there are pockets of growth, and we participate that even if the environment gets a bit more difficult, there will be a number of pockets of growth to sales. And at the same, [indiscernible] should the market decelerate and the economy be less supportive. So we want to keep this flexibility clean at the country level to adjust and to adapt to evolving environment.
Thank you very much for the time. I appreciate it.
Our next question comes from Daniela Costa at Goldman Sachs. You are now unmuted. Please go ahead.
Good morning. Hi. This is [indiscernible] on behalf of Daniela. I actually have a follow-up question on the 2H. Are you considering like destocking inventories into 2H to the measures adapt to the invention downturn you mentioned? And that's the first question. The second one is more on M&A side, where you're seeing the multiples becoming more favorable to you given that the public markets are derating recently? Thank you.
Well, as far as restocking, destocking is concerned, so I guess your question was about what our channel is doing? We haven't seen anything sort of global trend, neither towards restocking, not towards destocking. It's really dependent on the country. I can take two examples. In Italy, it is likely that our distributors have built a bit of inventory back and have somehow a little bit destocked. At the same time, in France, which is a big country for us. We have seen the other phenomena and probably a bit of destocking from our distributors. So the global basis, I cannot tell you that the inventory management from our distributors or from our customers has neither helped nor go against our performance in H1. I believe it had quite a neutral effect.
As far as M&A is concerned, Well, I have to tell you that even two or three years back, when the market multiples were a bit inflated, we were used to pay reasonable multiples, and it was coming from the fact that most of the discussions were held with companies we knew for a long time with individual sellers who have usually a preferred clear view about the value of the business. And so even two or three years back, we're not paying [indiscernible] multiples, so same for the deals that we have made in 2022.
To this, we announced this morning and EMOS that we announced in February. For those three deals, we pay what I would call very [indiscernible] multiples below the [indiscernible] multiples, of course, and multiples that makes us extremely confident on our ability to have value accretive transactions within a couple of years. And of course, the EPS accretive transactions.
So the multiples we've been paying with those transactions have been very enable. Now if you look actually at the cash flow statement, you'll see that the companies we bought last year were paid an average 2 times sales, and the companies we paid, we bought in H1 were both on average, 1.5 times sales. So, of course, it doesn't give you a multiple of EBIT (ph), but it shows that the multiples remain pretty reasonable.
Thank you.
Our next question comes from Andre Kukhnin from Credit Suisse. You are now unmuted. Please go ahead.
Good morning. Thank you very much for taking my question. Can I first come back to the discussion earlier on second half implied? And I'm sorry in advance to labor it. I just wanted to ask if you've seen through the quarter a month -- on months kind of trend that pointed down in Europe and U.S. specifically, we can take Asia-Pac aside, I guess, with the China lockdowns. But specifically in Europe and U.S., how is that kind of monthly cadence in the second quarter? And is that what points down to that sort of -- if I look on the excom basis, like a sort of 6 points to 7 points down slowdown that you imply in the second half in your guidance versus the second quarter?
But if your question relates to any trend that you would have seen within the Q2, monthly trends are not relevant in our business. They might be relevant at the distributor level, but at the manufacturer level, this whole is [indiscernible] we have not seen it at all because what given months can be impacted by many phenomenon specific supply chain issue, one more days inventory move at the distributor level. So no, we haven't seen any trend within the Q2 that would be relevant to tell you whether we will be in the upper end of the guidance in the central mid-point of the guidance or so. So we will have to wait for Q3 to be a bit more specific.
Right. So just to confirm, no kind of tailing off in demand in, say, in June versus May, April in Europe or...
Again, I know that it doesn't really answer your question, but I cannot really comment what monthly trends which again for a company like Legrand, that doesn't mean anything. So and again, we'll wait for Q3.
Understood. Appreciate that. Thank you. And I have a much broader question. I don't know if that's kind of possible to answer, but I'd love to hear your thoughts on this kind of premium growth, thanks to the electrification and energy efficiency drive that we're seeing, I think, now emerging for players like yourselves versus more kind of broader construction end markets and wider construction applications. Is that something you've looked into? Is that something you could possibly quantify? How much of that kind of premium of growth you're commanding because of that push for electrification and efficiency?
And then secondly, maybe more specifically to that, in Europe, given the evolution of events since February, do you see evidence of that kind of push for and customer demand for energy-efficient products? And again, is there a way to tell how much of a kind of extra demand that is driving for you at the moment?
[indiscernible] and we have very precise examples of the potential boost, for example, specific green incentive plan can have on our top line. Take for example, Italy. Italy, there was a so-called super bonus (ph) scheme, which is providing a tax incentive to households willing to do works to have greener or more energy-efficient houses or flat. It is clearly supporting our top line growth in Italy, which is very sustained -- and actually, not only it helps our sales in great products. Take, for example, thermostat or load shedding, but it also helps the rest of our product offering because when you are doing a complete renovation work, you also change the more actual products such as secret breakthroughs, panel boards and [indiscernible].
So yes, it can have a very significant effect on our sales. Now it's difficult to quantify because it depends on the nature and the specifics of the scheme. Taken as for example, which is France with [indiscernible] which has been in the air for two years. Well, [indiscernible] has had quite a limited impact on our top line because [indiscernible] was more geared as passive products or hit pumps, more than an active product. So depending on the nature of the scheme, the nature of the incentive, it can have either a neutral or a very positive impact on the top line.
Now this being said, the midterm, we are very confident on the fact that it will be -- it will provide the support for our top line growth, but in Europe, and actually dream products in Europe grew very nicely in H1 above the European average cost base. And it could also be the case in the U.S. and the news that Biden plan to potentially go through is, I think, a rather good news for our industry. So I cannot give you a specific number because again, it depends on how those incentives plans are translated into regulation and whether they are geared at passive, active, [indiscernible] management, window, heat band (ph) and how much money is put into the system, but it should have an impact on top line midterm in this.
Got it. Thank you for your time.
Our next question comes from Gael de-Bray from Deutsche Bank. You are now unmuted. Please go ahead.
Thanks, very much. Good morning, everybody. I have three questions. Do you mind if I take them one at a time. Firstly, I can see that your finished goods inventories increased by 44% year-on-year and now represent nearly two or more points of revenue. So what was the impact on margins this quarter? And could you talk about the rationale of holding such elevated levels of inventories, given your expectations for potential drop in volumes in the second half?
Indeed, our inventory increased significantly. And as you rightly pointed out, they represented in H1 19.1% -- at the end of H1, so 19.1% of sales which is pretty high level compared to 14.7% of sales at the end of June 2021. So a significant increase of more than 4 points. Where I don't want to get into strategic. I'm not getting into the [indiscernible], rationale behind this increase because it's pretty much in line with what we said at the end of Q1, i.e., a part of it is coming from inflation, half of the increase basically and part of it is coming from necessary coverage and our willingness to provide a good service to our customers. But indeed, the level is high.
As far as the impact on profitability is concerned, it had a slight positive impact on Q1 and a slight negative impact in Q2. And overall, for the totality of H1, it had zero impact on our profitability. So no impact on the profitability of our own inventory [indiscernible]. Now as far as the coming quarters are concerned, well, it is a big uncertainty because the main driver -- there are two main drives, actually, as I said, number one, it's a price of dramatic components and it's clearly plateauing today. And we expect the price of robots and components to go down. Now we are not macroeconomists, and the valuation of events at the end of December will depend, of course, on the price of raw material and component.
And the second uncertainty, which is probably even bigger than the first one is the scarcity of components, raw mats, which is one of the reasons why we increased our coverage because especially when it comes to electronic components, for example, it would be difficult to source components. The situation remain difficult, and we don't expect it to improve before a couple of quarters. And again, we tapered we have decided that the servicing of customers was more important than maintaining a level of inventory consistent with past practices. So I cannot give you a precise guidance.
What we have said in Q1, and I can confirm the information is that midterm, we intend to progressively come back to historical level of inventory to sales, i.e., something like 13%, 14% of sales. But short term, we will do what it takes in order to continue to serve our customers in a context where you can gain or lose market share, not only depending on the quality of your product, but also depending on the validity of the product. So we are really shooting to increase our market share even at the expense of [indiscernible] inventory. So in order to be more specific, but of course, it will depend very much on what will happen in H2.
Okay. Understood. And then on the pricing side, I mean, you've now raised prices like never before in the past. So do you think -- do you still think you will be able to hold on to pricing even if cost inflation was to dissipate into the coming quarters?
Well, indeed, we have increased prices quite a lot. When if you compare to what the industry has claimed publicly, we are not amongst companies who have increased the model price. There are a number of companies who have done more price increases than us. So I don't believe that we have increased prices too much, which is a very important message for us. Now, if the prices of raw mats and components was to come down, we would, of course, should to retain as much those prices increase as possible. We have demonstrated in the past years our ability to retain our price increases once the raw mats and component pricing was going down. So well, we'll see, of course, but it will be our strategy. It will be our policy and I think we have the methodologies tailored for that.
Okay. All right. And then last one from me. Would it be possible to quantify the negative impact of the China lockdowns on the Q2 deliveries, not only in China but also in the Americas?
So what in China, which represent only 5% -- between 4% to 5% of our sales. It's not such a big market for Legrand. While there's a clear drop in sales in H1, and we are not particularly optimistic for H2. We'll see. But we believe that the Chinese market will remain difficult. And actually, the sales in China are down double-digit in H1. Well, again, we are small in China. We are very specific exposure, they get mainly at the building with a big part of residential building even though we have good industries because more than half of our sales are made with energy position, we are a small player or finishers. This was for China.
Now, the impact of the Chinese lockdown outside of China, the main flow from China to the rest of the world is between China and the U.S. And the Shanghai factory we have, which represent approximately 10% of our Chinese production costs. So it's not big. -- is manufacturing almost solidly for the U.S. So indeed, the shutdown or lockdown in Shanghai and the fact that our factory couldn't manufacture anything for 1.5 months or 2 months, had the biggest negative impact on our -- the supply of some products for U.S. operations and a negative impact on our U.S. supply. It's difficult to quantify. It's probably not more than a few tens of billion U.S. dollar, but it did negatively impact our top line in the U.S.
And actually, maybe to sort of step up a little bit, we have focusing on the supply chain issues. We have two issues remaining. One is specific to the U.S. and it includes these shutdown costs as the slowdown in Shanghai, but also the fact that the logistics to go to the U.S. -- within the U.S., remain difficult. It's difficult to go to customs. It's difficult to ship product to the U.S. difficult to carry products within the U.S. So we have a specific supply chain issue in the U.S., which we are working. And the second issue, as far as supply chains are concerned, relates to an equity components and specific to China to equity components. And as I said a little bit earlier in this call, it remains difficult to source electronic components.
But to answer your question specifically on China. So drop in the Chinese sale, which is a small business for us and negative impact on our U.S. operations. And I wouldn't say -- I'd say probably no material impact outside of those two topics.
Okay. Thanks very much. I’ll get back in the queue.
Thank you.
The next question is from Alasdair Leslie from Societe Generale. You are now unmuted. Please go ahead.
Yeah. Hi. Thank you. Good morning. So follow-up on electronic components and just on your faster expanding segments, I kind of understand you've been a little frustrated with the growth due to the shortages in the previous quarters. So just wondering how those areas performed in Q2. Does that perhaps partly explain the slow volumes in Q2? And what's the scope for an acceleration as component availability improves? I understand you're still quite cautious there. But if you could just let us know you’re thinking there?
And maybe as a second question, if you could also talk about the trends you're seeing in data centers in Europe. I understand there was a lot of momentum in Q1. How did that develop in Q2? And maybe you could just elaborate a little on how your two new acquisitions fit into your strategy there to gain share. Thank you.
Well, on your first question to be plus, I remain specific, so that rotation hasn't evaporated in Q2. So it's -- we did not see an improvement in the availability of electronic components and semiconductors in Q2 compared to Q1. And talking to industry specialists, I don't see any improvement very soon. It could happen. It's not in our hands. But that's not what the specialists are telling us. And most people expect that the situation wouldn't get better before at best the end of '22 and most likely the course of H1 2023. So yes, indeed, it had a negative impact on products incorporating electronic components. So there are product families that where we couldn't sell for a month, for example, or where we cannot sell as much as required by the market demand.
And here, again, it has cost us a couple of tens of million euros. So it is, I would say, small recession [indiscernible]. It's always preceding to miss sales, and we have missed sales in North America, in Europe and in the rest of the world because of the shortage. At the same time, from what I think in the market, everybody is facing the same difficulties. So it's not moving much market share. We are not -- all of us there, we don't have customers moving from Legrand to X, Y or Z when it comes to assisted living or connected mobile devices or traffic system because we wouldn't be able to supply. It is just that the lead time are increasing. Customers are a bit frustrated because they can't get their product, and we are missing a bit of sales.
As far as your second question is concerned, yes, data center in Europe, well, data center is doing well everywhere taking into account the fact that we have a very big basis for comparison, especially in Europe and in the U.S. where 2021 was export nearly a year in terms of data centers, but it's doing well. With also a very, very good performance actually in the rest of the world. So midterm, we remain very confident on the fact that data center will be a booster for our top line verify that it’s significant. It's 13% of our debt. It was 13% of our sales last year, and it should soon be 14%, 15%, 16%, given the growth we are experiencing there. And this growth will not flatten, I believe. And when you are looking at the trends such as remote working, metaverse and stuff like that, all that will lead to additional data centers.
As far as the two acquisitions are concerned, they have a perfect fit into the strategy we described at our last CMD and when it comes to new system, it's a sort of double play. Number one, we are buying some racks capability in the U.K. We know that especially for racks and cabinets, it's very important to look at capabilities because we can customize a product after the customers' need.
And on top of that, we are buying a nice cooling technology that we could now channel into our Legrand data center solution teams throughout the world. As far as Voltadis is concerned, it's small, but good addition. You know that we are big in the white coming (ph) data center that we are shooting and we want to develop into the grey room. Voltadis will help us to provide a package of product and services to grey room customers. So [indiscernible] of course, in total 24 million of sales, but they have a perfect fit within our data center strategy.
Okay. Thank you. Thanks for the detail.
Our next question comes from Phil Buller from Berenberg. You are now unmuted. Please go ahead.
Hi. Good morning. Thanks for taking my question. Maybe I'm missing something or heard one of the numbers wrong, but I think you said that in H1, your input costs have gone up 17%. Pricing was up 9% and volume was 1%-ish. And yet your margins look stable, which is great. Mechanically, it assumed that have gone down a lot more even if you are net price positive. So what am I missing? Is it mix or are there some big temporary costs out that we should think about needing to come back as it sounded like your answer to Gael's question is that we shouldn't really attribute anything in the H1 margin performance to inventories?
I would first clarify the number that pass the [indiscernible] front on the margin. So the number I gave was pricing H1 at 9.1%, with Q1 7.8% for pricing and Q2 up 10.4% for pricing. And the average, the total of those two numbers is 9.1%. Now maybe Franck you want to take the lead on [indiscernible]
Yeah. Thank you, Benoit. So I understand that your question is the sequential evolution of margin -- gross margin between Q1 and Q2. So at the same time that sales price increased, the yearly evolution of raw mats slightly decreased. It's 17% on H1, and it was 18% in Q1, so close to 15% in Q2. So sequentially, there is still a slight improvement on the inflationary balance, which is mitigated by lower leverage and production expenses. The inventory business impact that as Benoit already mentioned, was also negative sequentially and last but not least, the freight costs have increased during Q2 versus Q1. So that's the main driver for the stable margin, gross margin between Q1 and Q2.
Yes. I guess I was thinking more year-on-year, the margin performance.
It would be the same inflation.
Yeah. Okay. Great. That’s was the only question. Thanks very much.
Our next question is from Eric Lemarie from CIC. You are now unmuted. Please go ahead.
Yeah. Good morning. Thanks for taking my question. I got three actually. First one, you mentioned the procurement in the U.S. coming from China, a big part. Do you intend to reduce it in the midterm in order to reduce good tenancy from China. That's my first question. Second question, I don't know, but could you share with us the revenue generated by -- this faster expanding segment.
You mentioned that your -- one of your last Capital Market Days, data center, energy efficiency, et cetera, the majority we generated by this segment in H1 and maybe the trend of the growth in H1. And the last question, you already answered it to this one, but could you confirm you don't see any slowdown for any of your line of products in H1 or in Q2, but a slowdown not due to the war or to the supply chain, but due to maybe the macro environment? Thank you.
Well, as far as the supply is concerned. Yes, indeed, we have a pretty sizable Chinese sourcing for U.S. operations. It's probably, let's say, 20% to 25% of our LMCA cost of goods sold, which is coming from China. It's an approximate number. So the reason why we had this impact of the trend tariff a couple of years back, this is now the reason why we are not now suffering [indiscernible] policy. So it's a significant dependency, if I may say, but it's not a strategic risk. It's 20% to 25% of our LNC operations, which represent 40% of our sales.
This being said, we are indeed looking at reducing a bit the dependency. And it started, it is an approach which we started 1.5 years ago. For example, we have recently opened a factory in Vietnam, and we are moving a bit of manufacturing from China to Vietnam. We have moved a bit of manufacturing back from China to Mexico. We are qualifying a number of alternative suppliers outside of China, so that if some of the Chinese suppliers were not available, we could source of products or components from elsewhere. So we are indeed in the process of reducing the dependency, which again, I don't see as a strategic fit for U.S. operations. But from time to time, it can indeed be impacted by factory shutdowns, such as this one in Shanghai coming from the [indiscernible] policy.
As far as share of our sales made in faster expanding segments where it was 32% of our sales last year. I don't have a number to give you for H1 because this is a number we are updating once a year, at the time of the February results. Qualitative comment, of course, all products incorporating electronics, whether fast expanding or more traditional products did suffer in H1 as I said, because of the electronic component shortage. But again, this is not specific to Legrand. I think it is a fair impact in the whole industry. But as a result, some of the fast expanding segment products were indeed impact -- negatively impacted by the shortage.
As far as the potential slowdown is concerned, I wouldn't say that we haven't seen any slowdown volume wise this 2% of volume increase that we had in H1 is more or less made by how much plus 3%, 4% in Q1, plus 0% in Q2. So we have seen flat plus volume in Q2. Where volumes were up, if you are down, of course, part of this flat volume in Q2 is coming from Russia, which is -- which was in 2021 2% of our sales, so 5% of our European sale. So it's not big, it's not significant, but indeed, it has an impact. Now I wouldn't say that the market are very supportive. I don't believe they were very supportive.
And beyond Russia, you have China, which is, as I said, a pretty weak place to be for us. You have countries such as Brazil, which are not in super shape. The retail/DIY business is pretty mild, stores have been pretty mild starting end of last year. So Q2 was, it was booming quarter when it comes to market trends or to top line growth. Now again, it doesn't say much about what we have ahead of us. The only thing I can repeat once again is that from what we can see so far, we are shooting for something between mid-single digit profit volume to flat plus in volume in H2. That's what we incorporated in [indiscernible].
Thank you. That was very clear.
Our next question is from Jonathan Mounsey from BNP Paribas. You are now unmuted. Please go ahead.
Hi. Good morning. Thanks for the next question. Yeah. I'd like to return to the topic of price. From memory and some of the data we have in our model, I don't ever remember price for you being down on an annual basis, really since probably about 1990, I think that's as far as we can go. And yet, at the same time, it's only probably Q3, you were talking about you've never raised prices by more than 4%. And here we are, we're having to raise them by 10. And I just wonder, if RMI starts falling, say it was to fall 17% like it rose in the most recent half, what happens?
Are we going to see a year where -- on average across the group, pricing was going to go negative if we start to see raw materials come off to the kind of magnitude that I'm describing or do you think the business model is so powerful that actually you could retain much of that price. And if that were to happen, what happens to margins? I would imagine they're going to the mid-20s in that scenario, which I know is not something that you target, you'd much rather get volume growth, which points to me that you are likely to cut price if raw mat starts to fall?
And then secondly, and maybe part of the reason why that might not happen, what about things like wages. What level of wage inflation are we now starting to see? And how do you think that progresses as we move forward over the next four, five, six quarters? Thank you.
Well, I'm not sure that the history can tell us so much about what's going to happen in the next quarter because indeed, today's situation when it comes to inflation, is probably a situation anybody has seen or maybe the last time was the early '80s. But in terms of data center, at least you are right, Legrand has never decreased its selling price since we started to record KPIs, so 20 or 30 years back. And indeed, Legrand has never raised price by 7%, 8% or 9% on a yearly basis for a couple of decades.
Our strategy is going to be to retain as much of this pricing fees as possible. We've been able to do it in the past. But again, with price increases, which were not as high as 7%, 8%, 9% or 10%, but this will be our strategy. And I believe that we have the tools, processes, people in order for this strategy to be successful. Now of course, it will depend on the magnitude of the drop in price of formats and components and what happened in the market. But I think that we have the processes to send people tailored to retain as much price increase as possible.
Now as far as margins are concerned, we are not shooting we say this -- we're not shooting to be in the mid-20s. We are shooting to be at the 20% EBIT midterm, and that's a guidance and we can confirm that it remains on our midterm objective because usually, when the price of raw mats and components are going down, you have unfortunately the counterparty as far as [indiscernible] is concerned. It also means that the economy is decelerating, so you don't have the same leverage and you sometimes even have negative leverage on your P&L coming from volume loss, which you have to finance the extra margin you can get can also be reinvested into additional [indiscernible] in order to invest into a pocket of growth.
Don't forget that every year, we have 20, 30, 40 bps dilution coming from the proper actions, which we also have to finance in order to come to the 20% EBIT. Even if we are able, which is our strategy to retain as much of this price increase as possible, it will not translate into a 20%, 25% EBIT margin and our sort of North Pole or North Star, it remains to be a 2020. As far as wages are concerned, it is I believe, quite under control. If I have to shoot the number, I would say that the wage inflation in H1 was around plus 5% -- plus 4%, plus 5% which is probably lower than inflation in a number of countries. But of course, there will be inflationary pressure on wages coming from the general inflation.
Now, well, I'm not concerned, and I believe that we should have the ability at the same time to provide the right wage remuneration to our people to keep them happy positivities (ph) and to compensate part of that productivity, management of headcount, footprint, whatever it is. So it's part of those inflations. We have mentioned wages, we have mentioned raw mats and components. So there's also transportation costs, which are skyrocketing, energy price, which are going up, where it's -- I believe that we have the ability to manage those patients, and that's what we have demonstrated in H1, and we'll continue to do so.
Thank you very much.
Ladies and gentlemen, we currently have one final question. [Operator Instructions] Our next question comes from Jonathan Day at HSBC. You are now unmuted. Please go ahead.
Thanks. Good morning, everyone. Thanks for taking my question. It's a couple actually. I was wondering just to pick up on that last point, I was wondering if you could perhaps talk a little bit more about exposure to European energy prices and how you see the risks of gas supply and gas rationing over the winter months. And I was also wondering if you could talk a little bit about what you're seeing in perhaps in the U.S. residential market, which I know is quite small for you, but just wondered if you could touch on some of the trends there as well, please. Thank you.
Well, yes, starting with the exposition, so first comment, we are not a big energy consumer. To give you order of magnitude, energy represented 0.5% of our 2021 sales, of which actually gas was less than 20%. So in terms of exposure, we are not a big -- we're not very much exposed to energy -- we don't have a big energy consumer and we're not very much exposed to gas. This is sort of a broad set plan for the whole group.
When we are zooming on Europe, Europe represents, as you know, slightly more than 40% of our group sales. Out of the 40%, we have 10% of sales where we have no manufacturing. We have 20% of sales approximately where energy mix is not much exposed to gas. And as part of the 20% you have [indiscernible] which as a country has a very small exposure to gas. Then you have 10% of sales with a more significant dependency on gas, countries such as Italy and Hungary and Poland. Now, so this is sort of -- so not a big exposure to gas as a whole.
Zooming in Europe, a bit more exposed in a few countries, but not exposed or three quarter for you benefit. Now of course, the big question mark is the uncertainty is the global impact gas shortage would have on the European economy. And we believe that this is the most important impact to look at rather than a potential shortage of or potential difficulty to manufacture because of shortage in gas. So it's what impact will it be on the Europe economy.
Last comment, well, these energy is [indiscernible] we will also have a positive impact on our business. I can take an example of currently for example, in France, you know that there is the strategy from the French government to cut by 10% energy consumption in France within two years. There was no later than yesterday, a meeting between the ministry and specialist of housing, looking at potential solutions.
And amongst the solutions that were discussed, you have limiting HVAC to 26 degrees, limiting heating to 19 degrees, putting present detectors to shut down the light when people are not there, including smart [indiscernible]. So this could also have a positive impact on the top line and be part of those game plans that will have to be implemented in [indiscernible] countries within a few years. Does it answer to your question?
Yes. Just to follow up on U.S. residential and what you're seeing...
U.S. residential, it's only 20% of our U.S. It's a small business. And the sales have not been very supportive in resin in the U.S., especially the DIY piece. The reason for that being that we have a very strong base for comparison and exiting the various lockdowns at the end of 2020 and in 2021. There were a lot of consumer spending dedicated to housing, consumer electronics and so on, which boosted our residential sales, especially in 2021.
And we don't have any more the support from this sort of post lockdown trend, as well as incentive plans, financing the consumer that we launched 1.5 years ago. So the demand is very soft. We remain optimistic midterm because we believe that there are plenty of interesting innovations that could be good for the U.S. customers when it comes to heat working connected products and so on, but soft in H1.
Thank you very much.
Our next question comes from James Moore at Redburn. You are now unmuted. Please go ahead.
Yes. Good morning. Thanks for taking the question. I wondered -- and I'm sorry, I missed the first part of the presentation. So if you have already said this, apologies. But on pricing, you mentioned the 10.4 in the second quarter. And on the raw material inflation, I guess we've gone from 18% in the first quarter to 16% or so in the second quarter. I just wondered as we roll forward, into the third and the fourth quarter, once the carryover effect is at the moment and how you...
The inflation of raw mats and components was close to plus 17% in H1. So it was indeed slightly decelerating in Q2 compared to Q1 because Q1 was up more than plus 18%. And Q2 alone was at more than plus 15%. So deceleration in Q2 compared to Q1. As far as the carryover impact, if you take the prices and if you extend them throughout 2022, so for full year 2022, it would be, I think, something like plus 13%. But again, it's purely mechanical carryover impact. And if the price of raw mats is going down because of whatever deceleration in the market, of course, the numbers will be below [indiscernible].
Right. Thanks. And if I could ask a second question on energy efficiency and the premium growth, you talked in the first quarter about seeing clear energy efficiency premium growth in EV charging, climate control, they just [Technical Difficulty] are you still seeing those trends? And are you starting to see any of those in the U.S. or are you still not seeing those trends in the U.S.?
No, we continue to see the trend, not only in Europe, but it's more visible in the Europe than in the U.S. indeed. It's probably coming from the various incentive plans that were launched in a number of countries. So it's more visible in Europe and in the U.S. We also see them develop in the U.S. And we haven't seen any specific deterioration between Q1 and Q2, and we see indeed EV charging climate controls, smart thermostat, cold corridors, optimize their flow data centers, all the products have significantly.
The only negative limitation or worries on the products remain the shortage of electronic components, which from time to time can impact some of those productivities well the day, for example, or products, which is [indiscernible]. So today, [indiscernible] on green product for SMEs, but when it comes, for example, to assisted living, products that help all people to stay home or to collected security, they have been negatively impacted by shortage. So we expect this growth to continue on green products. But with this concern that we should -- in order for this was to continue, we should continue to secure electronic components, and we don't have to go to suffer for a couple of quarters. [Multiple Speakers] Yeah. Go ahead.
If I could just go back to the raw material and component, I couldn't hear because the line is a bit crackly. Did you say 18 in the first and 13 in the second?
I understand that you haven't heard it well. What was the purchase price increased for H1 2022. It was 17%, and the sequential is Q1 around '18 and Q2 around 15. And the carryover is to approximately 13, for full year 2022. We like to compute H2 alone.
That’s great. Thanks.
We currently have no further questions. So I'll now hand you back to your host for any closing remarks.
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