Legrand SA ($LR)

Good morning, ladies and gentlemen, and welcome to today's Legrand 2026 First Quarter Results Conference Call. For your information, this conference is being recorded. [Operator Instructions] Later, there will be a question-and-answer session. At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart; and CFO, Mr. Franck Lemery. Please go ahead, sir.

Thank you very much. Good morning, everybody. Franck Lemery, Ronan Marc and I are happy to welcome you to Legrand Q1 2026 Conference Call and Webcast. As you know, this morning, we published our press release, financial statements and the slide show that we will refer to during the call. After a few opening remarks, we will comment the results into more details. Let me start on Page 4 with the key highlights of the quarter. First, Legrand delivered strong sales growth driven by data centers and acquisitions while maintaining excellent profitability. Second, we announced 4 very exciting acquisitions since the beginning of the year. Third, we confirm our full year 2026 targets. Moving to Pages 6 and 7. I will start with an overview of sales. Sales delivered strong growth of plus 18.3%, excluding currency effects, comprising organic growth of plus 9.3% with a strong contribution of our data center offerings, growing like-for-like around plus 30%, and growth through acquisitions of plus 8.2%. Based on acquisitions announced and the likely date of consolidation, the overall impact of acquisitions should be close to plus 7% for the full year. The FX effect was minus 5.8% for the quarter. Based on average exchange rates in April 2026, the full year currency effect would be around minus 2%. On Page 7, you will find the key takeaways per geographies on a like-for-like basis. Europe saw sales down minus 2.8% in a building market that remains contrasted. North and Central America delivered a strong plus 25.8% performance, driven by strong success of data center-related offerings in the U.S. Lastly, Rest of the World was down minus 1.8% in the first quarter despite a very nice growth in India, Sales in the Middle East, which stood only at 1.7% of our FY 2025 sales were not impacted by the geopolitical situation in Q1. These were the main comments I wanted to make on sales. I will now hand over to Franck for more color on our financial performance.

Thank you, Benoit, and good morning, everyone. I will start on Page 8 with adjusted operating margin. Profitability remained very strong and resilient in Q1 with an adjusted operating margin of 20.7%. Despite inflation already impacting the cost base, this level of profitability reflects our solid execution, our adaptability and the quality of our recent acquisitions. Of course, we remain fully mobilized to address the global geopolitical environment. Going now to Page 9. First, net profit reached EUR 335 million, up plus 14% versus Q1 2025. This increase was driven primarily by higher profit on operating, a lower corporate income tax of 26% and the negative evolution of the financial results. Second, free cash flow came to EUR 221 million, representing 8.7% of sales, and our net debt-to-EBITDA ratio stood at 2.1 at the end of the quarter. This is it for the key financial topics I wanted to share with you this morning. I'm now handing over back to Benoit.

Thank you, Franck. We can move now to Page 11. Confidence in our execution capabilities and our ability to adapt to an uncertain economic environment, we confirm our 2026 targets. With the following for the full year: sales growth, excluding currency effects of between plus 10% and plus 15%, comprising organic growth between plus 4% and plus 7% and growth through acquisitions of between plus 6% and plus 8%; adjusted operating margin after acquisitions of 20.5% to 21% of sales; a CSR achievement rate of at least 100% for the second year of our 2025-2027 road map. On Page 13, a reminder of the 4 acquisitions we announced so far in 2026. All the 4 are in data centers and energy transition, representing combined annual revenue of around EUR 275 million. These transactions, done at very reasonable multiples, strengthen our leadership position in buoyant markets and illustrate once again our ability to identify, execute and integrate acquisitions with discipline. On Page 15. Legrand benefits from very strong employee engagement. This is illustrated by the success of our second international employee share ownership plan. Now a few words on the key topics on the agenda of our incoming General Meeting of Shareholders, which will take place on May 27, on Page 17 and 18. Subject to the proposed renewals approval, the Board composition will continue to be among the industry's best practices, with 80% of independent members, 60% of women and 7 nationalities. And as announced previously, the proposed dividend for 2025 is of EUR 2.38 per share, up plus 8.2% versus last year with a 50% payout. To conclude, I would also like to highlight that we will host the Capital Markets Day in Singapore on September 29, 2026, to provide a progress update on our strategic road map with a particular focus on data centers. We would be very happy to meet you there, and you are all kindly invited. Those were the key topics of this release, I suggest we now switch to Q&A. Thank you.

[Operator Instructions] And the first question comes from the line of George Featherstone from Barclays.

You started off with 30% like-for-like growth in data centers. And clearly, that's above the guide that you gave previously of 10% to 20%. So first couple of questions on this. I just wondered what you're seeing in terms of order intake, backlog pipeline ahead and whether you're sticking to that 10% to 20%? And if you can maybe compare the growth rates you're seeing in the U.S. versus Europe, that would be helpful.

Well, the 30% is quite a good performance. And when we compare ourselves with the market trends, even though it's not completely, let's say, relevant on a quarterly basis, I think we are doing well. We are slightly above plus 30% in the U.S. The U.S. is clearly growing faster than the rest of the world. And I don't believe it's Legrand specific. I think it's really market specific. The U.S. market for data centers is super hot. We indeed told you when we entered the year that we were shooting for 10% to 20% growth in data centers, given the Q1 we did and given the large number of orders we continue to get, we will definitely be closer to the high end of the 10% to 20% than to the low end. So we are even more optimistic than we were on the data center business, and all KPIs are well oriented and demonstrate that, once again, 2026 will be a good year. And I have to say that it will be a good year after 2025, which was a fantastic year. I remind you that we grew plus 40% in 2025 and after 2024, which was, again, a good year with plus 15%. So difficult to give you a precise number, but I can only confirm that we will see a very nice growth in data center in 2026. Now you may wonder why despite the fact that the upper end of the data center guidance, plus 20%, is now more likely than the lower end, why we are not revising our global guidance up. Well, we have to admit at the same time that on the building front, we have probably more uncertainties than we had 3 months back because of the geopolitical situation, which did not impact Q1, but which creates additional uncertainties. So our guidance is kept at the same level, even though Q1 was probably higher than you may have expected and despite the fact that the data center is growing nicely because we remain a bit cautious on the impact of the geopolitical situation.

Okay. That's very helpful. Just maybe one follow-up on that last point. Is there anything you've seen sort of further deterioration, maybe, in those buildings markets through April in the second quarter?

Well, I'll not comment on the month of April, the impact of the geopolitical situation should, of course, come to at least two topics. Number one, the Middle East sales, which, by the way, is less than 2% of our sales, right? If you put together the whole zone, Saudi, UAE, Lebanon, Qatar, Oman, and a few other countries, it's less than 2% of our sales. So the impact at group level will be limited. And the second impact, and I'm sure that we'll have the opportunity to discuss that during the call, is the impact it has on purchase price, and therefore, on our selling price. Now again, we are -- even though there's just a bit more uncertainty on the building front, we remain extremely confident in our ability to achieve our guidance and extremely confident on the fact that the data center business will deliver a very strong growth in 2026. Needless to say, and we shouldn't forget it, beyond the short-term uncertainty, and I don't believe that the short-term uncertainty is higher for our sector than it is for others. The long-term prospects for building business of Legrand are very good. There will be some recovery. Hopefully, this recovery will happen as early as late 2026. There's a strong need for housing all across the world. I mean, in Germany, in France, in the U.K., in India, in the U.S. We've been able to move towards new nonresidential verticals, which will support the growth. Our energy transition business, by the way, is growing slightly in Q1. So all the growth is not coming from data centers. We also have some energy transition businesses growing, especially in the U.S., where our move towards new verticals from the office and from the resi building and more into health care, education, infra, industrial buildings, photovoltaic shows pretty good results with a nice growth. So again, the fact that we have short-term uncertainty doesn't mean that we are not very confident on the fact that beyond data center, the rest of our business will at some point recover.

And the next question comes from the line of Max Yates from Morgan Stanley.

Could I just ask on the gross margin? So the gross margin or the overall margins are flat, the gross margins are down sort of more or less 200 basis points. Could you talk a little bit about how raw materials, particularly kind of copper, silver impacted the gross margin and how much that was maybe other factors? And would you still be confident to offset raw material inflation on an annualized basis when we look at 2026?

Yes. The gross margin is indeed down by close to 200 bps. It's actually 190 bps. And the main components are the fact that pricing is plus 2.3% and pricing does not compensate inflation of plus 4.2% on raw material components and plus 3% of personnel costs. So we have, let's say, gap between the cost of input, if I may say, and on our pricing. Is it a concern for us? No. We have started to adjust our price up. To give you order of magnitude, when we entered the year, we told you that we intended that we thought the purchase price would increase by between plus 1% and plus 2%. We now think that it could be around plus 4% on a yearly basis. And as a result, we had adjusted up our pricing progressively. We thought that our pricing would be plus 1% to plus 2% on a yearly basis, and we now think that it could be plus 2% to plus 3%. And if needed, we could do more of that. So it's a timing issue. And we have some price increase that are already executed, some others which are planned, and that's it. On top of that, I have to say that don't forget that even though our data center business has approximately the same EBIT margin as the building market, it has a lower gross margin and lower SG&A. So let's say, the structure of the margin is slightly different. Yes. Last comment. Franck, do you want to add something?

Yes, So for you to -- Max, to understand well, the momentum of the gross margin between Q1 and what it should be on a full year basis, among the 4% of purchase price increase, which has been mentioned by Benoit, half of that is tariff effect. And you have in mind that it is the last quarter where we have additional tariffs. So once again, sales price increasing 2% today could be 2% to 3% at the end of the year. Purchase price, including tariff, around 4% today, should be around 4% at the end of the year. So gross margin pressure should ease. Now we should also add that, of course, the strong growth also comes with some significant leverage on SG&A with a great productivity on headcount to give you order of magnitude. So our sales are up plus 9% like-for-like and our headcount are slightly decreasing like-for-like. So yes, we have gross margin declining. But at the same time, we have strong leverage on SG&A and, as a result, quite stable margin. What counts at the end of the year is really the EBIT and adjusted EBIT more than the gross margin itself.

Yes. Very clear. And maybe just a very quick follow-up on the data center business. It's quite easy for us to get lost in the kind of quarterly year-over-year growth rate. I guess my question is have you seen -- when we think about the business sequentially, have you seen a sort of sharp acceleration? I ask because we've seen all these orders really accelerating, but are you actually seeing it in the sales? And is there anything you think that's unusual about how your customers are behaving? Are they stockpiling ahead of price rises? Are they stockpiling at the start of the year? Do you get a sense any of it sort of pull forward demand for any reason when you have these conversations?

Well, I don't believe there's been anything exceptional in Q1. You may have noticed that we are no longer commenting on orders or book-to-bill because, frankly speaking, we have a lot of difficulty to bridge the orders with the sales. So we prefer to comment on sales. But we haven't seen any pre-buy which, by the way, is not something easy to execute for project basis. But no prebuying, nothing exceptional. No. It is just coming from the fact that hyperscalers are massively increasing their investments and that this wave of investment should last for a few years. But again, a quarter which wasn't impacted by something exceptional, let's say.

And the question comes from the line of Daniela Costa from Goldman Sachs.

I will ask the question and then the follow-up separate. But maybe on the question, starting in terms of the free cash flow performance. And I think we've seen some working capital build up again this quarter. Can you -- I guess this is related probably to the data center business. Can you talk back about how we should think about the pattern of this working capital now through the year? I guess we had a bit of this last year. And then does the seasonality on working capital increase? How should we think about sort of still the old levels of cash conversion?

I will take this question, Daniela. So starting with the free cash flow. The free cash flow of Q1 is not very meaningful, like Q1 is always a softer free cash flow in our seasonality. 8.7% of sales, we are very happy with this free cash flow. It's a normal seasonality around 8.5%, 9%. It's the typical seasonality for Legrand. By the way, it's growing versus last year. Talking about working cap, you're right. So it's up. It's 20.5% versus 11.9% last year. There are many technical plus and minus, but in a nutshell, from a performance point of view, only inventory to sell is increasing, and the reason it's increasing is actually a data center. We are protecting the top line. We want deliberately to serve well our customers. So it is what is driven the 12.5% of working cap versus 11.9% last year. And 12.5% of working cap is also pretty much consistent with the seasonality. Accordingly, on a full year basis, we are still shooting for the usual metrics of the group, which is free cash flow to sales between 13% to 15%.

And then just on your M&A, you're sort of slightly ahead now for the guidance is tracking. You've been very active. Can you talk a little bit about how you see that developing over the rest of the year? Is there a possibility that sort of you actually exceed and add more than the 8% like you did in 1Q?

Well, so indeed, we've been very active in M&A for now more than 2 years. And again, we've done 4 deals since the beginning of the year. It's highly likely that more will come because we have a lot of discussions going on with many interesting targets and some of the discussions are pretty well advanced. So you should expect to see more deals coming before the end of the year. I cannot commit to a number of deals, of course, because there's some uncertainty. Now could we exceed the 8%? Well, it becomes increasingly unlikely, not because we wouldn't do more deals or because some of the deals couldn't be EUR 50 million, EUR 70 million or EUR 100 million of sales, but just because of the consolidation timing. We are already 4 months into the year. So we still believe that the 7 to 8 now is the most likely number. Yes, we could exceed, but I wouldn't put that into the machine, if I were you, because for the deals to come, we will only have a few months of consolidation in 2026, so with very little impact on the perimeter effect. But I confirm that we still have a lot of discussions. And interestingly, I also confirm that on the Legrand standpoint, the multiples remain reasonable. So we're not communicating on precise multiples per deal, but we've been able to strike interesting deals for the past couple of years at 10, 11, 12x EBITDA. And those are the typical kind of metrics we are still looking for when we make deals.

And the question comes from the line of Andre Kukhnin from UBS.

Can I just start with a broader question about the sort of quarterly cadence of growth for the year? Do we need to be aware of any comp effects or any kind of one-offs as we go through the rest of 2026, and we think about the Q1 run rate, given that we had quite obviously varied comp landscape through 2024 and 2025 in terms of organic growth. And the pre-buy effect that you mentioned wasn't there for data centers. Is that the case for the rest of the portfolio as well? Or are you seeing anything elsewhere?

Well, I don't believe there's any technical factor that will play in 2026. So there's no quarter impacted by a number of days, for example, significant number of days, plus or minus. I don't recall of any significant basis for comparison in 2025. So no, I don't believe there's going to be anything technical. So the sales should reflect the underlying market trends and the gains in market share, but no technical topic. Well, only one factor that may come into play. It's the fact that we are increasingly in the project business, thanks to our data center exposure. And of course, one quarter can be positively or negatively impacted by a very big project. But it's a very, let's say, candid and generic comment. There's no reason it would play one way or the other in 2026. As far as the prebuy is concerned, no, we haven't seen any prebuy, neither in data center nor in building. And we haven't seen distributors, for example, building significant inventory ahead of some price increase. This is not really a behavior we see in our market. So no prebuy, let's say, significantly impacting our quarter.

And if I may, just a very quick one. I know it's a big topic. But has anything changed in terms of your stance on the 800 VDC architecture in the last 2 or 3 months since we spoke last time?

No, no. It's probably more a topic that we're going to discuss in September. So wait for me to do a bit of teasing for our CMD. But no, those kind of technical change in architecture are not changing in 2 months. So no change in our view. We believe it's going to come. We believe that it's going to be more progressive than some of you expect and that we are well positioned because we already have a number of capabilities to address either the hybrid architecture or the ultimate holy grail full 800 volt DC. So we see that more as an opportunity with more data centers, higher density data centers, more energy-efficient data centers than as a threat, to make a long story short.

And the question comes from the line of Alasdair Leslie from Bernstein.

So first question is just actually on margins, North and Central America margins. We saw a good improvement there. I was just wondering whether we should kind of think of this as a kind of new higher baseline level for sustainable margins in the region, particularly with the mix changing, I guess, so much in favor of data centers? Or do you think we'll sort of see more investment now go back into perhaps reinforcing the traction you're now seeing in that nonresidential side in health care and infrastructure that you kind of flagged earlier? And then the follow-up would just be on data centers. Maybe just a little bit more color there. Do you still sort of see uniformly strong growth across kind of all product categories? Or are we starting to see a bit of divergence now in the portfolio with some areas sort of standing out if we're starting to move to higher-density data centers?

Yes. Well, so about the first question, well, it's difficult for us to give you a guidance per geographical area. Our margin guidance is at group level, not by geographies. But the fact that the North and Central America margin is doing good progress is, of course, coming from the fact that there's quite an impressive growth. And when we have growth, we have leverage, especially leverage on SG&A. And the fact that the European margin is a bit weaker, the other way, negative growth in Europe. So not only we suffer from the sort of discrepancy between purchase price and selling price, temporary discrepancy, but on top of that, we have negative leverage in SG&A. So the U.S. margin is indirectly coming from data center. It's coming from the fact that when you have such a strong organic growth, it delivers leverage. Now midterm, what matters is not the margin we're going to have in North and Central America nor the margin we're going to have in Europe or in the Rest of the World. It's really the group margin. And for 2026, we confirm our guidance of 20.5% to 21%. And long term, we confirm the fact that we should have an average margin above 20%. So again, our guidance and the way we steer the group is more at global level than zone by zone. As far as data center is concerned, well, there's always been a difference between product family. When we said plus 40% last year, some families were at plus 60% or 70% and some of them even more than that. Some product families actually grew triple digits and some others were at plus 5%. So there's no, let's say, consistency, if you wish, between the different product families. We have now many different product families. We do not depend on 1 or 2. We have global coverage starting from medium voltage down to compute architecture and cooling. If I have to name a few products or a few families that probably grew faster than the average, cooling is one of them, clearly. And you know that we have many capabilities in cooling, especially rear door, containment and so on and so forth. The whole powertrain is doing well. The load banks from Avtron is doing a fantastic growth. But again, don't read that as a fact that the architecture are changing fast. It is just the fact that on those product families, we are very well positioned, that we have a value proposition, which is very compelling for our customers and that we are probably gaining market share.

And the question comes from the line of Phil Buller from JPMorgan.

I guess it's a follow-up to start. What does data center now represent as a percentage of group sales post the closing of the M&A on an annual basis? I guess it's now approaching 30%. And is this something that you're at all worried about, being overly exposed to? Or is this still the primary focus of the M&A pipeline? That's the first question, please.

Well, so it was 26% last year. I haven't done the math precisely, but given the difference in growth and the fact that we are doing a number of acquisitions in data center, yes, it will be probably around 30% this year, plus or minus 1%. So it's probably the order of magnitude. Is it a concern? No, it's not. I mean, this is a position we have deliberately built that will boost the group's organic growth in the years to come, not only in 2026, but given the massive investments which are done in data centers, this growth should continue in the years to come. By the way, our acquisitions in data centers also help us to grow into energy transition. If you look at some of the acquisitions that were made in the past 12 to 18 months, namely Avtron or Kratos in the U.S. or LINKK Busway in Malaysia, those are acquisitions that are strong positions in data center, but that also brings additional complementary positions in photovoltaic, in industrial buildings, in health care and so on and so forth. So by building our position in data centers, we also build complementary positions in energy transition. So how high could the 30% be? I don't know. It could easily be 35% or 40%. At some point, the gap in growth between data centers and the rest of the Legrand product offering will narrow, because the building will grow again, because energy transition will grow. So you won't have the same gap between the growth. But yes, it could easily be 35% or 40%. It wouldn't be a concern. It would be a great opportunity for Legrand to continue to grow.

The second question in relation to Q1, a number of companies exposed to building end markets have called out things like bad weather in Q1, which I don't think I've heard from you guys today. Would you say that there's been any adverse effects in Q1, perhaps in Europe or elsewhere outside of data center? Any kind of one-off potential sources of weakness in Q1?

Yes, I've read indeed some of those comments about bad weather, but we are selling through a sort of -- it's a channel sales. We are selling to distributors, who sometimes sell to retailers, who sell to contractors who install. So we are not probably close enough to the end market to feel some of those impacts. So I wouldn't say that it had a significant impact on Legrand Q1 sales. if your concern is why is Europe sales going down, I wouldn't call that a slowdown. It's only a quarter. Q4 in Europe was pretty strong, stronger than you might have expected. Q1 is probably weaker than you may have expected. But from an end market standpoint, we haven't seen any deterioration in Europe between Q4 2025 and Q1 2026. Markets remain muted. Southern Europe is okay. Northern Europe, including France, is still quite depressed. And our assumption has always been that you would see a progressive recovery in 2026, not a recovery as early as Q1 2026. So up to now, there's nothing that tell us that this scenario wouldn't materialize. The only question mark is, of course, how long will the Middle East crisis last. By the way, I have to add that, of course, short term, the Middle East crisis is not a good news because it has some impact on the cost of our raw mats and components because it creates cost of transportation, because it creates uncertainty, blah, blah, blah. Midterm, it will also be an opportunity because it will push a number of countries to launch electrification plans. France, for example, just launched one, which will not have a short-term huge impact on Legrand. But midterm, the move towards more electricity and move away from fossil energy is a very good news for Legrand because if you have energy -- electricity growing in energy mix, of course, you need more transformers, you need more switchgears, circuit breakers, load shedding, measuring and metering products and so on and so forth. But it's a long answer to a quick question, but to make a long story short, nothing specific impacting our European sales. The markets are still quite contrasted, but we still expect some progressive improvement modulo the impact of the Middle East crisis.

And the next question comes from the line of Alexander Virgo from Evercore.

I wondered if you could just sort of pick up a little bit more on that point on Europe. I appreciate your comments around the end markets. But just sort of picking apart the inflation issue and the margin issue, how much of the margin decline in Europe is volume versus the impact of inflation because, obviously, the tariff impact is a North American issue rather than in Europe. So if you could pick apart that a little bit, that would be super helpful. And I know you don't really guide on the regions and margins, et cetera, intra-quarter, but just give us some sense of how you think it might sort of develop given your comps get marginally tougher, I suppose, as you go through the balance of the year in Europe?

I will answer to this question. Currently, I think the two items that you have mentioned are unfavorable, the inflation balance, even if there -- as you rightly underline, there is no tariff, there is global inflation in plastics, in copper, in aluminum, and it is currently not helping the margin. And second, obviously, the volume, it takes time to adapt SG&As, and Europe is carrying also some corporate function. But all that is temporary. So I don't see any structural moves for European margin, but the two elements are currently unfavorable.

Okay. All right. And just as a follow-up, if I heard you correctly on pricing, the implication, of course, of not changing the full year guide on organic growth is the volume assumption is a little bit lower if the pricing is a little bit higher. Is that the right takeaway here? Or should we assume that actually it's a little bit more on price and volume assumptions remain the same, but because of the uncertainty around implications of the Middle East and your comments about economic backdrop, that you're just sort of giving yourselves a little bit of extra wiggle room, if you like?

Yes. Definitely, we will shoot for more pricing than the initial guidance because we are expecting and assuming more inflation than the initial guidance. So of course, mechanically, you may say there is less volume, but it depends on which part of the guidance you are looking at. Our like-for-like guidance is unchanged from plus 4% to plus 7%. Plus 4% is clearly a very severe scenario where we would be close to a kind of a recession, which is not the most likely one, but that we have to factor in case of. And if we were in the higher end of the guidance, then we think data center will be more supportive than initially forecasted. Pricing will be more supportive than initially guided. And volume in the building markets will be consistent or slightly less supportive than initially forecasted.

And the next question comes from the line of Aron Ceccarelli from Bank of America.

I had a question on the U.S., which grew 29%. You mentioned the data center grew slightly above 30%. So perhaps can you help me understand the growth in the other part of the business as well?

Yes. So you have three phenomenon. So data center, as you said, grew slightly more than 30%. Resi and the office market remains quite depressed. If you look at the numbers, no change. So resi numbers, official numbers are down. The office vacancy rates are still high and at the same level as the quarter before. So unfortunately, no change. And in between, you have the energy transition business growing nicely, of course, not as strongly as data centers, but growing nicely. And this is a result of the move we did or we are currently doing in the nonresi to develop verticals with more potential than resi or office. So I named some of them, health care, industrial buildings, a bit of power generation, a bit of microgrid, PV and so on. So we've developed those verticals organically, but also inorganically with some of the acquisitions we made in the U.S. in the past couple of quarters. So this piece is growing nicely, and it is more tied to energy transition than to the traditional, let's say, building market.

As a follow-up on Europe, you mentioned that you are still expecting second half a slow recovery. Are you still expecting France to turn positive as well?

I don't know, frankly speaking. Yes, that's what the numbers would suggest. And if you look at the housing starts, housing permits, the number of transactions, the production of credits, all those KPIs would suggest that France, as the rest of Europe, should see some recovery. Now we should also take into account the fact that there's quite a lot of political uncertainty in France, as elsewhere, that we are quite late cycle. So I wouldn't commit to a significant growth in France in H2. But the early indicators would suggest that some recovery would happen either in '26 or in '27 actually. May I add that France is now about 10% of our sales. So I remember when I started working for Legrand, France was about 1/3 of our sales, and we were having a lot of discussions on France. Now it's 10%. So it remains a very important market. It's our home market, and we are very proud to be a French company, blah, blah, blah. But it does not impact that much and not as much as it used to, the group's metrics.

Our next question comes from the line of Eric Lemarie from CIC CIB.

I've got one question on the EU, which has recently decided to ban inverters from some countries, and notably inverters from China. And I was wondering what could be the consequences for Legrand. And I was wondering whether Legrand makes some inverters internally for its UPS offering or if Legrand sources them from elsewhere, notably from China?

No, we are not a significant inverter player. So no impact on Legrand. We cannot be impacted by all megatrends. Data center is one of them. The move towards energy transition is another one. And by the way, I can only insist on what I said a little bit earlier. There is a global move in Europe towards being less dependent upon oil and gas and developing electricity usage. Midterm, this is a fantastic opportunity for Legrand again. But inverter will not be an opportunity.

But you make some UPS, right?

We make UPS. We are not a big, big UPS player. And UPS are more today for industrial use or for data center increasingly. But again, we have a small market share in UPS. So I don't believe you'll see any significant impact on our European sales.

And the question comes from the line of James Moore from Rothschild & Co Redburn.

I wondered if I could start, Benoit, with the Americas. And if you take your fantastic data center business, could you help us just understand the quantification of the kind of rough organic sales growth in the quarter for buildings, ideally split resi, non-resi, but just the buildings business, what sort of speed is that growing at?

Well, I cannot give you a precise number. But if you assume that data center was last year more than 40% of our NCA sales and that it grew in Q1 more than 30%, you are left with a small growth. So if you carve out data center, North and Central America business is slightly growing with, as I said, resi and office going down and other verticals all related to energy transition going slightly up mid-single-digit order of magnitude. So I can hardly be more specific than that.

That's very helpful. I'm just playing around with numbers, and it looks to me like you might be closer to 50% in your U.S. data center business, which would it be fair to say your European and your Rest of World data center business, just due to the volatility and timing, it happened to be down in the quarter? Might that explain some of the decline in the European and the Rest of World organic sales declines? Is that not the case?

So I mean, I haven't done the math again myself, but you're probably underestimating the fact that the building in the U.S. office and resi is down. So probably [Technical Difficulty] points of decrease and then the numbers will match, but I confirm that our data center sales in the U.S. are not growing 50%. No, I mean the data center in Europe and in the Rest of the World is not supporting our growth enough. But it's technically the fact that it represents a small part of our sales. It represents about 10% of European sales and less than 20% in the Rest of the World. So the vast -- the largest part of our performance in those two zones is coming from the traditional building market. Europe, we already commented the building markets are down in most of the countries, but a few countries in Southern Europe. In the Rest of the World, it is, as usual, a very contrasted situation. You have India going up sharply. You have Africa Middle East being up. And you may be surprised, but Middle East is up again in Q1. And then you have China continues to be down, which is not a surprise because the metrics for the housing market, especially the big condos are still down. And Latin America is also negative. But again, nothing to worry about. And hopefully, we'll see some improvement in Europe and in the Rest of the World going forward.

Could I try something on profitability? Your gross margin, you gave a really helpful answer earlier. But when we think ahead for the full year with your new ambition of 2% to 3% price and 4% raw material and component cost inflation, do you think that the gross margin for the full year can be up in that kind of environment? I haven't...

No, we're not -- I'm sorry, but I mean, we cannot guide on the precise gross margin. We are really -- that's not the way we steer the group. The way we steer the group is to deliver our commitment on the adjusted EBIT margin. And then whether it's with a little bit more, a little bit less gross margin, it is more, a little bit less leverage in SG&A is really not, I think, a strategic topic. So you can count on us to deliver the margin guidance, because that's what we've always been doing and that we are committed to. Will it come from positive gross margin, negative gross margin, more or less leverage in SG&A, restructuring, more or less, blah, blah, blah, we'll comment that in February 2027, but I cannot guide on that.

And just finally, Franck, you gave a helpful bit of color on the European margin weakness in the quarter. I wondered if there's anything to add on the Rest of the World. It's a complicated business, a lot of mix. Just behind that decline in margin.

No, no, no. I gave you the color on Europe, and we gave you color on North and Central America, and that's it for the Q1. And for the full year, we are not guiding per geography as we are not guiding a line by line. It's a global target.

No, that wasn't really the question. My question was that the margin decline in the quarter year-on-year in the Rest of World business, was there any additional color behind explaining that?

Yes. It's a mix of the margin of many different countries. I don't want to sound disrespectful, but we said 2 questions. And we're entering into a Q&A mode, many different items. To make a long story short, the Rest of the World margin, it's a mix of the countries improving, countries decreasing their margin. Nothing specific, and you should see the same phenomenon. So more pricing coming in to compensate for additional purchase price.

And the question comes from the line of Gael de-Bray from Deutsche Bank.

The first question I have is, I'm wondering if you have enough capacity to address that huge acceleration in data center demand that we are seeing in the U.S. or whether you will have to step up CapEx significantly at some point. And how are you dealing with the ramp-up costs, which are apparently weighing quite a lot on the margin performances of some of your peers? That's question number one.

Well, it's a challenge to increase capacity. We've been able to do it. We've been able to do it without significant change in our ratio of CapEx to sales, which last year remained at about 3%. Q1 is a bit soft, but you know that there's some seasonality in the CapEx. You usually have bigger CapEx in H2 than in H1. So yes, we are able to do it without much changing our ratios because data center is not -- our business, at least, is not a CapEx-intensive industry. And again, look at the CapEx numbers over the last 2 or 3 years, and you'll see the same 3% than the one we had before the stronger growth in data center. How did it impact the cost base in Q1 and in 2025? Yes, probably because it comes with a number of inefficiencies. When you are growing 30%, 40% in volume, sometimes 60%, 70%, 80%, you are not as efficient as you are when you are growing 2%, 3% and when you are able to do the usual productivity and so on and so forth. You sometimes have to deliver by plane to meet the customers' timeline. You sometimes have to subcontract additional load, which is a little bit more expensive than doing it internally. You sometimes have to pay extra remuneration for your people to do extra time. So all that comes with a bit of inefficiency and a bit of cost. But did it have a significant impact on the Q1 margin? The answer is no. It's our day-to-day job to manage those inefficiencies. So to make a long story short, it's a challenge. But we've been able to do it without significant impact on our CapEx spend and without hurting our P&L significantly.

No, that's great. And if I may, I'm wondering if you have any strategy, any plan to grow potentially bigger in the medium voltage segment, and within that, specifically in the power utilities market because it's obviously a big market and it's tightly connected with the data center boom.

Well, we don't intend to be a big player and go head front against the big guys, the ABB, the Schneider of the world. But if we find some niche opportunities to participate a little bit more to this business, why not? And actually, we are already a small player. We used to have a range of cast resin high-efficiency transformers, which we bought a couple of years back and which we are nicely selling, some of them in data centers. We bought recently Kratos Industries which is active in, let's say, medium-voltage and low-voltage switchgear, which is doing well, growing nicely and addressing mostly but not only the data center market. Those businesses are niche markets. If we find additional niches to add to tackle the data center and the energy transition especially in the U.S. at reasonable price, yes, why not. But don't expect Legrand to be ever a big significant player in transformers. This space is already well occupied by big guys. So we will focus on niches only.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Benoît Coquart, for any closing remarks.

Well, thanks a lot for your interest in Legrand. As usual, should you have more questions, please contact Ronan, Antonia and the IR team. And please put in your calendar September 29. We are not used to do off-site CMD such as this one, but it will be a fantastic opportunity to get to know a little bit more the data center market as well as to interact with the whole management team and with a number of Legrand people. So it's far from your home, for most of you, but it will be very interesting. So please book your date. We'll be happy to welcome you in September in Singapore. Thank you.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.