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Good morning, ladies and gentlemen, and welcome to today's Legrand 2023 First Quarter Results Conference Call. All participants are in a listen-only mode. There will be a question-and-answer session later. For your information, this conference is being recorded.
At this time, I would like to hand the conference call over to CEO, Mr. Benoît Coquart; and CFO, Mr. Franck Lemery. Please go ahead.
Thank you very much. Good morning, everybody. Benoît speaking. So Franck Lemery; Ronan Marc and myself are happy to welcome you to the Legrand Q1 2023 results conference call and webcast. Please note that this call is recorded.
So as you know, we have published today our press release, our 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 the results into more details.
Let me start with the key takeaways of this release on Page 4 of the deck. First, Legrand reported a strong growth in sales for the quarter of 9%. Second, the group delivered on the quarter a very robust growth in results and cash generation.
So moving to Page 6. I will start with an overview of sales. In Q1, we achieved a solid performance. Sales rose plus 9% to reach €2.15 billion, demonstrating again the group's resilience power in an uncertain ever-changing environment. Sales grew organically by plus 7.4% in the first quarter. On top of organic growth, the scope effect was of plus 0.9%, including plus 1.3% linked to acquisitions, and minus 0.4% linked to the net impact of the disengagement from Russia.
Based on acquisitions we announced and the likely date of consolidation, the full year impact should be around plus 1.5% in 2023, excluding the impact of disengagement from Russia.
Last, the FX effect is almost flat in the quarter at plus 0.6% to sales for the year. Based on the average exchange rate in the month of April 2023, the full year impact of 2023 sales should be close to minus 3%.
You will read on Page 7, the key takeaways per geographies. Each of the three regions of the group achieved a solid level of growth despite weaknesses of the residential market, which we believe will settle in the coming quarters or by 2024. We saw a very robust growth in our faster expanding segments, i.e., energy efficiency offering, data centers and connected products. These were the main comments I wanted to make on sales.
I will now hand over to Franck for more color on our robust financial performance.
Thank you, Benoît, and good morning to all of you. I will start on Page 9, commenting the operating margin. Before acquisitions and excluding Russia, we recorded a very high adjusted operating margin of 22.6% for Q1 representing a remarkable plus 2.3 points increase versus Q1 2022. The impact of acquisition and of Russia were for each of them, minus 0.2 points. Therefore, the adjusted operating margin all-in for the quarter stood at 22.2%.
The high profitability of the first quarter is driven by the gross margin. It is reflecting our firm control of expenses and sales prices in a persistently inflationary environment.
Going now to Page 10 with a focus on the strong value creation delivered on the first quarter, I will highlight two main points. First, with a net income of €330.5 million, representing 50.4% of our sales. Earnings per share were up plus 28%. We beneficiated from the favorable trend of operating profit and financial results, as well as a lower income tax rate.
Second, the cash generated during the quarter is remarkable with cash flow from operation up plus 19.88% at €434.6 million. Despite the continued strengthened recovery of inventory, free cash flow stood at 15.4% of sales and normalized free cash flow was up plus 22% at 18.1% of sales. The best-in-class level of profitability and cash generation highlight: first, the [relevance] of our model; and second, our resilience power.
Moving now to Page 11 regarding the balance sheet structure. We have a sound balance sheet with net debt-to-EBITDA ratio standing at 1.2 at the end of Q1. Net debt at the end of the quarter amount to €2.3 billion with a gross debt majority at 4.4 years, of which more than 90% is a fixed rate. Moreover, we have a €2.5 billion available cash. In the current backdrop of interest rise, the financial items are key for the success of our acquisition policy and for value creation.
This concludes the key highlights of Legrand Q1 2023 financial performance, and I'm now handing over back the mic to Benoît.
Thank you, Franck. We can move now to Page 13 regarding our full year targets. Concerning our Q1 results, we can say that we are overall slightly in advance, both in terms of the bottom line, maybe a bit late in terms of M&A compared to our guidance. You know that it is not our practice to modify our full year target during the Q1 release, therefore, they remain unchanged.
As a reminder for 2023, we target sales growth at constant action rates of between plus 2% and plus 6%, excluding Russia. And adjusted operating margin before acquisitions and Russia impacted around 20% of sales and at least 100% CSR achievement rate.
Now some final words on our incoming combined General Meeting of Shareholders from Page 15 to 17. First, on the proper evolution of the Board of Directors on Page 15 with the nomination as independent directors of Valerie Chort, a Canadian national; and Clare Scherrer, an American and British national. They will both bring the extensive and recognized expertise to the Board in terms of strategy in CSR, as well as financial markets and industry. As a result, above composition, we continue to be amongst the industry's best practices with 83% of independent members, 42% women and seven nationalities represented.
Second, Page 17. As announced in our FY results released in February, the proposed dividend for 2022 is €1.9 per share, up plus 15.2% versus last year. The resulting payout ratio of nearly 50% is in line with the group's medium-term targets.
This is for the key topics of this release. I suggest we switch now to Q&A. Thank you.
[Operator Instructions] We will take the first question from Daniela Costa from Goldman Sachs.
I actually just have one question. But basically, I wanted to ask you if you could elaborate, given the strong numbers you just had, but the unchanged outlook. I know for volumes, you always say you don't have a backlog. But from a margin standpoint, just looking at what is now implied for the rest of the year. Can you elaborate why? Perhaps you sort of have a weaker rest of the year. Is that pricing? Is it mix? How shall we think about sort of the remaining part of the year on margin and why you don't raise guidance.
Yes, sure. Daniela, so first comment, as I said during my introduction, it's not our practice to change the guidance at the Q1 numbers. I have to say that the numbers we delivered in Q1 are slightly better than expected internally, both in terms of top line and bottom line. And we are a bit ahead of our forecast when it comes to both top line and bottom line.
Now again, you have a lot of uncertainties in the nine months to come, both in terms actually of end market evolution, as well as on the key components of the performance. If we look at the values, the building blocks of the performance over the next nine months, well, in terms of pricing, there's no reason to believe that we won't be able to deliver the usual pricing at Legrand, let's say, between plus 2% and plus 4% pricing for the full year.
The uncertainty comes from the price of raw material and components, which was slightly up in Q1 by almost 2%. And you should not necessarily expect it to go down for the remaining nine months of the year because again, I remind you that, as you know, that we buy more components than raw mats and the price of components include the cost synergies, the cost of wages and so on and so forth.
So it's highly likely that the price of raw mats and components will continue to go up with the next nine months. Then of course, we would manage the SG&A depending on the volume evolution. The key uncertainty and the key question mark is about the end market in which we operate. As you know, we have 40% of our sales, which are made in the residential market. And we have seen some softness as expected on the resi market, both in the U.S. and in Europe. And it creates some sort of uncertainty, some answers to come.
Now again, we are slightly ahead of our internal forecast. And as you rightly said, the Q1 numbers are pretty good numbers. Hope it helps.
Yes, it helps. Can I just clarify, when you say your 2% to 4% pricing, is that incremental prices you will put up this year, or is that just a carryover? Just to understand what's happening to prices right now. Are they still going up?
No, it's a full year price impact, which we can foresee today given what we see about the evolution of raw mats and components. It was plus 8% in Q1. Now as we told you when we released our numbers in February, the pricing effect would be higher in Q1 than the remaining part of the year because of the carryover impact. So we believe today that the net pricing should be somewhere between plus 2% to plus 4% for the full year. And it will be mostly carryover. Now as usual, if we feel we need to do a bit more pricing, we will. We don't feel today that we will need to do a lot more pricing given again what we see about the price of raw mats and components.
The next question comes from Andre Kukhnin from Crédit Suisse.
Can I just start with following up on pricing? Firstly, you said [indiscernible] full year and then you said net. Am I right to think this is the kind of total price impact for the year of 2% to 4%, not net of inflation?
Yes. It's, of course not net of inflation. It's a price impact, pricing on our sales year-on-year. So it was close to plus 8% in Q1. It should be between 2% to 4% for the full year indeed. When I say net, it's all-in, including the rebates, discounts, everything. But of course, it's not net of price of raw mats and components. So sort of surplus you could get or the difference between the selling price and the purchasing price will, of course, depend on the evolution of price of promising covenants, which, again, we don't know for the full year 2023.
Sorry to be pedantic on this. Just on -- last one on price. Is that plus 8% in Q1 is a little higher versus what we expected. I think we discussed around 6% before. Is that the result of kind of deliberate actions during the quarter? Or is it just things like compensating for currency devaluations in places like Turkey and some other countries like Egypt?
Well, I don't remember that we have ever -- well, this is mainly the result of the carryover of 2022 pricing. Here and there, we did a bit more pricing punctually and targeted additional pricing whenever needed on some specific geographies and specific product families. It is not unexpected for us. And when we released our results in February, if I recall properly, we already guided for a price increase between 2% to 4% for the full year.
And this is, again, what we are guiding for in May so it makes all pricing, whether for Q1 or for the full year is in line with our forecast. It's a very reasonable pricing, which is important. I have the better release of a number of our listed peers. And a lot of companies have put a price increase stronger or higher than the growth. So I don't believe we are doing too much pricing. We remain very reasonable in terms of pricing. And this is what we have done for the past couple of years, and this is what we intend to continue to do.
Great. Yes, and it wasn't implied that you're overdoing it. I think you've been one of the most disciplined on that side. If I just may ask last question. On profitability level and your kind of really broader stands, not just kind of Q1-specific. Now that you are shooting clearly above the 20%, that has always been your kind of right level of profitability. And that's the case across the whole kind of peers spectrum as well. Did that change your mindset, your stance on what the kind of right level of profitability is for Legrand, given that everybody's overshooting on this? Or indeed, you will now think about kind of reinvesting that excess or notably excess profitability into growth?
Well, I'm not sure I understand your comment about our peers.
So before, you said 20% is the right level of margin for you, and now you're 22%. And that 20% level was set against the peer group that was clearly below. Now that peer group has stepped up because everybody is beating on margins through Q1. So I just wondered if that high level of profitability that you talked to yourself in Q1 and given that you relatively have not all extended yourself, does that change your stance on whether it has to be 20% or can it now be maybe 21%?
Okay. So if it is the quarter, broader comment than in Q1. So other one, I'm challenging a bit the fact that our peers will have caught up in terms of profitability. So if you compare apple-to-apple, our margin gap with our peers, manufacturing peers is between five to seven points. Again, apple-to-apple. Bear in mind that our EBIT margin is all-in, including exceptionals, [indiscernible] one-off and whatever. So we have a gap of five points with a 20% margin, number one.
Number two, but of course, I cannot comment the margin of our competitors in Q1 because some of them are not communicating on the margins. So number three mid-term, which is the most important, we remain convinced that the 20% EBIT margin, which you could cost being a 22% or 23% EBITA margin is indeed the right level of profitability. And maintaining this level is not such a easy exercise when you have to finance every year between 20 to 50 bps of [indiscernible] coming from acquisitions, and where you have to carefully manage your pricing in order to remain competitive and to keep investing heavily into innovation sales and so on. So it's not because we are indeed delivering this very solid 22-plus margin on a given quarter that our midterm guidance of delivering 20% will be changed. So it is still our guidance for the year, having in mind again that we are a bit ahead of our forecast in Q1. And number two, it remains our mid-term target for the years to come.
The next question comes from William Mackie from Kepler Cheuvreux.
My question would be initially around your fast-growing segments, data centers, energy efficiency products and connected products. You mentioned in your earlier statements, they were performing well in the first quarter. Could you give us a sense of the level of volume growth and revenue growth that you've experienced within the fast-growing segments?
Well, the volume was -- well, we had releasing the quarterly numbers with such a level of granular detail, but I can tell you that the volume growth for fast-growing segment, it's tablet. So it's growing very nicely.
Now you would argue that the [non-fast] segments are then going down in volume, which is indeed true. Now you have to bear in mind that, again, we are exposed to residential, 40% of our sales, which is something we are not ashamed of because we believe that the residential market has a long-term potential, which is significant. If you look at Europe, for example, the number of flats and houses is well below the level needed in many countries. France, Germany and so on. So we believe that very essentially the nice space to be seen, mid-term, but indeed in 2023, it's a part of the market, which is softer than the rest.
So we have, on one hand, on approximately 1/3 of our sales, volume going up double digits in fast-growing segments. And on the other hand, on 2/3 of our sales on the more, more traditional core infrastructure products, volume going down mostly because of residential. This is the pattern we can see here in Q1.
Benoît, the second question relates to the Americas. When I reviewed the trend in organic growth, it seems to have stepped down from the fourth quarter of about 13% to 4%. What did you interpret when you looked at the results? What's driving that step down? Was there a change mostly in the residential business? Or is there a shift in a lot of your nonresidential business exposed to commercial property, which we saw, I think, in 2020.
Well, so if you look at the three pieces of our North American business, residential, which is about 20% of our sales in North America is going down double-digit like-for-like. So it's a strong decrease, which is very much correlated to the softness of the residential market in the U.S., which somehow should start to recover in the quarters to come. When you look at the official industry statistics, specialists are not pessimistic for the residential market in the U.S. in '24, '25. But indeed, the beginning of the year is a bit tough, so down double digits.
Then we have data centers, 25% of our sales in the U.S., which are up double digits. And it is a continuation of the very positive trend we have seen for a couple of years now for at least, five years in a row. And then you have nonresidential, which is about 55% of our sales, which is slightly up like-for-like. And this is an area where we should grow faster indeed.
Nonresidential in the U.S., well, we are not really benefiting from the high area plan because we are not under the product families, which are impacted by the plan. We are somehow suffering from our exposure, which is mostly commercial offices, not warehousing. Of course, not facilities and so on and not exposed to big cities. So we have a market positioning in the nonresidential market in the U.S., which is not the one growing the fastest. So to explain why we have a slight growth in the nonresidential market. But you have a clear effect in trend, sales down double-digit in residential, slightly up in nonresidential and up double digit in data centers.
The final is just a follow-up on the pricing question. Maybe I'm pushing you too hard. You've given us a clear guide on 2 to 4 percentage points for the full year and were kind enough to share the 8 percentage points for Q1. How should we think about Q2 when we combine your carryover effects on pricing, plus perhaps some additional price measures you may or may not have achieved in the quarter?
Well, we just guide on the quarterly pricing. Of course, we have internal forecast, but even if I wanted to do so, it would be extremely complicated for me to get recently on Q2. What I can tell you is post the Legrand model. We will do some pricing in 2023. We will do the pricing we need in order to compensate the increase in price of raw mat and components. We will do the adequate levels so that we do not lose our competitiveness and we'll keep managing that very carefully. But again, I don't want to enter into a game whereby I will guide on a quarterly basis. Since most of the Q1 impact is coming from carryover, you can assume that Q2 numbers, Q2 pricing should be better than 2%. But it's a pure mechanical impact. Now how much will be precisely, I can guide you on that.
We'll now take the next question from Gael de-Bray from Deutsche Bank.
This week, Benoît, one of your competitors mentioned that they've been seeing a much higher number of large project announcements over the past couple of years. I mean, they said around 3x the normal run rate supported by reindustrialization and infrastructure plans. And apparently, these projects are more complex, obviously bigger but they also have a higher electrical content than, let's say, a typical office building.
At the same time, we see massive investments from utilities to support the energy transition and the electrification of the economy. So it seems there is a trend towards bigger investments, bigger projects and they are skewed towards infrastructure, utilities and things like EV manufacturing. So not necessarily areas where you're active. So I mean, my question is, long term, how do you think about the group's positioning? Do you intend to play a bigger role in the manufacturing, infrastructure or utility side of the electrical market at some point?
Well, the short answer, Gael, to this question is no, we don't because it is not our space. Utilities, medium voltage, manufacturing and automation and so on and so forth, it would be for the diversification, and we intend to remain a pure player of the building industry. Now building industry is not such a bad space to be. Well, you will argue that 7% organic growth could have been 12%, 13% or 14%. Indeed, I would have preferred to deliver a 12%, 13% or 14% organic growth, but it's not such a bad organic growth.
We are -- whenever we grow able to generate very significant cash flow and profitability. Significantly higher than the companies that are active in the space you are mentioning. The residential market will recover at some point, and it will be a strong boost in our top line. We have all the means to participate to fast-growing segments than going into utilities. Green building is an interesting space to be in. Data center is a fantastic space to be in connected products will provide a boost to our top line. So we don't need to enter into new verticals in which we have no legitimacy in order to experience good growth and good profitability.
Okay. No, that's very clear. Can I have a second one on margins? Clearly, you stand out this quarter. I think you delivered your highest first quarter ever on the margin side with an incremental of about 35% despite the lack of volume growth. So how shall we be thinking about the rest of the year? Are there any specific items that could potentially reverse as we move into the coming nine months? Or would you expect incremental margins to remain as strong as what we've seen so far in Q1?
Well, yes, I think I already answered this question. Pricing between 2% to 4% raw mats and component price should go up slightly. We will reinvest or invest into G&A in order to boost the growth, R&D, commercial expenses and so on. We will, of course, finance wage inflation. We will keep investing into restructuring. You may have seen that we spent, I think, €30 million in Q1 in restructuring expenses. We are usually spending between €20 million to €30 million on a yearly basis. You can already take for granted that we will be in the higher end of this range or even we will exceed this range because we keep working hard on optimizing our footprint, and that's it. And the mix of all that should lead us to our guidance. Now of course, if we can achieve more than 20%, that's what we did last year, that's what we did back in 2021, we'll be happy to do so.
Thanks very much. The next question comes from Aurelio Calderon from Morgan Stanley.
The first one is around the U.S. nonresidential business. I think you've talked in the past about volumes not being extended and actually volumes are probably being below breakaway levels. So I just wanted to confirm that's true, and how you think about that shape of growth going forward because on the one hand, you say that you're exposed to offices and some verticals are probably don't grow as fast as some of the others. But on the other hand, I think volumes for you compared to [indiscernible] are way lower. So any thoughts around that would be helpful.
Volumes indeed are lower than in 2019 in North America, slightly lower than in 2019, not by big, big margin. And indeed, we believe that the nonresidential market in the U.S., the one in which we operate, has not yet really recovered there was sort of six to 12 months short recovery somewhere between '21 and '22. But we still expect the market to recover. We don't believe that we will -- it's a mid-term issue. We have seen a number of signs showing that the markets remain healthy and with a number of potential, you have the energy transition, which is going to help us or may know that in the U.S., we are pretty much exposed to lighting controls and a number of products and systems that help making the buildings more and more efficient.
When it comes to audio/video and structure cabling, I believe that there will be at some point, an upgrade needed. Many commercial buildings to come up with a more solid and more efficient audio/video installation of structure cabling installation.
So there are a number of factors that could be, that could -- that will positively impact the residential market in the U.S. Now the uncertainty is, of course, shorter. What will the short-term markets do and the quarters to come? It's a big question mark. But midterm, again, the nonresidential space in the U.S. it's an interesting space to be, which will not benefit the same, let's say, public funding than utilities or [indiscernible] but it remains an interesting space to be somehow stable resilient to crisis. Profitable, cash-generative where market positions are not changing very fast. So it's not such a bad space to be in.
That's very helpful. And my second question is around faster kind of expanding segments. And I think you commented volumes were up double digit and that 1/3 of your portfolio. Is that being a part of the margin driver in 1Q? Or put it another way is there a meaningful margin difference between those product categories and let's say, more traditional product categories? Because I would have thought that in a more kind of, let's say, mature product categories, you would have had a higher margin than in the faster expanding ones.
No, there's no meaningful difference in margin between patent pending and [indiscernible] infrastructure. We have a 30% plus EBIT margin in both categories, and we have a 10% minus EBIT margin on both categories.
The main driver of our profitability remains a market share. So the different growth between fast-expanding and core traditional is not a driver behind our margin. Our nice margin in Q1 is really coming back on the fact that we've been able to maintain a solid pricing, again, close to 8% price increase versus about plus 2% of price in raw mat and components.
It gives a clear plus to the margin, as well as our ability to keep under control our expenses, production expenses and G&A in a high -- in an environment where wages are a bit under pressure. So those are the two ingredients behind the good margin. Solid pricing, as well as a good management of expenses. It has nothing to do with the mix between the fast expanding and traditional.
That's great. And if you can squeeze one very last question. I think your -- some of your comments on inventories or if you look -- if I look at your inventories there, not necessarily coming down in a big way despite that you're able to bring a very good free cash flow margin. So how should we think about that inventory normalization in the quarters to come? Or shall we not expect a big unwind this year?
Yes. I will maybe ask Franck to take this question.
Yes, of course. Thank you, Benoît. You're right saying that it hasn't went down sharply on Q1. Keep in mind that normally during H1, this is some seasonality effect. We are preparing the summer in Europe. So normally, inventory should grow during Q1 and Q2. As we're saying that, inventory to sales is close to was 16%. It was 18% at the end of -- 18.4% in Q1 of 2022. So to make -- to put it simply, we are on track to recover the historical level of the group within, let's say, two years. But the gain of Q1 is not the most impressive one.
We'll take the next question from Alexander Virgo from Bank of America.
Benoît, Franck, I wondered if you could talk a little bit about the different dynamics in Europe. We focused a lot on the U.S. this morning. And I think the disparity between what some of your peers have reported in the U.S. and what you've reported has been told across. I wondered if you could do the same for us in Europe because you actually seen acceleration in Europe from where you were in Q4. And I just wondered if you could talk us through some of the dynamics on again, same kind of verticals, if you could, resi, nonresi and country developments, please?
Sure. Well, I always ask you to be somehow cautious when comparing performance be between companies and so on and so forth. Because again, it depends a lot on our exposure, perspective to our industry peers. In the [significant] world, you have companies which grew 20% in Q1 organically, and you have companies which were down 10%, minus 10. So you have a lot of disparity between companies, and it's not a matter of market share. It's really a matter of exposure. The more exposed to residential you are, the more demanding the end markets are. The more exposed to utilities, automation and so on, the most supportive of the market. So you should really bear that in mind when comparing the performance between companies.
Now when it comes to your question, in Europe, well, the traditional -- the usual -- the way we look at our performance is usually country by country, not really by vertical. Now if we try to do by vertical I would say that residential is slightly up, which is a big difference to the U.S. And both data centers and nonresidential are up double digits. So slightly up residential, up double digits for data centers and nonresidential and the mix of all that is a nice double-digit growth in Europe.
I don't believe there is a strong deceleration in the U.S. in Q1 compared to Q4. I don't believe either that there's a strong acceleration in Europe in Q4 -- in Q1 compared to Q4. I would say that analyzing the quarterly performance in a market where you have a lot of distributors, a lot of contractors, different number of days and so on and so forth, it's a bit complicated. But this is different. Slight growth in residential, double-digit growth in nonresidential and data centers.
Last comment maybe, which is both for Europe and for the U.S. Actually, we have seen little bit of destocking in Q1 it was the case in France. It was the case in the U.S., it was the case in Italy, it was the case in a number of countries. Well, quite somehow difficult to quantify when it happened. And the feeling we have is that our distributors do not have a lot of money from [indiscernible] to do strong destocking because they don't have a very high level. They're not carrying a very high level of inventory. But in Q1, indeed, it had somehow a negative impact on our supply.
[Operator Instructions] We'll now take the next question from Lars Brorson from Barclays.
Benoît, I was going to follow up on Alex's question. Just on Europe, a bit surprised to see residential slightly up. Perhaps beyond Q1, you can talk a little bit about the sustainability of these trends. I was particularly surprised to see double-digit growth in Germany. But more broadly, looking forward in Europe, how do you assess these market trends? Italy is a big market for you. Seems to me that starts to moderate some as some of the government stimulus measures in the renovation market perhaps starts to fade. That would be the first question.
Just secondly, bigger picture on your residential segments. If I were to break down your 40%, it's around about, I think, 10 percentage points DIY; 10%, I should say, renovation by distributors; and then 20 percentage points, residential new build. I guess it's the latter that should see perhaps a bit more headwind during the quarter of this year. But maybe you could talk about some of the dynamics you see within these sort of segments and how you see them fair in 2023.
Okay. So starting with your first question. Actually, there's quite a difference between the geographies in Europe on the residential market. Indeed, this slight cost might sound a bit surprising. Well, it's in value and not in volume. In volume, it's down but you have a clear difference between markets such as, for example, Italy where the residential market is going up, somehow also supported and helped by some specific incentives on energy-efficient solutions. The German market is quite okay. The French market is a bit more under pressure. So there's a big difference between the market. You will also say that Turkey, for example, or Eastern Europe for residential market are quite okay. So it really depends on the market.
When it comes to the various components of the residential market, you have three parts, if I may say. The new houses, which is probably going down. And when you look at the statistics about housing starts, housing permits in many geographical areas in Europe, those are going down and went down last year. So this part of the market is clearly quite soft.
Second part of the market, the consumer-oriented products. So products sold into a DIY or small retail shops. And this part of the market is also quite, quite soft. And you probably have a number of consumers that are doing a sort of trade-off between buying a couple of certain brackets or switches to renovate a room and spending their money elsewhere given the pretty high level of inflation.
On top of that, on this specific end consumer market, you have some destocking from the consumer channel. And then you have the third market, which is a small innovation made by professionals, small contractors going to your place, innovative, I mean changing your panel board, renovating one room. This piece of the market is somehow resisting more than the two others. Now it's difficult to be more precise than that because the products sold to those different segments are most of the time quite the same.
Now second comment, this was by sort of a subvertical in the residential segment. If you look at the products, you also have a clear difference in the residential between fast expanding segments and products linked to electrification, which are growing nicely. And the other products more traditional, which are softer.
I can take one example, the CFP breakers in Europe is growing very fast, Because CFP breakers, whenever you install an EV-charging station, you need to upgrade your electrical panel board. So EV-charging station is growing fast. Electrical panel board is growing fast. Now you have more traditional electrical products like boxes, for example, tubes or even warring devices where the market demand is softer because of what I mentioned, i.e. consumer spending them on elsewhere than in DIY and because of the new housing starts being quite soft.
I don't know if we have -- again, I'm sorry not to be more precise on that, but we have so many SKUs that are going to the same end market. It's difficult for us to have more precise statistics.
We'll now take the next question from Eric Lemarié from CIC Market Solutions.
I got two or three actually, if I may. On the faster expanding segment, regarding the connected products, are you still constrained by the supply chain tension on electronic components? I know you -- it's been the case in the past, perhaps it is better now? And maybe if I can squeeze a second one on the nonresidential market in the U.S. Do you see any positive sign from the return from home dynamic or do you see that trend evolving in the right way? Or do you see anything at all?
In the supply chain front, it remains challenging to get the electronic components we want, especially the microcontrollers and a number of other products with long lead times. Tens and tens of weeks and purchase that are made under allocation. So sourcing in between components, we need remain challenging. And from the feedback we have from electronic manufacturers, it will remain challenging until the end of the year, 2023.
We have no visibility beyond the end of 2023. As far as the other components or raw mats are concerned, we are not facing any significant issues anymore. So we are able to get the plastics, the metals, the packaging and the other components we need. But it remains a challenge for electronic components, or some specific-targeted [in-between] components.
As far as the return from [indiscernible] is concerned, well, when you look at the numbers in the big metros, let's say you take the top 15 or 20 metros in the U.S. The networks are not changing much. And they remain significantly below most of European countries. In Europe, people have gone back to the office quite a long way in a number of industries in the U.S., the situation remains quite different in the tech industry, banking industry in a number of other industries. So we are not much seeing that now. This being said, again, we remain optimistic midterm, not only because it's return to the office will happen, but also because a number of those buildings will be refurbished in order to become hybrid buildings because you have, again, the energy-efficient expenses or to see expenses to make buildings quite efficient, will need to happen and so on and so forth. But short term, it has not happened yet in a big way.
We'll now take the next question from Jonathan Day from HSBC.
I was just wondering if I could follow up a little bit on Europe? And maybe if you could just give us a sense of sort of volume versus price in some of the areas of Europe. And then also maybe talk to what you're seeing in terms of wage inflation as well, please?
Okay. So we are not giving pricing by geographical areas for obvious competitive results. Now what I can tell you is that there is not such a big price difference within the regions. So each of the three regions we have or, at least, between North and America and Europe, have a level of pricing, which is not very, very different. So we are doing pricing in Europe as elsewhere.
As far as the wage inflations are concerned, it's slightly above 5% for Q1 at the group level. So this is more or less what we expected to have. We haven't had any bad surprise. I think that the level of wage inflation is somehow significant but it's also connected to the high level of inflation we have in many countries. But as you can see, it remains pretty much under control. And for the full year 2023, it should be somewhere between plus 5% and plus 6%. So it will remain well under control.
The next question comes from James Moore from Redburn.
Yes, Benoît, Franck, I wondered if I could focus on the U.S. And I think I'm right, and you said you didn't see any material deterioration in volumes, Q-on-Q in the U.S. And I just wonder when you look at the latest months following the capital slide of regional banks, are you seeing any commercial real estate stopping of projects or deterioration of volumes?
And I agree with the importance of understanding mix difference. That's a point I fully agree with. I think you said that your non res business splits in the past in order of importance, office, retail, education, health, hospitality. And you're small in warehousing, you don't really have oil and utilities and industrial. But could you give us a rough sense, given the importance of office retail at the moment, how much those categories really are within your U.S. nonresidential business?
Well, starting with the last question. Again, we -- I can tell you that the vast majority of our nonresidential exposure is for office building. We have, of course, a bit of retail exposure. We are selling to education, to hospitality, to health, but the vast majority cannot give you a precise number. The vast majority of our sales are made in office building in the U.S. resi. When it comes to the trend between Q4 2022 and 2023. Again, I don't believe that extrapolating a trend based on the numbers matter that merge because you can have -- end of last year, you had a bit of catch-up of the backlog we had because we were unable to ship or the products that were ordered by our distributors because we had difficulties to get the products, especially those manufactured in China. So the performance in the U.S. at the end of the year in Q4 was probably somehow a bit artificially boosted by this catch-up.
We are not seeing -- we're not expecting a strong deceleration in the U.S. because of the price of interest rate or whatever. So I would really be cautious in reading the Q1 numbers. I don't believe that they really mean that we have a strongly decelerating U.S. market. I think residential again remains very soft and not pressure. As far as the nonresidential market is concerned, slight growth in sales, a slight drop in volume. I wouldn't call that a deceleration. The fact is that it hasn't yet recovered and we hope it will in the quarter to come.
No, that's very helpful. If I was just to think about 75% of your U.S. nonresidential business being office when you say the vast majority. Is it that sort of magnitude?
I don't know. 75% is indeed the vast majority. I would love to give you more size number, but I don't know. That's my concern. When you say the switch to a distributor, you don't always -- and most of the time, we don't know actually where the switch is sold to. So I don't better -- it would be 70%, could be 75%, could be 80%, it could be -- it's not more than 50%, that's what I can tell you.
The next question comes from Jonathan Mounsey from BNP Paribas Exane.
I think when you were touching on Europe, just go back to that, I think at one point, you did say that volume was up -- sorry, volume was down, but value was up. Was that correct? And then that would imply then that pricing in Europe was quite a bit above the 8% that we saw at the group level? Am I interpreting that...
I cannot comment -- sorry, I didn't comment on pricing in Europe. I said that...
You said value was up and volume was down though. So implicitly, given the organic growth you reported in Europe. This was...
This was on the residential market in Europe. The residential market, the matter is up, the volume is slightly down. And the second comment I made, I said that the level of pricing in Europe is somehow consistent with the level of pricing we have in the U.S. But I didn't give a precise volume/pricing split neither for Europe nor elsewhere because it's not something we give by geographical area.
Can I ask then -- actually, the question I was going to ask in any case, around India. You mentioned it's growing strongly. How much of that is an easy comp? How much is structural? Could you give us a feeling, how important is India for Legrand now? I know it's becoming increasingly important for a number of companies. Is it approaching the top five market yet? Or is it still somewhere behind that?
Well, so the Indian market is up very significantly, both in value and in volume. We are very optimistic about the growth for the rest of the year. We believe that 2023 is going to be a very, very solid growth. We expect to have growth, double-digit growth there. And we think that this trend should continue in years to come. This is one of the markets which we believe has the most midterm potential. It represents about 5% of group sales. And this 5% will keep growing, it is one of the most favorably oriented market in 2023.
And by the way, of course, there's no easy comp. The softness of the Indian market was in Q2 '20 and Q2 '21 because of the COVID-19 crisis and the health situation there. But the year 2022 is not an easy base of comparison in India. It's a normal year.
No, it's really that Indian market is growing super fast. Residential, nonresidential, data centers. Actually, we have double-digit growth in each of the three verticals, and on top of that, we are gaining market share in India on our core product families, light switches, circuit breakers, single-face UPS. So no, the growth is not coming from any technical factors such as business comparison, but really the sound market situation as well as our own performance.
We will now take the next question from Delphine Brault from ODDO BHF.
I will limit myself to one with a very quick follow-up, if I may. Can you comment on your lighting business in the U.S.? How demand evolved in Q1? And what do you see going forward? And the second one, can you confirm the full year dilution expected from acquisition and the dilution from Russia? You said in the full year results, you said between minus 20 and minus 30 bps for acquisition, and between zero and minus 20 bps for Russia. Is it confirmed?
Yes. I will leave the second question to Franck. As far as the first question is concerned, where our lighting business in the U.S. is entirely nonresidential. We are not setting any lighting in residential nor in data centers. So it's for the past three or four years, it has had the same pattern as the other nonresidential business in the U.S. So as I said, it remains slightly below 2019 in terms of volumes. And we believe that at some point, this market will catch up. But no meaningful difference between the lighting business and the other nonresidential businesses such as the [indiscernible] capital management, the audio/video, the light switches and so on and so forth.
Meter, I confirm that it is a very interesting place to be, tied to the energy efficiency challenge that we are facing in nonresidential market, closely connected with our lighting control offering. You know that we are selling bundles between lighting fixtures and lighting controls. So it's an interesting space to be. But for past two or four years, it hasn't been very, very supportive as the rest of our nonresidential product going on in the U.S.
As far as your second question is concerned, yes, we confirm what we said on the full year basis. Current number is minus 20 bps each for Russia and for acquisitions, so minus 40 in total, and we confirm the full year assumption.
That will conclude today's question-and-answer session. I will now hand the call back over to Mr. Coquart for closing remarks.
Well, thanks a lot for your time and for your questions. And as usual, we remain at your disposal for further clarification on the numbers. Thanks a lot.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.