Legrand SA, the world’s largest maker of wiring devices, said it has the financial strength to spend more than 500 million euros ($666 million) on acquisitions this year after reporting record earnings in 2012.
“Generally we spend 400 to 500 million euros a year on acquisitions without affecting our balance sheet, thanks to a strong cash flow,” Chief Executive Officer Gilles Schnepp said at a press conference today. “It’s a model that has worked well, but if you look at our history there are years when we spent more. There are no taboos.”
Legrand’s debt fell 15 percent last year to 1.08 billion euros as net income climbed 5.6 percent to 505.6 million euros, the company, based in Limoges, France, said in a statement today. Analysts estimated profit of 505.4 million euros, according to data compiled by Bloomberg.
Legrand, which makes switches, plugs and lighting controls, has said it may spend about 400 million euros on acquisitions annually as part of a plan to grow by 10 percent a year from 2011 through 2015. The company is targeting an adjusted operating margin before acquisitions of 19 percent to 20 percent of sales in 2013, after 19.9 percent in 2012.
“We note the margin guidance excludes the impact of acquisitions, which supports our view that the group should embark on a large M&A operation this year,” Societe Generale analysts said in a note today. They “see the prospects of accelerated M&A as good news.”
Sales increased 5.1 percent last year, as the purchases of four companies added 4.5 percentage points, Legrand said. Like-for-like sales dropped 1.4 percent, and exchange rates had a positive impact of 1.9 point.
“We’re still very much willing to reinforce the group’s positions through external growth,” Schnepp said. “We’re favoring companies with leadership positions.”
Legrand forecasts organic growth in sales this year to be between a 2 percent drop and a 2 percent gain amid a “solid pickup” in U.S. residential construction, European economic woes, and uncertainty about when emerging markets growth will accelerate further, Schnepp said. Legrand’s exposure to new home sales accounts for “a bit more” than 20 percent of revenue, the CEO said.
Adjusted operating profit as a proportion of sales, including small and medium-size acquisitions, will average 20 percent from 2011 to 2015, the company reiterated today. Legrand will pay a dividend of 1 euro a share this year, a gain of 7.5 percent.
The stock, which has advanced about 32 percent in the past 12 months, slipped 1.1 percent to 33.66 euros as of 4:32 p.m. in Paris.