Rexel Sa Unsp/Adr

Good afternoon, this is the conference operator. Welcome and thank you for joining the Rexels fourth quarter and full year 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Guillaume Texier, Group CEO. Please go ahead, sir.

Good evening to everyone, and thank you for joining us today for our fourth quarter sales and Fulia 2023 results conference. Thank you also for making yourselves available at an unusual time. As you know, Rexel usually communicates in the morning, but there were a number of other companies issuing results tomorrow morning. So to help make your life easier, we moved the time of our call. We hope we are not spoiling your Valentine's Day plan. I'm here today with Laurent Delabarre, our CFO. I will focus on a few highlights on our performance. Laurent will give you greater granularity on our numbers, and I'll conclude with a progress report on our strategic roadmap as well as the outlook for 2024. So let's begin on slide three with the main takeaways of 2023. This was a record year by many metrics, but equally importantly for me, it was also a year of significant progress in our strategy. Indeed, as we will see in greater detail in today's presentation, almost all of our main metrics hit a historical high, like sales, profit margin, and free cash flow generation with free cash flow conversion significantly above guidance. Among other highlights, we also continue to execute our value-creating M&S strategy with very satisfactory results, as illustrated by Wasco in the Netherlands, and we did that while maintaining a very healthy balance sheet. And this performance allows us to continue to be a very shareholder-friendly company, and we are proposing today to maintain our cash dividend at last year's record level. So all in all, there are many reasons for satisfaction as we look back at our 2023 performance. The Rexel teams once again proved their ability to deliver profitable growth, and I would like to thank them for their engagement. What is particularly satisfying to me is that they achieved this in a more mixed environment in H2, where we faced a high 2022 comparable base with less of a booster from electrification categories. This is a great proof point of how resilient our model now is, benefiting from mid-term megatrends and delivering high profitability. This puts us on a very sound footing to achieve our medium-term ambitions. I will discuss this in the latter part of my presentation, but let's now focus in the coming slides on our 2023 key performance indicators that form the basis of our guidance. First of all, on slide four, we set a new sales record in 2023. Rexel's full-year sales came in at 19.2 billion euros, up from 18.7 billion euros one year earlier, representing same-day sales growth of 4.3%. That's perfectly in line with the upgraded guidance we communicated of growth in the upper end of the initial 2% to 6% range. This same-day sales growth benefited from several megatrends, notably electrification in Europe, more in H1 than in H2, as we will see later, and reshoring and stimulus plans in the US. Our growth led us to post market share gains in many key markets, underscoring the strength of our full service value proposition and the advances we continue to make in the digitalization of our business. But what's also very satisfying is that the acquisitions we have made, which have all been smoothly integrated, are increasingly becoming a regular contributor to our growth and to value creation. Second key performance indicator, adjusted EBITDA margin on slide five. Here too, we were at the record level of 6.8% above last year's already record level of 6.7% once restated for the one-off gains in 2022. This is in the upper end of the upgraded guidance of between 6.6% and 6.9%. On a reported basis and excluding one-offs, it represents an improvement of 13 basis points driven by two main factors. Firstly, operational excellence, and second, the accretive effect of our active portfolio management. And last but not least, free cash flow conversion on slide six. As you see on the graph, our free cash flow before interest and tax also reached a record, just shy of the 1 billion euro mark, demonstrating that the Rexall model is strongly cash generating. This excellent performance was the result of tight discipline in managing working capital, whether it's for inventories in North America, credit across the group, or capital expenditures. This translated into a conversion rate for our free cash flow before interest and tax of 73%, significantly above last year's 61%, and also way above our guidance of north of 60%. So all in all, we fully achieved the upgraded guidance we communicated at the end of H1, confirming that Rexel has made a step change in terms of profitable cash generating growth. And with that, I will hand over to Laurent for a detailed look at our Q4 sales and 2023 results. And then we return afterwards to talk about our strategy and our first take on 2024. Thank you Guillaume and good evening to all. Let's start on slide eight with the different building blocks of our Q4 2023 sales performance. Our sales of 4.7 billion euros were down 1.6% on a reported basis, notably impacted by an unfavorable 2.7% currency effect due to the variations of the US dollar and Canadian dollar versus the euro. The current impact is expected to be close to zero for the full year 24, assuming spot rates remain unchanged. in the quarter our acquisition strategy translated into a positive contribution of 2.1 percent net of disposals that more than offsets the minus 1.1 actual day sales decline the acquisition effect is mainly related to the impact of the wasco acquisition in the netherlands consolidated as of september 1st Based on already announced operations, we anticipate now the full year 2024 scope impact to be close to 1.7%. On slide 9, you see the selling price impact and the breakdown of our sales growth by geography. First, the 1.4% same-day sales decrease in Q4 included a broadly stable pricing contribution with non-cable selling price up plus 0.5%. offsetting copper base cable price contribution of minus 0.4%. By geography, we saw good sales resilience in North America at plus 0.4%, while Europe and Asia Pacific were down respectively minus 2.8% and minus 1.4%. I will detail Europe and North America in the next slides. So more specifically for Asia Pacific, accounting for 6% of group revenue. Our sales were down 1.4%, resulting from contracting situations. Asia was broadly flat, improving compared to Q3-23. China was helped by a favorable base effect due to strong COVID in Q4-22, which offset the price deflation in insurance automation products from temporary oversupply. Pacific was down 2.4%, largely due to New Zealand, a country representing less than 0.5% of group sales, but where sales were down almost 19% in a recessionary environment for the third consecutive quarter. Australia, on the other side, did well, up 1% in the quarter. Slide 10 focused on our performance in Europe. Our Q423 same-day sales evolution was down 2.8%, mainly from challenging base effects in electrification, notably solar, with negative price and volume. Selling price remained positive on non-cable products overall, thanks to positive trends in our core products. You have all the details in the press release on a country-by-country basis, so I will just highlight the key evolutions of the quarter. By country, we recorded market outperformance in France, Germany and Switzerland, and also in the Netherlands thanks to the Wasco acquisition. The situation remains subdued in Sweden and in the Netherlands, excluding Wasco. By end markets, the positive trends in industrial markets were mitigated by a lower demand in construction. On slide 11, we turn to our performance in North America, where same-day sales grew by 0.4% in Q4. Overall positive volumes were mitigated by deflation on commodity-related products, and notably conduits a situation comparable to Q3 23. In the US, SEMDE sells evolutions to that minus 0.1%, with strong resilience in commercial buildings and industrial automation, as well as good backlog execution, driving growth in project activity. By region, we gain market share in Mountain Plains and Gulf Central. Canada has a robust SEMDE growth of plus 2.9%, driven by both commercial and industrial activities. On slide 12, we see that we continue to enjoy a strong level of backlogs, which bodes well for the coming quarters. Similar to previous quarters, this shows the strong underlying demands reflected in good order intake and good backlog execution. Let me illustrate this with our backlogs in the US and Canada, which you see on the graph. As you know, backlogs represent a material part of the North American business at around 2.7 months of activity. And this gives us some visibility for part of our business in the coming courses. Moving to slide 13 to show the sales bridge for full year 23 before moving to profitability. Our full year 23 sales of 19.2 billion euros were up 2.4% thanks to a positive portfolio management impact with a net effect between acquisition and disposal of plus 0.5% and an actual day evolution of plus 4.2%. This more than offset the negative 2.2% impact from Forex. Zooming on the organic part, the 4.2% actual day growth is explained by a 2% volume contribution boosted by electrification, notably in H1, both in Europe and North America, a plus 3.2% non-cable price contribution with selling price on our core products more than offsetting the few pockets of deflation, and a minus 0.9% copper-based cable contribution largely in North America. On slide 14, we show you now the building blocks that led to the record adjusted EBITDA margin of 6.8% in 23. Excluding the one-off gain of 66 basic points, we reported an adjusted EBITDA margin of 6.7% in full year 22. From that starting point, our adjusted EBITDA margin has improved by 13 bits to 6.8 from first, a positive impact of 16 basis points from portfolio management, notably resulting from the accretive effect of the WASCO acquisition in the disposal of our activities in Norway. Second, a broadly stable evolution on a comparable basis that can be explained as follows. OPEX inflation had a negative impact, largely from salary inflation for minus 45 basis points and other costs for minus 34 basis points. The overall inflation stand at plus 3.9% with 5.4% from wage increases and plus 2.3% from other OPECs including billing and occupancy, transportation and lease. And this inflation was more than offset by the plus 76 basis points positive impact from our action plans And more specifically, our operating leverage in H1-23, driven by electrification and our internal pricing, as well as our productivity action plans in H2-23 in a lower volume and pricing growth environment. And by geography, Europe posted an adjusted EBITDA of 7.2%, largely resulting from gross margin improvement and OPEX control broadly offsetting OPEX inflation. North America on the other side posted an adjusted EBITDA margin of 7.4%, coming from operating leverage and productivity gains that have mitigated OPEX inflation. Asia Pacific improved significantly at 3% from internal actions in Asia and tight credit control. On slide 15, we look at the bottom line part of our P&L, with a zoom on other income and expense, financial expense, tax rate, and recurring net income. Other income and expense to that minus 45 million euros and can be split as follows, minus 24.1 million from acquisition and integration cost and capital loss on disposal, minus 10.3 million from goodwill impairment, minus 12.9 million of restructuring cost, largely to support logistic transformation in countries where we opened automated supply chain solutions. Financial expense to that €168 million, higher than last year, resulting from the rise in gross debt and interest rates. It includes €55.6 million of interest on lease liabilities and pure financial costs of €112 million. The effective interest rate increased to 3.7%, compared to 2.3% in 2022. And for 2024, we anticipate financial expense of circa €130 million, excluding one-offs and interest on lease liability in a context of rising interest rates and assuming current interest rate conditions remain unchanged. In addition, interest on lease liability should be close to €65 million in 2024, adding WASCO full-year impact. So a total of circa 195 million euros of financial results expected for full year 24. Our income tax rates to that 26.1%, broadly similar to the 25.7% in 22, excluding one off. And for 24 onwards, we anticipate the tax rate to be slightly below 27%. As a result, our recurring net income was €823 million, compared to €912 million in 2022, but this amount has benefited in 2022 from a record high inflation tailwind on non-cable products. Moving to cash flow on slide 16, we generated robust cash flow before interest and tax. reaching 996 million euros and free cash flow conversion of 73% above guidance. This record level of free cash flow generation results from our outstanding operational results combined with stable trade working capital to sales at 14.1%. This has been achieved thanks to good inventory management in North America, tight credit control across the group, as well as good control on capex, standing at 0.8% of sales in line with 2022. Also note that the change in non-trade working capital was an outflow of 104 million euros, significantly higher than last year, notably explained by the cash out of 2022 performance-linked bonus and commission, especially in Q4 of last year. As shown on slide 17, Post cash out of €429 million from net interest paid and income tax paid, free cash flow after interest and tax reached €568 million and was allocated as follows. A cash out of €561 million from net financial investment, corresponding to the net effect between acquisition, notably WASCO, and the cash received from the disposal of Norway. We paid 362 million euros in dividends related to 2022 results. We repurchased 134 million of shares in 2023 to offset free share dilution and reduce the number of shares. And at the end of 2023, the number of shares to that 300.7 million versus 303.4 million in 2022. All this leads to an increase in net debt level of 503 million euros, reaching 1.9 billion. And we maintain a healthy balance sheet with an ineptiness ratio of 1.33 times. Let's turn on slide 18 to our balance sheet and liquidity picture. The year 23 was very active in terms of financing. Let me share with you the main operations. First, we extended the maturity of circa 600 million of receivable securitization in France and Canada and started a new program in Australia. They all have a 2026 maturity. Second, on January 23rd, 2024, we signed a new senior credit agreement due January 29 with the following terms. The amount stands at 700 million euros with a five-year maturity with an option to extend it twice by one year. We kept our core banks in the banking pool. We moved from a leverage grade to a rating grade, more in line with investment grade credits. Lastly, and as already shared in our Q3 presentation, we successfully issued in September a new sustainability link bond for 400 million due 2030. With our strong balance sheet and liquidity close to €1.5 billion, we have no short-term refinancing needs. On slide 19, we present our proposed dividend for 2023 financial year to be paid in 2024. Rexel will propose to shareholders to maintain the dividend at the record €1.20 per share paid last year, a level that is three times the amount paid in 2016. It remains of course subject to the approval of the annual shareholder meeting to be held in Paris on April 30th. This represents a payout ratio of 43% in line with our dividend policy. It offers a 5% yield based on today's share price. With this, let me now hand back to Guillaume to discuss our 2024 outlook and priorities. Thank you very much, Laurent. I would now like to provide you with a quick status report on the advances we have made in our transformation journey through the Power Up 25 plan. Indeed, those good 2023 results were not obtained by luck or happenstance, but through action plans, which allowed us to gain market share and improve underlying profitability. This is a satisfaction for the teams and also for the CEO, but more importantly, this gives comfort that we will continue to deliver in the future. Rexel has a clear ambition to be a tech-driven, best-in-class B2B distributor. And as you see on slide 21, this rests on two main pillars, a solid digital organization and a state-of-the-art supply chain. We have made strong advances in 2023 in both areas. Digital sales account for 28% of the total in 2023, a four-point gain over 2022, and in line with our objective of 40% in 2025, with seven countries already above this threshold. As for automated distribution centers, we have set a target of tripling them by 2025, and at the end of 2023, we had nine automated DCs versus six one year earlier. Let's zoom in on those two pillars on the next two slides. As you see on the graph on slide 22, Rexel has been steadily ramping up on digital, and in Q4 of 2023, digital accounted for 30% of our total sales, two points above the average for the year, showing that the pace is even accelerating. In two key geographies, we have crossed symbolic thresholds, with Europe now exceeding 40% of digital sales in Q4, and North America crossing the 20% barrier. In fact, digital is becoming a way of life for our customers, and our strengthened online presence, combined with our physical branch network, gives Rexel a unique value proposition. In all European countries, for instance, our full range of products is available in day plus one. The digital ramp-up is not just a self-driver that allows us to gain market share, but it's also a reservoir of efficiency and productivity for our operations. And with GenAI, we are going to make a new step change as it will allow us, for instance, to improve segmentation and customer targeting, to enrich our data, optimize our inventory, and further enhance productivity. Those are very exciting prospects. The second pillar of operational excellence is the supply chain and on slide 23 we provide you with three examples of newly opened automated DCs. Each fills a specific role within the country and those projects are therefore a good sample of why we invest in our supply chain. In Germany, the new distribution center located around Frankfurt allows us to expand our footprint and add inventory capacity. In Austria, The automated DC solution increases customer proximity and raises our service level around Vienna. And in the UK, it has allowed us to switch distribution models and improve customer delivery to day plus one. In all three cases, we are targeting better service to our customers, therefore above market growth, and also operational efficiencies for ourselves. A second key element to be a best-in-class B2B distributor is to focus on fast-growing markets. as shown on slide 24. And we are doing this in two ways. First, by positioning Rexel on electrification trends, where we aim to grow at twice the pace of our traditional electrical distribution business. In 2023, I would say mission accomplished, with growth of about 4.3 times in this segment. Second, by making acquisitions that position us in growth segments or in adjacencies that allow us to accelerate growth. We set a target of adding up to 2 billion euros in sales through acquisitions over the 2022 to 2025 period and midway through the plan, we are at the halfway mark with about 1 billion euros in cumulative sales added since our capital market day in June 2022. Again, let's double click on these in the next two slides. On slide 25, we take a closer look at the evolution of electrification trends over the past few years. This is an updated version of the same slide I showed last year. What it highlights is how several drivers combined in the last three years to grow electrification. Energy prices, government policies and incentives, corporate net zero agendas, and reshoring trends. In the mid-term, I see each one of those trends strengthening. I commented last year on the International Energy Agency scenarios highlighting the fast growth of energy consumption in the next decade, photovoltaic panels, heat pumps or EV chargers. Nothing has changed here and we will benefit from this. What strikes me in particular is how strong corporate agendas among all drivers are now pushing ahead. This will drive the whole economy in the direction of accelerated electrification. Now, when it comes to 2024 specifically, we will have to face a high comparable base, especially in H1. All drivers are still there and active, But what we have seen in the last few months on the market is a little bit of a wait-and-see attitude, especially when it comes to PV. So in summary, a clear mid-term growth engine, but a little bit less visibility in the very short term. On slide 26, we look at our active portfolio management, and more specifically, our acquisitions, which have become a powerful growth engine in their own right. As you can see, since 2021 and through today, we have carried out a total of 11 acquisitions, acquiring in the process 2.3 billion euros in sales. Those acquisitions have contributed on average 4% sales growth per year since 2021. These transactions represent either synergistic consolidation that grows our market share in our core electric distribution activities, or growth in adjacencies that strengthen Rexel's portfolio in both Europe and North America. They are positive from a financial standpoint, with EBITDA margin of the net acquired activities above group average, and a strategic one as we focus on fast-growing geographies and segments. We are very happy with those acquisitions, their timing, and the way their integration is taking place. Overall, the synergy ambitions that we have set have been exceeded. So these transactions materially enhance the group's growth and profitability profile and reinforce its capabilities to address the challenges and opportunities of the energy transition and electrification trends. All the elements I have described in the previous slides converge to deliver or even over-deliver the financial targets we have set, as you see on slide 27. I will not dwell long on this as we presented this in the introductory section, but there are two main messages I would like to share with you. The first is that Rexel is perfectly on track to achieve the medium-term ambition that we announced in 2022 at our Capital Market Day. Our performance, both in 2023 and to date since the launch of the plan, is either fully in line or above target. That's the case, notably, with our same-day sales, where we set a compound annual growth rate of between 4% and 7% on average over the 2021 to 2025 period, and to date we are at 9.2%. The second message is that these metrics show that Rexel's upgraded model is profitable, cash-generating, and resilient. Meeting or exceeding our financial targets also allows us to achieve another ambition we have set out, to be a shareholder-friendly company. And as shown on slide 28, we are not only fully in line with our medium-term ambition, but have also made progress in 2023 versus 2022. We said we wanted to pay out at least 40% of our recurring net income as dividends. And for 2023, as Laurent just mentioned, the dividend we are proposing of 1.20 euros per share amounts to a payout ratio of 43%, above the 40% we distributed in 2022. We also said we intended to carry out a share buyback program of 400 million euros over the 2022 to 2025 period. And we are halfway there at the end of 2023, up from 17% completed at the end of 2022. We will continue to implement our share buyback program with at least 100 million euros in 2024, seizing the opportunity of what we consider is a low multiple of our share. So Rexel is clearly walking the talk. Let me now turn to our 2024 outlook. And let me begin on slide 30 by painting the backdrop in which we will be operating. Overall, 2024 will be a bit of a mixed picture in our market. Commercial construction, which accounts for about 40% of our business, should be quite dynamic, notably in North America, even if some subsegments, like office buildings, will continue to feel the impact of interest rates. Industry, which is a bit under one-third of our exposure, will also see positive trends boosted by reshoring and stimulus plans in some countries. Residential renovation, which accounts for about 20% of our activity, will probably start to feel the impact of a slowing construction cycle, but this will be partly offset by energy renovation trends. And new residential, the remaining 10% of our exposure, will see continued weakness across Europe. Let me also remind you that we will be facing a high comparable base on electrification categories in the first half, but this will ease as the year progresses. And conversely, we will continue to benefit from a tailwind from backlog execution in North America. Again, this backdrop, as you see on slide 31, Rexel plans to continue to deliver strong and resilient profitability, benefiting from the continued positive effects of our optimization plans. In my two and a half years as a CEO, this has been the number one question in road shows. Can you maintain your EBITDA percentage level? H2 proved it, and 2024 will be another good data point. Indeed, Rexel has made a number of structural changes in the past couple of years that are paying off. As I said, the improvement that was obtained through hard work and transformation, including a number of actions that we mentioned throughout today's presentation. First of all, active portfolio management to focus on growing and profitable segments or geographies. Second, continued digitalization, which boosts our efficiency and productivity. Third, the continued rollout of targeted value added service to drive market share gains and volumes. Fourth, our continued ability to pass through inflation to prices. And finally, very strong cost and cash discipline, which has become a Rexel trademark with outstanding results this year. So our level of profitability is solidly established, and the good thing is that we can still progress from here, as many levels are still insufficiently optimized, as you can read in the second part of the slide. This is exciting for me, this is exciting for the teams, and this should be exciting for you too. So how does this translate into numbers? On slide 32, you see our full year 2024 outlook. Concerning top line, we anticipate stable to slightly positive same-day sales growth while facing a high comparable base in the first half. Concerning profitability, we expect adjusted EBITDA margin to reflect the resilience I just highlighted at between 6.3% and 6.6%. And we expect to continue generating strong cash flow with a conversion rate of EBITDA into free cash flow before interest and tax above 60%. To close, I would like to tell you that I'm very proud of our 2023 results. Our strategy is paying off, our transformation is delivering, and we are demonstrating it quarter after quarter. This is the reason why we are entering 2024 with appetite, conscious of the mixed environment, but also very sure of our strengths. In conclusion, our performance today puts us in a very good place to achieve the 2025 ambition that we presented in June 2022. These were encapsulated in the Power Up 2025 plan that is based on two main pillars, excelling on fundamentals on the one hand, and striving to be a differentiated leader through a value-added offer on the other hand. Through our Power Up 2025 action plans, we have established a new baseline of performance, and we will continue to deliver superior service to our customers and superior return to our shareholders. We remain fully focused on these drivers, and the action plans that we have launched are proving very powerful as our 2023 performance highlights. 2025 is tomorrow, so it's time for us to update our strategic roadmap, and I'm pleased today to extend an invitation to all of you to join us in Paris on June 7 for a new Capital Markets Day. We will, of course, provide you with full details in due course. So now, thanks for your attention, and Laura and I are now happy to take your questions, and I'm sure there are many.

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