Rexel Sa Unsp/Adr

And thank you for joining the Raxos second quarter sales and H1 2024 results presentation. 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 the telephone. At this time, I would like to turn the conference over to Mr. Guillaume Texier, Group CEO. Please go ahead, sir.

Thank you. Good morning to everyone, and thank you for joining us today for our second quarter sales and first half results conference. As usual, I'm here today with Laurent Delabarre, our CFO. I will focus on a few highlights of our performance. Laurent will give you greater granularity on our numbers, and I'll conclude with a confirmation of our outlook for 2024 and a few considerations on the follow-up of the strategic roadmap we presented at our recent Capital Market Day. So, in the first half of 2024, we evolved in challenging market conditions, especially in Europe, and I will come back to that. In this environment, we delivered what I consider a very solid performance, leveraging our transformation and the different levels that we put in place as part of our power-up strategy. This is captured in the five key figures that make up slide three. First, our reported sales stood at 9.6 billion euros in the first half and progressed by 1.8% in Q2, a clear improvement to Q1, which was down 4.5%. And here, we see the results of our steady acquisition strategy, in particular the acquisitions of Tally in the US and Wasco in the Netherlands, which are respectively increasing our exposure to Datacom and heat pumps. I should say that in both cases, we are very happy with the integration. Second, on the same day basis, ourselves also showed an improving trend in Q2 versus Q1, and in the half, down a limited 3.5%. Third, Our adjusted EBITDA margins stood at a solid 6%, supported by our productivity gains and cost initiatives, as we will detail shortly. We are proving that we can stay way ahead of our profitability standards from the years 2010 to 2020, even in tough conditions. Fourth, we posted a free cash flow before interest and tax of €335 million, which is a historical record in euros. This represents a 53% conversion rate, which is also significantly above our norm in the same period of the years in previous years. The cash culture we have put in place over the last few years is clearly paying off. And last but not least, our independence ratio stands at 1.9 times, even after the payment of the recent Tally acquisition, the payment of the dividend, and some share buybacks, which gives us ample flexibility. Let me give you some more granularity on our sales trends by geography on slide 4. Same-day sales were resilient in North America with slightly positive volumes. Both in the US and Canada, the market environment is fairly supportive, in particular in some verticals like data centers or infrastructure, and we expect this to remain true in the next few quarters. We also continue to have a high backlog both in Canada and in the US, and what is interesting is that this backlog continues to be replenished quarter after quarter, even after good execution in Q2. This gives us a good cushion of visibility equivalent to approximately three months of sales. In Europe, markets were more challenging in continuation with the trends we had seen in Q1. There are mostly three reasons to that, which will not be new to those of you who have listened to the last few quarters' call. One, the electrification-based effects, especially in the dark region and northern Europe, which is however easing quarter after quarter. Second, higher exposure to residential, and third, the macroeconomic and political situation, which is not helping in several important countries. This leads also to price and margins being slightly down, as is typical in this type of environment, and you will see that on the next slide. Finishing on a more positive note, just like in North America, we saw sequential improvement between Q1 and Q2, coming mainly from the improvement of the comparison base. Asia-Pacific also showed an improvement in Q2, notably driven by China, whose same-day sales were up 8.9% in Q2, reflecting more favorable volumes in electrification. Slide five focuses on the price and volume breakdown of our sales by product family and by quarter to give you a better idea of the dynamics we are seeing. The table allows us to highlight a few trends. First, our core LED business, including cable, is progressing both in price and in volume, going respectively from minus 1 to minus 0.6 in contribution and from minus 0.7 to plus 0.2 in contribution. Cable contributed strongly to the price component improvement, as could have expected based on base effect and copper evolution. The electrification market remains challenging, but improved sequentially with a minus 2% contribution to same-day sales evolution in Q2 after minus 2.8% in Q1-24, notably driven by better volume. Prices remain negative in Q2, but it's important to remind that this deflationary situation is limited to a few categories, notably solar panels and industrial automation in China. Moving to slide six. We turn to the final full slide of the equation, highlighting our resilient profitability and our record free cash flow generation. As mentioned on the first slide, our adjusted EBITDA margin came in at 6% in H1, despite the challenging top line environment, which confirms that Rexel has made a step change in terms of profitability, thanks to a number of action plans that we put in place in most countries, focusing notably on three types of initiatives. One, optimizing growth margin through initiatives on pricing, mix, or purchasing conditions. Two, boosting productivity with a headcount reduction that broadly matched the volume decrease. And three, value sections on OPEX, which were down more than 2% in H1, despite cost inflation. Our performance was also driven by the positive impact of the different power-up levels that we outlined at our recent capital market day, notably the use of data, the ramp-up of digital, the increased automation of our supply chain, or value-creating M&A. Another very satisfactory sign of our H1 performance was our record free cash flow generation for the period. The conversion rate, as I mentioned, of 53% is significantly above the level of that stage of the year in previous years. This is notably the result of great responsiveness in inventory management to adapt fast to lower demand, combined with sound credit management. All this allows us today to confirm our full year 2024 guidance, which we expect to be in the lower end of the range, given the environment, as I will detail in my concluding remarks. But for now... Let me first hand over to Laurent to take you through our financials.

Laurent, over to you. Thank you, Guillaume, and good morning to all. Let's start with the different building blocks of our Q2 24 sales performance. Our sales of €4.9 billion were up 1.8% on a reported basis, a positive performance achieved thanks to our acquisition strategy, which contributes for plus 3.4% and offset the minus 1.9% evolution in actual day sales. The scope impact includes a positive contribution of Wasco in the Netherlands and Tally in the US, which is consolidated since the 1st of June. And for Fall year 24, we anticipate the scope effect to be at circa 2.5% based on already completed acquisitions. The currency effect stood at plus 0.3% in Q2-24 and is expected to be broadly flat for the full year, assuming spot rates remain unchanged. On slide 9, you see the selling price impact and the breakdown of our sales evolution by geography. First, non-cable selling price stood at minus 1.1% in Q2-24, reflecting deflation on solar panels Piping in North America and initial automation in China. Cable price stood at minus 0.4%, improving compared to Q1-24, benefiting from the first effect of a more favorable copper price. And by geography, we saw good sales resilience in North America at minus 0.9%, and a recovery in APAC at plus 4.1%, while Europe improved compared to Q1, but was still negative. I will detail Europe and North America in the next slide. And more specifically for Asia Pacific, accounting for 7% of our group sales, China recovered at plus 8.9%, reflecting the more favorable volume trend in industrial automation on an easier base effect, while the temporary oversupply situation remains unchanged. And moving to Pacific, the region was up thanks to Australia, driven by residential and non-residential end markets. The country further focused on digital sales, almost reaching the 20% threshold. Slide 10 focused on our performance in Europe. Our Q2-24 same-day sales were down 4.5%, improving compared to the minus 6.9% posted in Q1-24, mainly from an easier base effect in electrification, notably solar. Our core ED business, including cable, was down a limited 1.1% in contribution, improving compared to Q1-24, down 2.9% in contribution. Overall, demand in Europe remains mute, with sequential improvement, notably in the Nordics and dark regions. And more specifically, let me highlight the key evolutions of the quarter. We further outperformed in France in a challenging market environment. Demand in HVAC remains impacted by the lack of regulatory visibility and difficult base effect. It's also interesting to note that solar benefited from positive momentum in this country. The trend in Benelux are very similar to the first quarter on electrification and corrugation. And same thing in the UK, where we recorded a similar trend to Q1, when we stated for the large public project with the Department of Education, executed in 23. On slide 11, we turn to our performance in North America, where some day sales were down a very limited 0.9% in Q2, thanks to the core business, including cable, and the initial automation business. Similar to Q1-24, activity continues to be boosted by good backlog execution. Our order intake is also positive in the quarter, which bodes well for coming quarters, both in the US and in Canada. More specifically for our two countries, in the US, same-day sales evolution stood at minus 1%, with resilience in non-residential and industrial mitigating lower demand in ED in industrial buildings. Our diversified portfolio of non-residential activity remains a strong factor. We continue to benefit from favorable trends, for example, in data center or water wastewater. It's also worth noting that residential activity showed signs of improvement. Canada saw same-day sales evolution of minus 0.5%. driven by project activity non-residential and specific industrial segments such as manufacturing and automotive. The backlog grew by more than 4% compared to Q1 24, which is a positive for the second part of the year. On slide 12, we show you the building blocks that led to the adjusted EBITDA margin of 6% in H1 24. Of course, we built the bridge versus H1-23, but before commenting on, another good point of comparison is the adjusted EBITDA posted in H2-23 at 6.4, as it was in a more normalized volume and price environment, with same-day sales growth in H2-23 of plus 0.6%. And compared to H223, our adjusted EBITDA margin is only down 40 basis points in a more challenging volume and price environment, which confirms the transformation of our company. So returning to the bridge, our adjusted EBITDA margin has decreased by 130 bps to 6% from first an operating deleverage, impacting our profitability by 58 basis points, reflecting the drop in actual day sales of close to 4% in the first half. Second, the impact of 84 basis points at gross margin level, explained by the negative selling price evolution this year, compared to a still exceptionally high pricing contribution, a non-capable product of plus 5.7% in H1-23. Our 25% gross margin this half is very similar to the level generated in H2-23 at 25.2%. OPEX inflation had a negative impact largely from salary inflation for minus 35 basis points and on other costs for minus 10 basis points. Overall inflation stood at plus 2.3%, with plus 3.9% from wage increases and plus 1.3% from other OPEX including building and occupancy, transportation and leases. This OPEX inflation was more than offset by the plus 52 basis points positive impact resulting from our action plans and more specifically cost savings productivity gains, and better credit management. As an illustration, we have reduced the number of people by 400 in June 24 compared to June 23, mainly temps and interim functions. And by geography, Europe posted adjusted EBITDA of 6.1%, down 197 BIPs, explained by self-decline combined with higher exposure to the deflationary solar activity mitigated by active OPEX management. On the other side, North America was more resilient, with adjusted EBITDA margin at 6.8%, down a limited 79 basis points, thanks to a better top line and a more resilient growth margin. On slide 13, 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 limited minus 6 million euros, including circa 4 million euros on restructuring. Financial expense to that 96 million euros, higher than last year, resulting from the rise in gross debt and interest rates. It includes 31 million euros of interest on leased liabilities and a pure financial cost of 65 million euros. The effective interest rate increased to 4.3% compared to 3.4% in H123 in a context of rising interest rates. And for 24, we anticipate financial expense of circa 140 million euros, including one-off and interest on leased liabilities, and assuming current interest rate conditions remain unchanged. In addition, interest on lease liabilities should be close to 65 million euros in 2024 due to WASCO, so a total of circa 205 million euros of financial results expected for full year 2024. Our income tax rates to that 26.6%, similar to the 26.7% in H1-23, excluding one-off. And for 24 onwards, we anticipate the tax rate to be below 27%. And as a result, recurring net income was €341 million, compared to €455 million in H1-23. Moving to cash flow on slide 14, we generate robust cash flow before interest on tax, reaching an all-time high level of €335 million, implying a free cash flow conversion rate of 53%. And as a reminder, this is compared with free cash flow that was historically at break-even or slightly up before interest and tax in H1. This record level of free cash flow generation resulted from our operational results combined with a significant cash inflow from working capital management, and more specifically, responsive inventory management adapting fast to lower demand. Also note that the change in non-trade working capital was an outflow of 78 million euros, significantly better than last year, as H1-23 was impacted by the cash out of 2022 higher performance-linked bonuses and commissions. Lastly, the capex-to-sell ratios stood at 0.6% in line with H1 last year, a confirmed mid-term ambition of 0.8% of sales on a full year basis. As shown on slide 15, net debt increased by €768 million, mainly resulting from the cash-out of €413 million from net financial investment, mainly for the Tally acquisition. It includes a non-cash earn-out of circa 80 million euros that will be paid only if the team delivers on an ambitious business plan. The dividend payment relative to 2023 results for 357 million euros, share repurchase of circa 50 million euros. All these lead to a net debt of close to 2.7 billion and an indebtedness ratio of 1.9 times. Let's turn now on slide 16 to our balance sheet and liquidity picture. In H1, we continue to actively manage our balance sheet and diversify our investor base. On July 2nd, we issued 200 million euros in a short-term private placement market in two trenches. The placement was oversubscribed by French and international investors, leading us to double the initial targeted amounts. The first range is a three-year floating rates note for 80 million euros, and the second is a five-year floating rates note for 120 million euros. We decided to issue ShoeShine to diversify our investor base, to issue a smaller than usual amount, and also because it's more flexible in terms of maturity. Following this operation, our liquidity is close to 1.1 billion euros, and we have no short-term refinancing needs. With this, I will hand back to Guillaume.