Rexel Sa Unsp/Adr

Good evening ladies and gentlemen and welcome to the Rexel second quarter and half year 2025 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 of Rexel. Please go ahead, sir.

Thank you. Good evening, everyone, and welcome to Rexel's first half 2025 results conference. Thank you for joining us today, especially during this busy results season. I'm here with Laurent Delabarre, our CFO, and together we'll take you through the key highlights of the first half and the second quarter, a period that saw Rexel gain momentum with accelerating sales growth driven by stronger volumes in North America and continued progress in our digital transformation. After a brief overview of our operational and strategic highlights, including our resilient profitability, strong cash conversion, and the successful execution of our M&A strategy, Laurent will provide a detailed review of our financial performance. I'll then return to discuss our outlook for the rest of 2025 and share an update on the additional initiatives we've launched to support our mid-term ambitions as outlined in our Accelerate 2028 roadmap. and we'll then be happy to take your questions. Let's get started. Let me walk you through our key highlights for the first half of 2025, which clearly demonstrate Rexel's ability to deliver robust results in a mixed environment. First, sales for H1 reached 9.8 billion euros, up 1.6% on a same-day basis. This positive momentum accelerated in the second quarter with growth of 1.8%, primarily driven by a recovery in volumes in North America. In contrast, the European environment remained challenging, with software demand persisting across several markets. On pricing, we saw a plus 0.9% increase in non-cable selling prices in Q2, reflecting the first positive impact from U.S. tariffs and our ongoing pricing disciplines. Digital sales continue to be a strong growth level, accounting for approximately 34% of total sales in Q2, up nearly 200 basis points year-on-year. This ongoing shift towards digital is not only supporting top-line growth, but is also laying the foundation for future productivity gains. Free cash flow before interest and tax was €251 million, representing a 42% conversion rate, significantly above our five-year H1 average. Even after the exceptional €124 million payment of the French Competition Authority fine in April, which we have appealed, free cash flow before interest and tax stood at €127 million. Turning to profitability, our current adjusted EBITDA margin remained resilient at 5.8% in H1, despite a mixed macroeconomic backdrop. This performance was achieved through additional cost initiatives, including a 2.2% reduction in FTEs, even as same-day volumes increased by 0.4%. In summary, these results illustrate Rexel's ability to deliver robust and resilient financial performance, even in a mixed environment. Turning to slide 4, and starting with North America. We delivered a strong outperformance in the second quarter, with sales exceeding our expectations thanks to higher volumes. This region was the main contributor to the group's acceleration in Q2. Growth was particularly strong in high potential segments, such as data centers and broadband infrastructure, which together now represent around 12% of our U.S. sales and contributed about half of our Q2 growth. This reflects our increasing exposure to fast-growing markets, supported by our targeted acquisitions and the reorganization of our sales force to better capture these opportunities. We also began to see the first positive impacts from US tariffs, with non-cable selling prices up 0.9% at group level in the second quarter. This progressive, accretive impact is expected to continue supporting our margins in the coming periods. Turning to Europe. The environment remains challenging, with the region still at a cycle trough. Momentum slowed compared to the first quarter may lead you to more difficult base effects, a softer solar market, and the anticipated lower contribution from cable pricing. Despite these headwinds, we continue to gain market share in key countries, including France, which demonstrates the resilience of our commercial teams and the strength of our customer relationships. Let me now highlight the actions we have taken to ensure margin resilience in a challenging environment. First, we maintain gross margin at 25%, despite ongoing competitive pressures. This reflects our disciplined approach to pricing and our ability to manage our product mix effectively. Our current adjusted EBITDA margins remain resilient at 5.8% in the first half, supported by targeted action plans across most countries, particularly in Europe, to address a tough environment, competitive pressure, and OPEX inflation. As I already mentioned, we achieved notable productivity gains with a 2.2% reduction in FTEs compared to last year. This is especially important as wages represent circa 40% of our total operating expenses, and these efforts have helped to offset OPEX inflation of 2.2%. Our Accelerate 2028 program continues to drive the execution of our transformation further strengthening our operational efficiency and our ability to adapt to changing market conditions. Free cash flow generation was also strong in the first half, reaching 251 million euros and a conversion rate of 42%, significantly above our five-year average. This robust cash generation provides us with the flexibility to invest in our strategic priorities and navigate the current environment with confidence. Finally, we confirm our full year guidance. The strong performance in North America, combined with ongoing profitability improvement action plans, is expected to compensate for lower activity in Europe. Finally, slide six highlights how we continue to execute on our strategic roadmap. These acquisitions, these deals, reflect our three strategic M&A priorities, consolidation, adjacency, and advanced services. We have completed five acquisitions so far this year. In North America, we've strengthened our footprint through the additions of Warshower and Shrink. In Canada and Italy, we've expanded into adjacent higher margin businesses with Jack Ma and TechnoBI. We have also completed the Apex operation in Canada, a well-recognized system integrator. Each one of those acquisitions reinforces our competitive position, and I'm confident in our ability to integrate and extract value from these platforms. And with that, let me now hand over to Laurent, who will walk you through the financials in more detail. Thank you, Guillaume, and good afternoon to all. Let's start now on slide 8 with the different building blocks of our Q2 2025 sales performance. Our sales of almost 5 billion euros were up 0.6% on a reported basis, a positive performance thanks to our organic growth, as reflected by the same-day progression of plus 1.8%, and our acquisition strategy, which contributed for plus 1.7% net of disposals. These scope impacts include the positive contribution of Itesa in France, Tally, Electrical Supply Inc, Schwing and Jack Ma Automation in North America, as well as the disposal of New Zealand. And for full year 2025, we anticipate the scope effect to be at circa 0.9% based on already completed acquisitions and taking into account disposals of both New Zealand and Finland. The currency effects to that minus 2.3% in Q2 2025 due to the US dollar depreciation, and assuming unchanged spot rates until year end, we now anticipate the currency impact of circa minus 2.1% for the full year 25. On slide nine, you see the selling price impact and the breakdown of our sales evolution by geography. First on pricing, selling prices contributed for plus 1.5% to the sales growth in the quarter. Non-cable selling prices were up plus 0.9%, mainly driven by the U.S. with introduction of tariffs. Overall, selling prices increased in the majority of our product families, offset by the deflation, mainly in piping in North America and in solar to a lesser extent. The deflationary impact improved by decreasing compared to Q1 2025. Cable pricing contributed to plus 0.6% in the quarter, benefiting from a less favorable effect compared to Q1-25 as copper price peaked in Q2-24. And by geography, we saw North America significantly accelerating versus previous quarters at plus 8.7%. Europe stood at minus 3, mainly on base effect and solar activity, and APAC deteriorated down 6.5%. I will detail Europe and North America in the next slide. More specifically for Asia Pacific accounting for 6% of group revenues, China was down 10.2% in a competitive industrial market environment driven by negative volume. In Australia, sales decreased by 5.4% in a challenging environment, mainly reflecting lower volumes in residential and non-residential segments. Slide 10 focused on our performance in Europe. Our Q2-25 same-day sales stood at minus 3, a resilient performance driven by market share gains in an environment that remains challenging. Overall, our 3N markets remain negative, and non-cable selling price are broadly stable. As a reminder, Q1-25 was down 0.7%, and the sequential deterioration can mainly be explained by the more difficult base effect Lower solar contribution for minus 80 basis points and lower cable price contribution for minus 90 basis points as copper peaked in Q2 24. And more specifically, let me highlight key change in the quarter. In France, we continue to significantly outperform the market. Month of June is back to positive territory after a disruptive month of May, which is often volatile because of its public holidays. The dark region is down minus 4.1%, impacted by the unfavorable German macroenvironment, and the lower solar activity exacerbated by factors such as Austrian regulatory change on solar. Nordics, excluding solar, is positive. Lastly, the UK and Ireland were down minus eight, impacted by the branch closures and the increased selectivity on projects in the UK. On slide 11, we turn to our performance in North America, where same-day sales were up a robust 8.7%, with a sequential acceleration driven by volume growth in non-residential segments such as data center and datacom. While projects activity continued to be the main growth driver of the quarter, It was interesting to see the further improvement in the warehouse business. And in addition, backlog was broadly stable in North America, despite the very high execution of projects, showing the good level of conditions. Let's summarize the key highlights of our two countries. In the US, same-day sales growth to that plus 8.2%, with all three markets growing. Data center and broadband infrastructure accounts for 12% of sales and contribute to more than half of the growth in the country. The quarter was marked by the introduction of the tariffs, notably on steel and aluminum. Excluding piping, selling price were up mid-single digit in the quarter. Canada saw same-day sales growth of 10.9%. and also accelerated significantly, mainly driven by non-residential and industrial projects. On slide 12, we show you the building blocks that led to the adjusted EBITDA margin of 5.8% in H125 versus 6% in H124. First, the calendar effect was negative in H1-25, impacting the adjusted EBITDA margin by minus 13 basis points. And this effect will partially reverse in H2-25. Second, operating leverage, impacting our profitability by a net 19 basis points, mainly from under absorption of fixed costs in Europe, while operating leverage was positive in North America. Gross margin was broadly stable, representing a strong performance in a challenging and competitive environment. And the so-called inflation gap between selling price and OPEX inflation stood at minus 70 basis points. And this reflects the lower selling price increase of plus 1.2% in H1-25 compared to the OPEX inflation of plus 2.2%. This inflation gap was fully absorbed by our cost initiatives in the half, resulting from restructuring and structural productivity plans from digital transformation, bringing plus 31 basis points. And by geography, Europe perceived adjusted EBITDA of 5.5%, down 55 basis points, mainly explained by the underabsorption of fixed costs mitigated by active OPEX management. North America was more resilient, with adjusted EBITDA margin at 7.1, at 23 basis points, thanks to a stronger top line. On slide 13, we now 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 expense to that 36 million euros, notably including minus 11.4 million in restructuring, mostly in Europe, notably Germany and UK. Minus 10.1 million in fair value adjustment for increased turnout on Tally, following their very strong performance. And circa 15 million euros in acquisition costs, loss on disposal, and asset write-down. Financial expense to that 107 million euros, higher than last year, resulting from the rise in growth debt, offsetting the lower cost of debt now at 4% versus 4.3% last year. It includes 36 million euros of interest on lease liabilities and pure financial costs of 70 million euros. For 2025, we now anticipate financial expense of circa €220 million, including €70 million of interest on lease liability, taking into account recent acquisitions, and €140 million of pure financial expense, excluding one-offs, and assuring current interest rate conditions remain unchanged. Our income tax stood at 34.5% due to the impact of the exceptional tax in France recorded for 75% in the first half. And going forward, we anticipate the tax rate to be at circa 30% for full year 25, taking into consideration the additional tax in France that should be applied for one year, so 25 only. So from 26 onwards, we anticipate the tax rate to be back to below 27%. And as a result, recurring net income was 308 million euros, compared to 341 million euros in H124. Moving to slide 14, we generated robust cash flow before interest and tax, reaching a high level of 251 million euros, implying a free cash flow conversion rate of 42%, well above last five years average that took at 36%. This is excluding the 124 million fine imposed by French authorities and paid mid-April. The trade working capital stood at 15.8% versus 15.3% last year, by higher receivables, mostly due to mixed effects with higher activity in projects in North America that have slightly longer payment terms. Interesting to see the good management of inventories with slightly lower days of inventory with good adaptation on both main geographies. And lastly, the capex to sales ratio stood at 0.7% of sales, similar to last year. As shown on the next slide, on slide 15, our capital allocation focus on both acquisitions and return to shareholders. Overall, net debt increased by €408 million, mainly resulting from two factors. First, the SICA €200 million impact from net financial investments, mainly for the acquisitions of Warschauer, Schwing and Jacquemart. three good opportunities already presented by Guillaume. Second, the dividend payment related to the 24 result for €355 million corresponding to €1.2 per share. And lastly, we also bought back shares for €30 million. All this leads to net debt close to €3.1 billion, including an out for circa €130 million that will be paid if acquisitions deliver on promising expectations. The indebtedness ratio stands at 2.4 times, including circa 20 basis points from the €124 million fine just paid. And this ratio at the end of the year is expected to be lower due to the normal seasonality. Let me turn now on slide 16 to our liquidity picture. 2025 has been very active in terms of refinancing. We increased medium-term liquidity through a new €100 million through-chain issuance in July with a 2029 maturity. In addition, as usual, we have extended two securitization programs for more than €800 million from 2025 to 2028. Our financing is well-balanced between receivable securitization and long-term financing, including three sustainability-linked bonds for €1.4 billion and a shoe shine for €300 million. Our liquidity stood at €900 million after the final payment of €124 million. This includes the ungrown senior credit agreement, and we have no short-term refinancing needs. Let me now hand back to Guillaume for closing remarks. before we move to your questions. Thank you very much, Laurent. As we look to the remainder of 2025, Rexel is well positioned to deliver on its commitments, thanks to the strength of our North American business and the tangible impact of our self-help action plans. In North America, we continue to benefit from solid market fundamentals and strong backlogs in both non-residential and industrial segments. The efficient pass-through of tariff-related price increases is already supporting our results and we expect this effect to intensify in the second half. Our datacom and datacenter activities remain key growth drivers with positive momentum expected to continue. In Europe, while the environment remains tough, we are seeing the first signs of stabilization in construction markets, helped by a more favorable interest rates backdrop. The temporary pause in electrification trend is something we are monitoring closely, but the additional working days in the second half should provide a boost to fixed-cost absorptions. Crucially, our self-help levers are delivering. We are gaining market share in our core countries, optimizing our portfolio, and driving more than a third of our sales through digital channels, which is enhancing customer loyalty and operational efficiency. We are acting swiftly to adapt our workforce and leveraging advanced pricing and AI tools to further optimize our back-office. In short, we are taking decisive actions to control what we can while capitalizing on growth opportunities where they exist. This gives us confidence in our ability to deliver on our 2025 objectives. Moving to slide 19. And as a reminder, we anticipate for 2025 a stable to slightly positive same-day sales growth, an adjusted EBITDA margin of around 6%, a free cash flow conversion of approximately 65%, excluding the €124 million fine mentioned earlier. The full effect of our 2024 cost actions, combined with additional initiatives launched this year and the continued success of our M&A strategy, gives us confidence in our ability to deliver our financial targets. And that concludes our prepared remarks. Thank you all for your attention, and Laurent and I now look forward to taking your questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. First question is from Martin Wilkie, City.