Rexel Sa Ord

Good morning, this is the conference operator. Welcome and thank you for joining the Rex Health first quarter 2023 sales conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1 on your telephone. 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.

Good morning to everyone and thank you for joining us this morning for our first quarter sales conference. This call is taking place a bit earlier than usual because Rexel is also holding its annual general meeting this morning in Paris, which you are all welcome to follow online. I'm here today with Laurent Delaba, our CFO. I will make a few introductory remarks on our performance. Laurent will give you greater granularity on our numbers. And I conclude by confirming our outlook before handing you the floor for the Q&A session. Let's begin on slide three with the main highlights of the first quarter. So Rexel has gotten off to a strong start of the year with double-digit growth of 10.1% in same-day sales. This growth was very well balanced with positive trends in all three of our geographies. Growth was driven both by volumes, notably in North America and in Europe, and by a favorable pricing environment, reflecting our continued ability to pass through inflation. Driving this growth, as we had foreshadowed at our Capital Market Day in June, last June, is a strong and sustainable trend toward electrification as the energy transition continues to advance. This is reflected in our business, where we saw product families tied to electrification, such as solar panels, electric vehicles, charging stations, HVAC, and industrial automation, outperforming overall growth. These trends are notably visible in Europe in terms of solar equipment and EV charging solutions. This pickup of electrification, which has been going on now for several quarters, is a game changer for us, as it clearly enhances our growth profile and our resilience to market conditions. This puts us on track to achieve the full year guidance we presented in February and that I will reiterate in conclusion. And I will now hand over to Laurent to detail our Q1 sales performance.

Thank you, Guillaume, and good morning all. Let's start on slide 5 with a look at our overall Q1 2023 sales performance. Our sales of 4.9 billion euros were up 12.6% on a reported basis and 10.1% on a same-day basis. These reported sales were boosted by a favorable foreign exchange effect of 0.7% and a scope effect of 0.5%, resulting from the positive contribution from acquired companies that more than offset impact of disposals. Acquisitions include Horizon and Bucklesmith, two specialists of industrial automation distribution in the U.S., as well as Twilek, the number three player in Belgium, and LTL in Canada. Taking into account the disposal of our activities in Norway early March, we now anticipate full year 23 scope impact to be close to minus 0.6% based on already announced operation and in the absence of new acquisition that could be made this year. Concerning foreign exchange, the current impact is now expected to be minus 2.3%, assuming spot rates remain unchanged. On slide six, you see the usual breakdown of our growth by geography. As Guillaume mentioned, we saw double-digit same-day sales growth at group level with progression in all three geographies. In North America, accounting for 42% of group sales, we posted growth of 8.7% in Q1. In Europe, representing 51% of group sales, we grew by 12.7% in Q1. And in Asia-Pacific, accounting for 7% of group revenue, our sales were up a limited 1.3%, resulting from two contracting situations. On one hand, Pacific is progressing well, as illustrated by Australia, up 9.1%. On the other hand, Asia is impacted by a negative trend in China, down 3.5%, due to increased business activity in a favorable business environment. Moving to slide 7, volumes rose, with a good contribution of 410 basis points to our Q1 growth, reflecting favorable trends in Europe and North America. More specifically, volumes grew by 4.3% in Europe, boosted by strong momentum in electrification. In North America, volume growth stood at 4.6%, showing positive development, notably from good backlog execution and favorable underlying trends. Moving to slide 8, the 6% pricing contribution to same-day sales growth includes 6.6% from non-cable products and minus 0.6% from cable products. Specifically on non-cable products, the 6.6% effect is a good level of price increases benefiting from both carryover effects and additional prices passed during the quarter. Of course, the carryover will ease as we go forward in the quarters. Europe at 8.1% is slightly above North America at 5.8% as European countries started later to increase prices. Specifically on cable products, the negative 0.6% contribution in the quarter reflected lower copper prices in Q1-23 compared to Q1-22. Also note that, as shown on the graph on the right, the base will become easier in H2-23, with the lower average copper in H2-22 at 7,761 euro per tonne, down from 8,913 euro per tonne in H1-22. Slide 9 focused on our performance in Europe and illustrates how we capture the sustainable electrification trends. Our Q1-23 same-day sales growth was up 12.7%. 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 strong growth in Germany, BELX, and Sweden, and have outperformed the market in France and Germany. By product, solar, EV and HVAC were up 57% to reach 19% of sales. In total, their contributions stood at 770 basis points, corresponding to more than 60% of the total growth in Europe. By end market, we benefited from the positive trends in commercial and industrial segments. As far as residential is concerned, It has improved despite decreasing demand in the traditional ED business. This was supported by renovation activity and also by the electrification trends and the related halo effect. Let me also say that we completed the disposal of our Norwegian operations on March 1st, slightly ahead of plan. On slide 10, you see that this electrification momentum is driving solid and sustainable growth. We used external studies and reports to illustrate how sustainable the trends could be. Even though some parts of the business may not be distributed or attributable to Rexel, it shows directionally the very positive trend in the specific segments to which we are exposed. On the left-hand side of the slide, you see that installed solar capacity is expected to grow at the compound annual rate of 26% over the 2022 to 2025 period. This represents a major growth opportunity for Rexel, not just for panel products, which account for about one quarter of the value of a typical solar solution, but for the entire solution we offer as it drives demand for other related products, such as batteries, inverters or circuit protection. On the right hand side, you see that we have another major growth opportunity in electrical vehicle charging stations, which are expected to grow at a compound annual rate of 32% over the same period. Similarly, this opportunity not only drives demand for charging stations, which account for 62% of a typical EV solution, but also boosts additional demand for other product categories that belongs to our more traditional product portfolio such as cable, accessories or security protection. It is also worth highlighting that on top of these new opportunities, we also benefit from a strong complementary halo effect as the growing adoption of electrical vehicles and solar energy often requires an upgrade of the existing ED installation to allow it to support load management and enable monitoring, for instance. On slide 11, we turn to our performance in North America, where same-day sales grew by 8.7% in Q1. In the US, same-day sales rolled by 8.6%, driven by robust demand in our commercial and mutual end markets and by good project execution. This more than offsets the declining trend in residential activity and the more difficult base effect in the southeast. A key highlight in the quarter was that Rexel was awarded a multi-year contract from the US Postal Service to supply it with up to 41,500 EV charging stations. Canada also saw robust sales growth of 9.3%. This was largely driven by diversified industrial segments such as mining, transportation, OEMs, farmland food, and sawmills, which helped offset more subdued activity in commercial and residential markets. Overall in North America, our backlogs are stable versus Q4 of last year, but it's important to note that this results from both good project execution and healthy underlying orders intake in the quarter. This provides good visibility for our business. Lastly, we are also very pleased with the first steps of integration of our most recent North American acquisitions, namely Bucklesmith and Horizon in the US, as well as LTL in Canada. These acquisitions strengthen our presence in industrial automation and allow us to offer a complementary range of products and services to our existing electrical customer base. On slide 12, we would like to illustrate the resilience of our portfolio and the diversified end markets we are exposed to by looking at the building blocks of our North American backlogs. We have a broadly diversified exposure to different segments with no market greater than 20%. It includes utility, hospitals, education, infrastructure, environmental services, or entertainment. Many of these markets are either directly or indirectly exposed to different stimulus plans, such as the Inflation Reduction Act, the CHIPS Act, or the Infrastructure Act, and therefore are driven by favorable tailwinds. More specifically, some of these markets, such as industrial automation or manufacturing facilities, benefited from the reinsuring trend. Let me now hand back to Guillaume for our outlook. Thank you, Laurent.

As you have seen in today's presentation, Rexel's business continues its solid trajectory and is posting strong and broad-based growth supported by electrification tailwinds and also exposure to diversified end markets. These give us greater resilience and put us on track to achieve the full-year targets we presented in February and which I am pleased to confirm today. Leveraging our transformation and enhanced efficiency, we target for 2023 same day sales growth of between 2% and 6%, adjusted EBITDA margin of between 6.3% and 6.7%, and free cash flow conversion above 60%, continuing the group's strong cash discipline. So thank you for your attention, and Laurent and I are now happy to take your questions.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 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 who has a question may press star and one at this time. The first question is from Martin Wilkie from Citi. Please go ahead.

Yeah, thank you. Good morning. It's Martin from Citi. My first question was really around the U.S. market. I was intrigued that your comment suggests that incoming orders remain very positive as well as the growth that you saw. Obviously, there's a lot of market concerns on commercial, and I understand that obviously you're more diversified than that, and you've given that in the slides. But when you look at what customers are tendering for, asking for price quotations for, any indicators that might talk about what's happening in the second half. I mean, are there any signs of cracks yet in commercial? Or from your perspective, is the trend that you highlighted around electrification, obviously some benefit from refurb in the Inflation Reduction Act? Is that enough to keep the US market still pretty robust for the year? Thanks.

Thank you, Martin, for your question. Yes, commercial continues to be quite active for us and as Laurent has mentioned, our incoming orders are actually compensating completely the exit of our backlogs, which makes for a backlog which is stable in North America. As we have highlighted in the presentation, what we call commercial in reality is a mix of several segments with very different drivers, many of them benefiting from not only electrification tailwinds, but all kinds of megatrends tailwinds like hospitals, education, government, or stimulus plans. So I can only comment on what we see from customers. And frankly, on this segment, I understand what are the concerns that people have, and we have questions in roadshows. But when we talk to customers, when we look at the characteristics of our incoming order, we don't see any sign of weakness here. We see the base effects story that we have highlighted for some regions, like in the southeast. But in terms of behavior of customers, in terms of caution of customers, I cannot at this stage tell you anything which would point at the weakness of this market. We are obviously very cautious, but clearly so far so good in terms of the commercial business. And we are quite encouraged by the growing impact of the stimulus plans. So that's what I can say. Where we are seeing signs of slowdown is new residential, to which we are exposed in a very limited way in the U.S., as you know. But on the commercial side, really, we have a good activity.

Thanks. If I could maybe just squeeze in one other question. On pricing, the pricing was a little bit stronger than we had expected in the quarter. When you've given your reiterated outlook for the year, is it safe to assume that you're not assuming that there are more price increases coming in the middle of the year, or is it too early to tell, or what's your expectation of price for the remainder of the year?

The pricing when you look at it on the first quarter was 6.6%, out of which around two-thirds was carryover from last year, so that's around 4%. is going to decrease during the year to get obviously to 0% at the end of the year. That's the way it works. And the one-third is additional price, so it's around 2%. We have seen price increases by suppliers in almost all categories, so it's quite active from this point of view. But the amplitudes of the price increases and also the prospects of having repeated price increases during the year is clearly weaker than last year. So we're not changing our vision about this year because we feel that maybe there's going to be a second price increase, but it's not sure. It depends on the categories. And so on this one, we prefer to be cautious. Great. Thank you very much.

The next question is from Daniela Costa from GS. Please go ahead.

Hi, good morning. Thanks for taking the questions. I have two as well. The first one is actually sort of like a follow-up on what you just discussed. Obviously, you maintain the guidance. You're so far tracking like well above of the 2 to 6. You don't see a change in pricing versus what you thought before. Is it perhaps you're factoring in sort of like a weaker second half than you were before? If you just can elaborate on that. And then the second thing is regarding the categories, the electrification categories, can you give us some detail of what's the split or maybe the growth rate by category? And just one thing that you had in the slide, the solar and the EV charging, you didn't mention anything regarding sort of heat pumps. Was there a specific reason or was just why, basically? Those are the two questions. Thank you.

Okay, thank you for your questions, Daniela. On the first one, on guidance, you know, you shouldn't read anything in the fact that we just reiterated the guidance very clearly. We have never historically changed the guidance in Q1 because for good reasons, which is that Q1 is the smallest quarter of the year for us. It's also usually impacted by weather events, winter, also holidays and where they fit in each month, et cetera, et cetera. So it's very difficult for us to read anything positively or negatively about how the full year is going to unfold. What I can tell about this Q1 is that we are very satisfied with our performance in Q1. And it confirms what we thought about the year. It doesn't give any signaling. I mean, the fact that we didn't increase the guidance doesn't signal anything positively or negatively. So please don't do the subtraction to say, okay, if I look at the rest of the year, it's actually lower than what we had expected at the beginning. And you know that, but what we had said very clearly in the guidance at the beginning of the year is that we were anticipating a front-end loaded year for two reasons. First of all, because of the pricing effect and because of the carryover effect, we are going to have a pricing year which is going to be lower than last year, so the pricing effect is going to slow down. And the other reason was that we included in the guidance at the beginning of the year, and I was very clear about that, a caution about the second half of the year. There is no reason, negative or positive, to change this vision about the year, very clearly. But you're right, we are quite satisfied with our performance in Q1. Electrification categories, yes, we don't give the details. And actually, HVAC is included in the electrification categories. So heat pumps are included in the electrification categories very clearly. I can give qualitative regional vision and segmental vision about that. In Europe, what we are seeing is a very strong growth of photovoltaics, especially in countries like Germany, Austria. Benelux, Sweden, those are countries where we see a strong growth of PV. And we see also a strong growth of EV charging stations in many countries. In North America the growth is more developed around the EV charging station and as you know automation is a very important category also industrial automation is a very important category in North America and overall I would say that the electric I mean as you as you saw in the figures the what we call electrification because electrification is Those categories, I mean everything is electrification in our business in a way, but those categories that we identify are those which are really pushed by stimulus plans, regulations, etc. And as you could see, it's stronger in Europe than in North America, but the North America momentum on those categories is clearly picking up with the stimulus plans and the regulations. So that's what I wanted to say about the electrification categories. But clearly that's an interesting development because we had now three quarters of very strong growth of those categories and as far as we can tell, this is very solid. And that's a comment that I want to add to that. our momentum in those countries, on those categories, is very solid, driven by strong support from regulations, stimulus plans, demand, etc. And so we are quite positive on this evolution.

Thank you. Sorry, very clear on the first one. On the second one, just to clarify, the reason why you don't mention explicitly heat pumps is because the solar and the EV are just bigger and growing faster, or because the heat pumps have weakened, because there's also a lot of subsidies on that one.

No, no, no. I mean, the heat pumps have not weakened, but our exposure to this category depends on the countries. For example, we are very strong in France, but we are not present in this category in all countries, which is the reason why maybe we didn't mention it in the slide or in the press release. I didn't even notice that we hadn't mentioned that. but so you know there is exposure it's not slowing down and I think this category is going to be really clearly supported by regulations and by electrification trends in many countries but that being said it's mainly because it's a little bit less important than the others in terms of size for us understood thank you so much the next question is from Akash Gupta from JP Morgan please go ahead

Yes, hi. Hi, good morning, everybody. My first question is on residential exposure. So in 2022 annual report, you said it's about 26% of the group. And what I want to know is that if you can give us some indication how much of this 26% is coming from a new residential construction where I note you mentioned in the press release that there were some sign of slowdown, particularly in the U.S. So if you can add, so that's the question number one.

Okay, so the answer is approximately 10%. So we feel that in Europe where we have exposure to residential accounting for 43% of European revenue, we think that a little bit less than half is exposed to new builds. And in the US, we have approximately 7% of the revenue which is exposed to residential, out of which we think that approximately two-thirds is new residential. So if you do the compound, it's a little bit more than 10%. And you're right. On the new construction side, we are seeing signs of weakness. You've seen, for example, the figure in the region of the US, which is the most exposed to residential, which is the Northwest, which are a little bit weaker than in the other regions. What we are reassured by in our results is the fact that the electrification trends, especially in residential, are more than offsetting that. So that's good news. But to answer your question, just a little bit more than 10% of our business exposed to that.

Thank you. And my follow-up question is on the monthly growth rates. So you mentioned at earlier results that you had a good start of the year. If you can comment on monthly growth rates, particularly how was the exit rate compared to the overall growth rate you had in the quarter?

I was expecting this question. It's a little bit difficult for us to make sense of the monthly figures in Q1 because these are relatively short months which are highly influenced by weather and holidays. So I would really prefer to comment on the quarter, not because we don't want to answer your question, but because we have no clean and meaningful answer. What I can tell you for sure is that when I look at the figures, there is no trend up or down during the quarter that would be obvious enough that I could comment upon it. But I would prefer not to give figures because it's very difficult to read with all those moving parts. And if I can maybe comment, because it could be a follow-up question. In April, we are also relatively stable above the high end of the guidance, and we are well-oriented. So there is no change in trend.

Thank you.

The next question is from Aurelio Calderon from Morgan Stanley. Please go ahead.

Hi, good morning, Guillaume and Lauren. I've got two questions, please. The first one is on electrification, and obviously you had a very strong year-on-year growth. I wonder if you could comment a little bit on sequential developments. Obviously, as we go through the year, the comms are going to get increasingly more difficult, so just curious to see if that momentum you're talking about has also picked up sequentially.

Yes, sequentially we are seeing a very important growth and you're right that the comps are going to get increasingly difficult as the year progresses. That's the reason why, if you remember well, we had given not really a guidance but an orientation of double the growth of the average business of Rexel. At this stage, which is a little bit less than what we delivered in the first quarter, at this stage I would stick to that. Let me just say that sequentially we see growth quarter after quarter also in electrification very clearly. There is a strong drive for that, which is totally confirmed. One of the questions that we had internally was that maybe in some categories the electrification trends last year were driven by the price situation, which was very specific in Europe, the price of energy. But in reality, I think what the energy crisis triggered last year is just a realization for many players and for many customers that the era of cheap and available energy was behind us and that everybody needed to get serious about sustainability agendas, about energy savings, about energy generation. And so the move that has been started last year is continuing strongly.

Great, thank you. And my second question is on market share. I think you commented in the release that you've seen market share gains or growing above average in 2020. in Germany and France. I wonder if you can elaborate a little bit more on that, what's driving the market share gains, and if you see that outside of Europe as well.

Okay, we can comment a little bit on that. You know, the difficulty is that market share is not available in a firmware with strong data in every country, which means that we are always cautious when commenting on market share, especially on a small quarter like Yuan. That being said, I can comment specifically on France and Germany. In France, we have a good momentum. We are the leader in France. I think our value proposition is differentiated from the other players, and that's the reason why we are on a good commercial momentum. in all categories and in all regions of France. That requires continued work to make sure that we enhance the value proposition, but today I think we have a differentiated value proposition which is helping us gain market share without moving anything on the price. We don't buy market share for sure. In Germany, it's a little bit of a different situation. I think we had difficult years in Germany. If I come back five years ago, we were not performing very well in Germany and our sales momentum was down. So I would say we have changed the management team. We have started to rebuild our processes, to rebuild engagement in our teams. And I think we have triggered a virtual circle where we are gaining a little bit of market share. And because of that, we are attracting the attention of good salespeople who want to join us, suppliers who want to be aligned with us, which is a good virtual circle in which we are. And so I would say in Germany, it's a little bit of a different situation. We start from a position which is a position of an outsider. We are clearly not the leader in Germany. But because of the momentum that we have been able to build, we are gaining positions in Germany month after month. So in the other countries, it's more difficult for me to comment because, frankly, the data is not reliable on such a small period. So that's what I would say.

That's very helpful. Thank you.

The next question is from Miguel Borrega from BNP Paribas Exxon. Please go ahead.

Hi, good morning, everyone. Thanks for taking my questions. Can I ask about the 4% price increase in North America? Why is this so below Europe, which was two times that? Were there no new price increases in the US? And then how does that compare with supplier pricing? Is it also higher in Europe versus the U.S.? And are you able to offset that with your own pricing? That's the first question.

Okay, so I will start with the second part of your question. Usually, we are very aligned with the supplier pricing. We follow the supplier pricing. We are quite good at passing through pricing. But on the other hand, we don't take advantage of, for example, shortage situations or specific situations to increase more than the suppliers. Anyway, the information is relatively widespread in the market about what the suppliers are doing. So if you do a clean comparison category by category, you will see us following very closely what the suppliers are doing. I'm saying if you do a clean comparison because it may be if you compare, for example, to Schneider or Legrand, that they have categories to which we are not exposed, which means that on a global basis, it may not be exactly the same. But that being said, on a like-for-like comparison, we are always aligned with what the suppliers are doing. So that's one thing. The second thing is when you talk about North America and the effect of North America, pricing had gone up. a little bit more in North America and a little bit earlier than in Europe. So it's just a normalization that we would see a little bit lower pricing in North America. And then there are specifics on a category by category basis. For example, in North America, The general practice is that cable goes through piping, which is very much depending on the steel evolution, and this category was weaker in price than the other categories. France or Europe is not exposed to the same extent, to the same category. So there are a few categories, differences between North America and Europe, which explains that.

Thank you. And then my second question on the margin, I know that this is a quarter that you only report sales, but this is more of a confirmation question. So are you expecting further one-off inventory gains at the margin level in the first half? And does the margin guidance for the full year include any inventory gains, if there are any? Thank you.

Today, the guidance for the full year doesn't include any one-offs. From what we see in the first quarter, we don't expect to have a specific one-off in H1, but it will depend on the pricing evolution in Q2 as well. But at this stage, we don't expect to have any.

Thank you very much. For any further questions, please press star and 1 on your telephone.

The next question is from Eric Limay from SEEK. Please go ahead.

Yes, good morning. It's Eric from CIC. Thanks for taking. I've got one question on artificial intelligence, actually. I know you already got some artificial intelligence modules, but does the recent development from ChatGPT, you know, all around this new stuff, or visibly new stuff, does this give you some, I don't know, new perspective, new ideas? Could it be a new, another new game changer for you? Or do you see this kind of like, what are the maybe new opportunities or maybe some new risks for you as well?

Thank you, Eric, for this question. It's not often that we have unexpected questions in those Q1 calls, but thank you for asking the question. Yeah, I mean, as you say, I'm not sure if we could call it artificial intelligence, but we have developed our use of data over the last years, and we are quite happy with what we are doing here, exploiting a little bit more of the data that we have and exploiting it with data scientists, basically. So I don't think you can call it artificial intelligence. Now, the development in generative AI, because that's what we're talking about, We are looking into that. We are looking into that. I would say at this stage, both the threat and the opportunities are probably relatively limited, but we are looking quite actively there because we are interested. It could help us do a first level, for example, chatbots. I mean, improve. I mean, we already have chatbots on the website, but we could do things which would be much quicker, much faster. It could allow us also to generate pictures of the products and to enhance the content of our websites in a much more productive way. It could also help the expertise teams who are on the phone with customers access the information quicker, etc., etc. Now, is the generative AI going to replace our experts? I don't think so. Because at the end of the day, what our customers are valuing in our experts is the experience, the accuracy of the answer. And from what I have seen and from what I understand from generative AI, it's quite good at speaking and at language generation. But in terms of the accuracy of the answers, there is still an uncertainty. And at the end of the day, especially when we talk about electricity, which is very often with a security or safety component, you need to be extremely accurate in the way you answer. So we are looking into that. And I can tell you that our teams of data scientists are quite excited about generative AI. So they are looking at all possible opportunities. At this stage, I would say I don't see that as a big threat or as a big opportunity. But we'll update you on that, definitely. Thank you very much.

The last question is from William Mackey from Kepler Shiver. Please go ahead.

Good morning, Guillaume. Good morning, Laurent. Yeah, a couple of questions, if I may. Firstly, maybe just checking in on how you see the opportunity for M&A or inorganic growth at this stage in the year. and if you'd like to comment to that. And then with regard to residential, could you give us a sense of the scale of the volume changes and confirm that the pricing is stable across your portfolio of SKUs for residential in the US and Europe? And lastly, when we think about the electrification category, Could you perhaps comment on what the typical sort of contribution margin is from selling a lot of this higher value added content around photovoltaic panels or charging stations when compared to other product categories across the business? Thank you.

Okay. I'm going to answer the first and the third one, and I will let Laurent comment on residential. On M&A and on inorganic growth, we continue to look at potential M&A targets. Nothing has changed here. We still feel that we have a very good track record over the last few years. As Laurent commented during the presentation, We are very happy with our acquisition, with the price at which they were made, with the results and with the integration and what they bring and what we bring to them. It's true for Meijer that we acquired two years ago and we don't comment anymore on that. Clearly, we exceeded our synergies target with Mayer, so we are very happy with that. But it's also true with the other acquisitions that we made last year, for example, the Horizon Solutions in upstate New York or Bucklesmith in California. So very, very happy with that. And so we continue to look at targets. We continue to have the ambition that we highlighted in our Capital Market Day, which is to add basically $2 billion of turnover over four years. So, no particular update there. We continue to be quite interested with the same priorities as before. Now, I don't remember the third question. The contribution margin of electrification. You know, that's interesting because first of all it depends on each category, but overall the answer is that in terms of EBIT margin, I would say that the electrification growth is not relative or dilutive. It's neutral to the EBIT margin. In some categories, it may require us to work a little bit on the mix to get to this result. For example, I will take the photovoltaics category. Usually, the margin on panels is a little bit less than the margin of the balance of systems. So we usually try to work on the mix to make sure that we optimize it and we get good margins. The other effect that you would see in this category is that you would typically see lower gross margin but lower cost to serve also because of the unit size of the orders, because of the transportation cost, etc. But I can tell you that in each one of those categories, we look precisely at the EBIT contribution to REXA before taking any orders. So you shouldn't expect anything positive or negative in terms of EBIT mix effect to those categories. It may change a few things on the gross margin side, in some cases also on the working capital side, especially at the beginning when we have to build working capital to do that, but not in a meaningful way. Maybe, Laurent, you want to comment on this?

On the pricing, it's overall stable with limited change. For example, piping in the U.S. is a bit down. PV panels with the decreasing price of sea freight is also a bit down. But overall, we have slight increase on other categories, so I would say that pricing is stable. And in terms of volume, residential is clearly stable. but with a contrast between new construction, as pointed out by Guillaume, around 10% of our global exposure at group level, which is slowing down or sometimes negative in many countries, and on the other side, the electrification trend, which are very powerful and driven, as you have seen, by regulation and subsidies. So overall, still a positive contribution to our top line.

I don't know what the pricing question was about. If the question is, does the slowdown in volume have an impact on our margin or on our price, I have to give the same answer, which is that usually we are very good at passing through price in all situations, and we have proven that in the past. So no, we don't see an effect here. And when it comes to volume, I would emphasize what Laurent is saying. When we look at what we call residential in our business, the volumes are good and the business is good. But we feel that it's a mix of probably negative volumes in the traditional businesses and very strong positive momentum in electrification. So at the end of the day, it's still good volumes and good sales growth for residential. I hope we are clear on that.

Very good. Could I squeeze one last one in, please?

Sure.

Thank you so much. You mentioned it or touched on it in your commentary there, but we hear from, or I hear from a number of places that supply chain pressures are easing. You mentioned logistics costs are falling, which we can see in container rates. You know, last year you ran with slightly higher working capital levels than normal. I mean, could you touch on perhaps your thoughts about how the working capital evolution and inventories are developing in the first quarter and how you see that for the year?

In terms of number of days, first of all, keep in mind that in our business we don't do big swings in inventory. When we were talking about the fact that we were a little bit heavy last year, we were talking two days out of 60 basically. And if I look at the inventory at the end of the quarter, even though I don't think we disclosed that, but I can do it, they were extremely stable compared to the end of the year in terms of number of days. We expect that to continue. You know, the availability of products has, I mean, we didn't build inventory particularly during the times of difficult availability. We are not going to reduce inventory because of better availability. We try to be quite good at maintaining in terms of number of days, which is what makes sense for us. And by the way, availability in our space is easing a little bit, but we are not out of the woods. There are many categories in which availability is still very challenged in Europe and in North America. So I know that the general idea is that it's finished, but it's not, actually. And for many products, we are still out six months or even more, or even one year, which is creating a challenge for the teams. But the situation is not behind us. I wanted to highlight that also.

Thank you so much.

Gentlemen, there are no more questions registered at this time.

OK. So thank you very much for your participation to this call. Thank you for your questions. As you can tell, we are happy with the results of Q1, and we confirmed the guidance for the year. And we'll talk to you for the results of H1 end of July. Thank you very much. Thank you very much.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your phones.