Rexel Sa Ord

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.

Yeah, thank you, Greenlee. It's Martin from City. Obviously, a very strong set of results in North America. I just wanted to clarify just the comment you made earlier about the contribution to growth. If data centre and broadband is about 12% of sales but drove half the growth, on my very quick maths, which may be wrong, it sounds like it's growing at more than 40%. Could you clarify, is that a basis of comparison that changed from last year or was there a big acceleration in that business in the second quarter or just a little bit more detail behind that would be welcome? Thank you.

There was a little bit of acceleration in the second quarter, but not meaningful. The first quarter was also strong. I think we didn't comment on that specifically. I think what you are seeing is two things. First of all, the effect of the tally acquisition that we made last year, which is growing, as you said, double digits, strong double digits. in Q1 and in Q2, and by all means, this will continue in the second part of the year. And on the data center's part, which represents approximately 5% of our business in the U.S. today, as you know, we have initiatives in place since many quarters to increase our penetration of this market, where compared to some other players, we are a little bit less exposed. And those efforts are paying off with today, as I said, 5% of our business now being exposed to data centers with also strong double-digit growth in this segment in Q1 and in Q2. So I think that's what we are talking about.

Thank you. That's really helpful. And if I could just have a follow-up on the U.S. You mentioned about pricing from tariffs. Just how you saw that through the quarter? I mean, obviously, you commented last quarter about some potential range of price increases, but obviously tariffs were a bit of a moving target in the quarter, and I'm guessing some of the price increases came late in the quarter and therefore weren't effective the whole time. Any sort of numbers you can give us in terms of how you're seeing pricing going into the third quarter? Thank you.

Look, I mean, in terms of the pricing situation in the U.S. in Q2, what we have seen, if I summarize, is first of all a tariff implementation from the manufacturers. And as we commented during our results in Q1, we have seen price increases in the range of 4 to 20, anywhere between 4 and 20%. on a few categories. Now, that being said, as Laurent mentioned, there is also a negative effect on the other side of one category, which is steel piping, where despite tariffs on steel and aluminum, we saw a strong price deflation compared to last year. And I think I can say that the price deflation in this category is double digit. So on one hand, you have a majority of categories growing at around mid-single digits basically, and you have one category which is not that big but still meaningful when you are decreasing double digits, compensating for that, which at the end of the day, makes for the 3% price increase in North America or 2.2% excluding cable. That's basically what we are seeing. Now, in terms of the momentum of pricing during the quarter, obviously, we saw progressive implementation of that. And as you know, in some situations, price increases are delayed. There is price protection on certain projects, et cetera. So I'm expecting to continue to see a progression on that. And depending on how the situation evolves, we could also be seeing additional price increases on additional categories because they are still both in the air in terms of tariffs. In terms of tariffs on, I mean, copper is not in the air anymore, but still a little bit in the air because I think there is a deadline here. You have also the question of the tariffs with Canada and Mexico, and even though in all the negotiations, in all what we hear USMCA products are excluded from that, it could have an impact also. You have the potential effect of European tariffs, even though in North America there is not much of products or components being imported from Europe to my knowledge, but all of that may have an additional impact. For the moment, what we have seen from the manufacturers is a relatively cautious implementation of those price increases. I don't think that people are jumping on the announcement and they're waiting to see the end game before pushing the price increases to have a meaningful ground on which to push it. That's what we have seen, I think, in the market in the first half.

Great. Thank you very much.

Next question is from Marianne Boulot, Bank of America.

Yes, good evening. Thank you very much for taking my questions. The first one is on Europe. I was wondering if you could share a little bit more colors on what you're seeing in the field. I know you mentioned some early signs of rebound, so just wondering if you could give a little bit more details on this.

Maybe I'm a little bit ambitious by saying early signs of rebounds because in our figures, we have negative figures in many of our markets. We have seen a little bit of slightly positive evolution in residential markets in Switzerland and in the UK, but really it's only the early beginning. What I was alluding to. when making this remark is the fact that in more and more countries you see the number of transactions which is an official KPI rebounding from the trough and you see also in some countries the loan activity to residential rebounding also. which is always an early sign of a pickup of the market. At some point, we know very well that interest rates have a direct impact, although delayed, on the market. And usually one of the indicators which is most reactive to that is the number of residential transactions. And once again, in many countries in Europe, you have seen, even though those are not stellar figures, you have seen a slight rebound from that. And we know that those transactions are in turn usually driving residential renovation business to which we are more exposed than to new construction. So that's what I'm saying when I say, oh, I see early signs of maybe something happening. But right now in our figures, I have to say that the figures continue to be negative and that our assumption when we look at H2 is certainly not for European rebounds. But it could happen.

Yeah, no, I understand very clear. Thank you very much. And just a second question on the US. Just wondering if you think about the increased exposure to data centers and infrastructure, just wondering what's the impact on your margin in the region? Does it benefit in terms of mix or pricing dynamics?

Look, in terms of the margins that we make on those jobs, it's not meaningfully different from what we do in other businesses. Those are large projects. So usually on large projects, we tend to have a slightly lower gross margin, but also a slightly lower cost to serve, which means that in terms of EBITDA margin, it's equivalent to the rest. Those are large and attractive segments, but also quite competitive, obviously, because we are not the only ones being interested in serving this fast-growing market. So I would say it's neutral.

Okay, perfect. Thank you very much.

Neutral, but with, obviously, any volume means better fixed-cost absorption, so it's not completely neutral, but you understand what I mean.

Yeah, no, of course. Thank you. Next question is from Akash Gupta, JP Morgan.

Yes, hi again, Aman and Lauren. Thanks for your time. I've got two as well, and I'll ask one at a time. The first one is on North America. I think you mentioned in the press release that the backlog was broadly stable versus March 2025, and I'm wondering if you can elaborate a bit on why it is flat, given the strong growth you're seeing in data center and data comms. And maybe how does the backlog compare versus a year ago? Is it stable up or down? So that's the first one.

So the reason why it's stable is because in the same time as we are getting additional orders, we are also able to service existing orders in the backlog. I think the supply situation has improved. has clearly been improving over the last few quarters, which means that the balance between what we are able to get in and what we are able to get out is roughly balanced, basically. Now, in terms of the backlog, the total amount of backlog that represents approximately between two and three months, and how does it compare to one year ago, Laurent? Do you have the answer to that? I think it's roughly equivalent. We have been around this level since a few years now. which is higher than the history, obviously, but I think we have been around that. No significant change to last year. It's roughly the same, which is a little bit more than two months of sales in the US and approximately four months of sales in Canada.

Thank you. And my follow-up is on a comment that you mentioned in the press release that U.S. warehouse activity sequentially accelerated in the quarter. So what do you mean by warehouse activity? Is it warehouse automation or something else? And maybe you can talk about what sort of product you're supplying.

That's internal lingual, and maybe we should have eradicated it from the press release. That's by opposition to projects business. Yeah, it's a flow business. It's flow business through a branching distribution center where we have our own inventory, whereas on project, it is specific logistic arrangement. It means the flow business is stronger. We need our warehouse rather than outside warehouse, I mean our warehouse, going through our warehouses. which is, I mean, the pickup, and we need to confirm that, is always a good news because we like to have our business balanced between projects and flow business, knowing that the flow business is usually a slightly higher gross margin. Also, obviously, because we have to manage the distribution centers and the branches, a slightly higher cost to serve, but it's good to have a balance, and it's a good sign about the economy. Thank you.

Next question is from William Mackey Kepler.

Good evening to you all. Thanks for taking the time. A couple of questions. First one, just going back to North American growth. You said half of the growth is DC and network broadband infrastructure. If we break that out of the other half, I mean, how would you describe the trends that are driving the other half of the growth in North America from which verticals? I'll save the other two.

Thanks. On the other half, we have growth a little bit everywhere. First of all, I would say that The other half is probably a little bit lower in terms of price effect. I would say that probably on the data center and data com side, the price effect, because it's very exposed to cables, is probably a little bit higher. So the volume effect in the other half, we have positive figures, slightly positive figures in the industry. So that's one. And within the commercial segment, the verticals which are working well, Laurent, We have food and bed, pharma, hospitality are doing quite well. Mining also. So it's a relatively contrasted situation by sector, but the important thing is us being exposed to many sectors at the same time. we have the ability to take advantage of the sectors which are growing and which right now are the ones that Laurent mentioned. So I hope it answers your question. So there is not one very weak segment. Everything is slightly positive, solid, robust, not explosive growth, obviously, but resilient trends.

Thank you very much. The second is, you know, you've talked about the inflation gap and the weaker sales in Europe and the restructuring or adaptation measures were marginally higher. I mean, what should you be planning or what are you planning in terms of adaptation costs for the year now? Is that going up and what sort of actions are you taking to ensure the productivity and efficiency hold on to the margin in regions like Europe?

So we continue to intensify our OPEC discipline and to execute on both restructuring plans, mostly UK, Germany, and our Accelerate 28. All of that will result in about a bit more savings in H2 25 compared to the 31 basis points in H1. We still have some carryover of the 24 big restructuring because some of them were implemented late in Q4. And then we have all the new plan that's starting in H1 and that will benefit to H2. So at the end, it will be around 20 basis points of savings that we will get on the full year basis based on what we are going to implement in H2. And maybe let me comment on what is the right level and how do we know that we are doing it at the right level. to make a few comments about productivity. As we mentioned, we had more than 2% productivity, 2.2% FTE reduction for plus 0.4% volume evolution, which is a good performance in a difficult environment. Usually in a difficult environment, you have more difficulties delivering productivity. And if I get into the details, there was positive productivity in North America, which is I mean, not that easy, but still a little bit easier because there are positive volumes, obviously. But there was also, in H1, positive productivity in Europe, which is an incredible performance. Now, where do we stop? I mean, first of all, the main topic for us is to continue to deliver outstanding service to our customers. At the end of the day, we are a services business and we cannot cut to the extent that it would damage the service to the customer. The customers continue to expect a perfect service from Rexar. Now, so what we do and the reason why we are able despite that to reduce the headcounts more than the reduction of volumes is because of all these action plans that I was mentioning, action plans about automation, action plans about use of artificial intelligence in our back offices, etc., etc. So I think we are quite proud of the performance that we have delivered, and we will continue to push those projects, which are fundamental, which are not just a short-term adaptation to volumes, but which are going to continue to deliver effects even after the cyclical recovery.

Thank you very much. My last question just goes back to when we reflect on the great inflation wave in 22 and 23, your gross margins were boosted temporarily. As we look forward into the second half of this year, as the tariff pricing effect accelerates, are you building in any accretion to gross margin in the U.S. from inflationary related effects?

The way we look at those exceptional effects is that we tend to be relatively strict and to restate them in one-offs once they pass a certain threshold. But as you've seen in the first half in the U.S., the price effect, non-cable price effect, was 2.2% in North America, which is not that crazy and which is not triggering the need for us to restate that as a one-off effect. It will depend very much on how price evolve in the second half. We think that we're going to see probably a little bit more price overall, but we don't think that there is going to be an explosion of pricing. That's not the environment we live in at this stage. The environment of tomorrow may be different, But at this stage, I don't see a strong acceleration of pricing in North America, probably a little bit more accretion to that and a little bit more tailwind on pricing in North America, but not super impressive. So I'm not absolutely sure that we will need to restate this in one-off. But that being said, as you mentioned, anytime there is a little bit of inflation, it helps us in terms of absorption of fixed costs, especially because of the fact that On the other side, our cost base continues to inflate every year, a little bit more than 2% every year in terms of inflation embedded in the cost base, which is mostly salaries. And so we need to offset that, and it's obviously a help.

Thank you very much for the insightful answers.

Next question is from George Featherstone, Barclays.

Hi. Good evening, everyone. A couple of questions, please, and some of them are follow-ups, so I'll probably just give you them all, and then you can take it how you'd like. First one on France, you've taken quite a bit of share again. You mentioned similar comments in the first quarter, so can you help us understand exactly what's driving this in your commercial practice in France? Maybe is there anything to call out there? Second thing, On the UK and Germany, you've talked about restructuring. They were two countries before that you called out as being profitability that were below the group average. Can you talk about the progress you've made on closing that gap? And then finally, just on current trading, could we read from what you've said so far that the July trading environment has been very similar to the second quarter?

Yep. So why are we gaining market share in France? I think it's not because we have lower prices in the competition. I think it's a combination of many things. It's a combination of perfect basic service and reliable basic service when it comes to logistics. That's one thing, availability of product logistics. Those are the basis of our business. And I think we have established over the years a reputation of having a flawless service. You have to understand that one delivery missed is one day lost for our customers. Their crews are waiting for the product and it's a catastrophe for them. So first of all, it starts with having a flawless track record in terms of delivering to our customers. It continues with having a range of additional services which go very far. It can range from basic or advanced logistics services, delivery in two hours. It can continue with the ability to help our customers design systems, pre-assemble systems, pre-assembled deliveries, all kinds of things. And it continues with expertise and deep expertise on some advanced projects going to the extent that we can even, in some cases, design, operate, install on behalf of the customers when needed. And so we have built over the years a full range of value-added services which help us, I think, gain ground So it's a combination of all of that plus I shouldn't forget the quality of our teams because when you are successful usually you attract the best teams and so you enter into a positive momentum which lasts. Now obviously it's a combination of things, there is not one magic thing which explains the fact that when you are there you continue to benefit for a few quarters from a good momentum so it's not a surprise that we continue to gain market share but it's also an explanation to the fact that in the UK and in Germany where we are not in this situation but rather in the reverse situation of having to rebuild all of those elements which are part of the success It takes a little bit of time. So we are progressing on a qualitative basis. We are also progressing when we look in detail at the KPIs on a financial basis. But those countries remain less profitable than the average of the group. And they are also exposed, as you know, to markets which are in the same time quite difficult, especially Germany. So we are progressing and we will see the effects of that. I cannot point this quarter at meaningful financial results, rather meaningful qualitative results. So that's what I would say. Current trading in July, according to expectations. So which means that it's a little bit higher than the figures that we have delivered for Q2.

Okay, thank you very much.

Next question is from Max Yates, Morgan Stanley.

Thank you and good evening. Could I just start on the growth and I guess particularly focused on the US and where the price rises have occurred. Are you able to have conversations with your customers around sort of pre-buying and whether you're feeling from sort of checking with some of your your branch is whether those results may have seen any benefit from pre-buying, given the prices that you're putting through and, I guess, the expectation that prices will continue to go up in the second half? Or if it is just too hard to say, then I guess I understand as well.

Look, I mean, we don't like pre-buying. We don't like pre-buying on our side, which means that we don't do that. And we publish our inventory a number of days every quarter, so people can see that we are not doing that. And we are not advising our customers to do that, especially in the current situation, because the uncertainty around pricing is still relatively high. So we have not seen pre-buying from our customers and have not done any pre-buying on our side. We do not have the feeling from what we know that many of our competitors have done a lot of pre-buying. So I would say that the supply chain is in a normal state. Is that your question? But that's a little bit the answer that I would give. I don't see a lot of impact of advanced buying in the results of Q2 or in what we are seeing right now.

Yeah, no, that's helpful. And then just could I ask about your China comments? Sales obviously down 10 and you talk about a competitive industrial market, yet the industrial automation selling prices are still positive. So could you maybe outline a little bit what's happening there? And I guess if I read between the lines, it feels or it sounds like you're losing some share with the products you're selling, maybe to some local competitors. But maybe if you could just sort of flesh that out, that would be helpful.

Laurent, do you want to add to this one? Yeah, I mean, the market is very tough, especially with the tariff. We implement customer selectivity to protect the margin, but as you can see in the APAC, gross margin, it's difficult to pass through all the inflation, and we have some squeeze on gross margin. We face also supplier issue with the supply chain with the uncertainty in pricing and delivery issue. And at the end, the domestic demand is very low, and the export because of the tariff has reduced compared to the beginning of the year. So overall, in a very tough environment. where the market is down, it's clear that we are quite exposed to large international suppliers that are losing a bit ground compared to local suppliers on which we start to have relationships but at a lower scale compared to the rest.

Okay, and that makes sense. Just final one. So you mentioned data center has now gone sort of 5% of your North America sales, and I think you said... it felt like it was sort of below where it could potentially be and where you looked at versus other competitors. When you look at those competitors and when you look at the markets and you think about this business on maybe a three- to five-year view, how much could data center be of your sales if you maybe got your kind of rightful share in the U.S.?

Oh, clearly more than today. I don't want to give a figure, but there is – very humble potential for us to, I don't know what are the figures of our competitors, I would say they are probably more for the best competitors around double digit in terms of the percentage of their sales. So with 5% we are really To what extent can we organically reach the same level? I wouldn't be too ambitious on that. I mean, that's a business which is competitive. Once again, it's not as simple as writing it on a piece of paper on a slide. You have to deliver. You have to prove your value to your customers, obviously. But we can certainly continue to progress.

Okay, excellent. Very clear. Thank you very much.

Next question is from Andre Kuknin, UBS.

Hi, good evening. Thanks for taking my questions. I just wanted to follow up on a couple of things first. On the second half growth in North America and the pricing comment that you said that you're not seeing a substantial tick up, I think you saw 2.2x cable and 3 all-in in H1 and then you also mentioned high single digit or mid single digit to high single digit increases of prices by suppliers. So I'm just wondering what is stopping this from going up by about five points in the second half?

You know, what would be stopping it from going above five points is the category that I was talking about, which is steel piping. Steel piping is negative to the extent of double digits, and how much does it represent in the mix, Laurent? A bit less than 10%. So there is an adverse effect of between 1% and 2% created by the steel piping deflation, which is probably going to sequentially improve progressively because we're starting to, first of all, there is the tariffs impact, and there is also the fact that the comparison base is getting easier. But still, that's the adverse effect, and that's a little bit explaining what we're talking about. And there are a few categories which in terms of pricing are also a little bit lower than the mid-single digits that we were mentioning. Lighting is one of them where we are low single digits, for example.

Lighting is another one, okay. Is lighting not coming kind of under pressure of tariffs as well and hence not seeing price increases?

It is, but it's also a competitive business.

Thank you very much. And just also another one of these sort of first half, second half questions. On self-help, you helpfully guided for 20 basis points. And I just wanted to make sure I have the right H1 base. Is this the 31 that you gave in the first half on the profit bridge?

It would be a bit more than 31 in H2 bridge. So on the full year, it's around 20 BIPs on the full year. BIPs.

Okay, maybe I'll follow up. I thought the 30 and 30 should be 30 for the full year, not 20.

31 basis points in H1 and you will have a bit more in H2.

Okay, I'll take that. Thank you. And then just a last piece on North America when you talked about market growth. I think you mentioned everyone growing apart from one or my line was maybe breaking up it was that the case and if that was what's the one end market that isn't growing

All end markets in Q2 are growing. I think residential, commercial, and industry, all three of them are in growth mode. The weaker being probably residential. In residential, once again, I will do my usual comment, which is that we are very local, which means that our exposure is mostly the northwest of the U.S., So I'm not sure we are a reflection of the global residential market in the U.S., but we are slightly positive in the U.S., on the U.S. resi market, very slightly. So, yeah.

Great. Thank you. And, sir, something else just come in, if I may. On the China question that you gave, you talked about one particular international supplier company I think, not performing. Is that one of the kind of large international players that you cited there?

No, no, no. Overall, it's a player that is suffering.

Great. Thank you very much.

Last question is from Miguel Borrega, BNP Paribas, Exxon.

Hi, good afternoon, everyone. Two questions for me. The first one is just in Europe. I see your gross margin was up five basis points, but your adjusted EBITDA down 55. On GNA, it's basically flat versus last year, but that trend was coming down sequentially. So have you basically reached your limit to how much you can take cost out of

Can you repeat a little bit slower, Miguel, because you're going too fast for my brain. Say it again.

Well, your gross margin is basically stable versus last year, but your adjusted EBITDA margin is down. And the reason for that is your SG&A is basically flat on your sales being down. So the question is, have you basically reached the limit of to how much you can take out from the cost base?

Look, I mean, no, we never reach a limit from this perspective. There are timings involved. If I take examples, in Germany we have started to optimize our cost base and we are now entering into a second phase which is going to help. The other thing in H1, when you look at H1, Don't forget, from H1 to H1, the fact that there is an important calendar effect between 24 and 25, which is weighing adversely by 14 bits. So this one has to be taken into account when you look at the absorption of fixed cost and the overall profitability of H1 to H1 in Europe.

the same question for North America your growth was six percent in the first half but your adjusted EBTA margin has only gone up 23 basis points with most of that coming from the gross margin can you try to give us some kind of color on the split between non-cable and volume in the first half because if there was more price than volume I'm surprised to see so little margin expansion so I what is limiting that margin then you talked about steel pipe but i'm i'm imagining that that's a small percentage of your product envelope no do you want to take this one

Well, first, the operating leverage is lower than in Europe because we are on that project. We have transportation costs and a couple of additional costs that are factored into the operating leverage that bring it lower to Europe. When we look at the bridge, we see exactly the same effect as in Europe with the calendar effect. to this year. And then we have also some inflation in our costs that are waging and with commission on the top line that are waging a bit more than in Europe in our evolution to last year.

Okay, so in the first half in North America, was there more volume or non-cable pricing in the growth contributions?

There have been more volume.

Thank you very much.

We have an additional question from Eric Lemarier, CIC.

I've got two questions, please. The first one on digital sales. You mentioned in the press release that in Europe it's 43% of your sales and 24% in North America. Now, I was wondering if you continue to see a relation between the penetration of digital sales and operating margins level. That's my first question. I got another question. If I make it, can you give us a bit of color on your grant M&A pipeline, please? Thank you.

Very good. So on the first one, yeah, I mean, you know that there is, and I think we highlighted that at our capital market day last year, there is a broad correlation between being highly digital and being profitable. Why is that? It's not really because there would be higher margins in digital. You are talking to the same kind of customer base. You're giving them the same pricing when they buy digital compared to when they buy by phone. So it's not because of a gross margin. It's mostly because of two things. One small effect, which is the productivity that it allows you to unlock, the fact that you are going digital. Everything is seamless, the order taking. So it gains time, obviously. But more importantly, going to high levels of digital penetration forces a given Rexel country to be good at many things in terms of the offer plan, in terms of the supplier selection, in terms of the logistics organization, in terms of the pricing programs that we have. All of that needs to be perfectly in place for us to be able to go digital. And one good example is pricing. If by going to a branch you can get one or two additional percent because the counter guy is your friend, then you're going to go to the branch. So to be able to go digital and to convince your customers to go digital, you need to have a consistent pricing matrix, both in digital and in the branches. And the effect of going to a consistent pricing matrix are positive for the overall business, not only for the digital part of the business. So that's one of the reasons that we see a correlation. It's not causality, it's more correlation. You know, the fact that you put the building blocks in place to go digital are forcing you to be good at many things. So yes, in the end, it's one of the reasons why we push digital, the fact that only excellent countries can have a high level of digital penetration. And I already forgot this question, which was the M&A pipeline. Okay, so the M&A pipeline, as you saw, we have done five small to mid-sized acquisitions, rather small size and mid-sized acquisitions in the first half. I have to say that the M&A landscape, and it's true for us and from what I can read, it's true also from the rest of the industry, is not super active, especially because the economic uncertainty on many things. including tariffs, including tax environment, et cetera, is not helping deciding people to sell. So the pipeline is not super full at this stage. There are a few opportunities that we are pursuing, and you're going to continue to see us active in the second half, but it's probably overall not to be a record year in terms of M&A. Thank you, Juan.

Mr. Taxier, there are no more questions registered at this time.

So in this case, I'd like to thank you for giving us your time this evening in a busy result season. I know that you have many other releases during the week, and we'll discuss again in October for the Q3 results. Thank you very much, and have a good rest of the summer.

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