Rexel Sa Ord

Good evening, this is the conference operator. Welcome, and thank you for joining the Rexel second quarter and first half 2026 sales 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, Phil.

Thank you. Hello and good evening, everyone. Thank you for joining us today for Excel's second quarter sales and first part 2026, the results call. So as you saw in the figures that we just released, we delivered a strong performance in H1, both in sales and profitability. And beyond the figures, what is particularly satisfactory for us is that those results The direct results of actions we have taken over the last few years in terms of portfolio positioning, growth initiatives, and operational excellence actions.

Laurent will cover the financials in detail.

Before that, I will highlight the strategic teams behind the members, and I will come back, obviously, with our concluding remarks and outlooks. So, shifting to slide three, I will share the main messages that summarize our strong first half performance. First, sales reached almost 10 billion euros for the first time and North America became our biggest platform in the second quarter. Second, same-day sales growth accelerated, up plus 6.7% in Q2. This results from our targeted investment in high-growth segments that are becoming increasingly visible. Third, sales momentum, productivity and discipline execution are supporting margin progression with adjusted EBITDA up 40 bits at 6.2% and non-adjusted EBITDA margin at 6.4% including the one-off gain on copper. And lastly, free cash flow is robust for our first half at close to 250 million euros confirming the cash generating profile of the company. Moving to slide four. It's important to mention that we deliver those robust results in a low cycle and volatile environment with limited visibility and geopolitical tension. Our sales growth in Q2 was above the high end of our guidance, supported by our positioning in high growth segments including data centers in North America and electrification in Europe. More specifically, volumes were positive in all geographies for the first time since Q2 2023, and selling price increases were also positive in all regions, driven by raw materials and energy prices. On profitability, we reached a 6.2% adjusted EBITDA margin despite negative product and market mix effects. This performance was supported by higher volumes, increased selling prices that more than offset OPEX inflation, and we got productivity of 4% thanks to our optimization programs and AI transformation. Moving to slide five, focusing on electrification in Europe, a major growth driver in the quarter. The external context is clearly supportive. Successive heat waves are increasing the need for cooling solutions, while energy price volatility and energy security concerns are driving customers to invest in efficiency, third generation, and energy independence. This is visible across our HVAC, solar, and EV charging businesses. These categories represent 22% of our European sales and grew by a strong 15% in Q2. France and the Netherlands, for example, benefited from the growing demand in HVAC. Switzerland, the Netherlands, and France saw support from EV-related infrastructure, while solar boosted several markets, including Austria, Ireland, and Belgium. Moving to slide six and the data center opportunity in North America, the other major growth pillar in the quarter. This trend is linked to major structural needs around AI, cloud infrastructure, power availability, cooling, connectivity, and reliability. These projects require complex electrical capabilities, strong execution, and close customer relationships. We are moving up the value chain and are increasingly supporting our customers with technical capabilities and solutions. In the US, our data center activity grew more than 80% in the first half, supported by large project execution, notably in the mountain plains area and southeast regions. Order intake remains robust with data centers now representing around 25% of our backlog. In this vertical, we continue to gain market share thanks to our service capabilities and execution reputation. We now anticipate that this segment, which accounts today for 9% of our U.S. sales, will grow above 50% in 2026, versus our initial objective of above 20%. In Canada, we have also built strong credibility from scratch in less than a year, reaching a 7% exposure to the data center segment. And we are now starting to expand into adjacent areas, such as white rooms, fiber optics, and cooling systems. Finally, our latest acquisition, TechnoContact 360, also brings additional solution design expertise. Moving to slide 7, on M&A, we had a busy first part of the year with three acquisitions executed. We are acquiring capabilities, technical expertise, and increased exposure to attractive end markets where Rexel can create additional value. The three transactions completed this year will be adding 400 million euros of sales and strengthen our exposure to industrial automation, advanced services, and data center-related applications. Revere Electrical Supply enhances our position in industrial automation and expands our partnership with Rockwell Automation to the attractive Midwest region. Technocontact 360 strengthens our Canadian data center capabilities and supports our move into higher value-added services. And GE Electronics, our latest acquisitions, closed on July 10th, adds advanced manufacturing capabilities including cable assemblies and panel solutions for leading OEMs here again with a sizeable exposure to data centers. Together, these acquisitions increase the share of the portfolio exposed to secular growth trends and support our medium-term ambition. So with that strategic context in mind, I will now hand over to Laurent, who will go through the financial review.

Thank you, Guillaume, and good evening, everyone. On slide 9, you can see our momentum improved sequentially. We moved from plus 3.4% into 1.26%, to plus 6.7 in Q2 26 with a good balance between volume and price contribution. Third, volumes contribute for 3.1% in the quarter with all regions in positive territory for the first time since Q2 23. Second, selling price contribute positively for 3.6% including non-cable pricing for 1.4% and cable pricing for plus 2.2% reflecting the higher copper price. Briefly, on our two main geographies that I will highlight in the next two slides, North America, representing 47 of sales, accelerated and was up 7.8%. Europe, accounting for 46% of sales, posted robust growth of 2.4%, significantly higher than Q1. Focusing on Asia-Pacific, which accounts for 7% of group revenue and grew by 17%, Sales in China and India grew by plus 9% and plus 31% respectively, supported by industrial automation activity. In Australia, sales growth further accelerated in the quarter at plus 22%, boosted by solar activity. I'll now go more in detail on North America and Europe in the next slide. Starting with North America on slide 10, project activities, especially in data centers and industrial automation, was the main driver of the sales acceleration. Digital adoption continued to progress rapidly, almost up 400 basis points to 27% of sales, supported by new code and other entry tools. This is important because it strengthens customer stickiness while also improving productivity. In the United States, 10-day sales growth reached 7.8% in the second quarter. The performance was driven by very strong data center activity, up more than 100%, continued growth in industrial automation, up 15%, and positive trends in markets such as the space industry, hospitals, and water or waste waters. Canada also delivered solid growth, supported by data center activity and strong performance of our latest acquisitions. As presented on slide 11, Europe showed a clear sequential improvement in the second quarter, up plus 4.4%, driven by double-digit growth in energy transition solutions. And more specifically, France was not sadly supported by HVAC, both in the commercial and residential segments. Benelux benefited from HVAC and EV solutions in the Netherlands, and solar in Belgium. The TAR region improved sequentially, Notably supported by the solar activity, significantly growing in Austria and returning to close to great events in Germany. In addition, we then also delivered growth thanks to good strategic execution and improvement in the residential market. Lastly, the UK remains more challenging, but the strong growth in Ireland helped to partly offset that weakness. Moving now to the half year picture, I'll start on slide 12 with the sales bridge. We delivered H1 26 sales of almost 10 million euros, up plus 2.2% on a reported basis. The organic performance was the main driver. We send the sales growth up plus 5.1%. Volumes contribute for 1.9% and pricing added plus 1.3% in one table and plus 2% each table. M&A also contribute meaningfully with acquisition added plus 1.4%. And these positive elements were mitigated by a minus 2.6% currency effect that will reverse in H2 and a minus 1.3% impact from the disposal of our activity in Finland completed in Q3 2025. Let's now move to profitability and margin performance. On slide 13, we bridge our adjusted EBITDA margin with the improvement mainly driven by operating leverage and well-executed action plans. Adjusted EBITDA margin increased 40 basis points at 6.2%, despite the more competitive environment, negative product mix, and investment for growth. First, scope and effects were positive, contributing plus 11 basis points from good portfolio management. Second, you see that operating average contributed 17 basis points, mainly driven by volume growth in North America and Asia-Pac, as European volumes turned positive in Q2 26 only. Third, the delta inflation, as you know the gap between selling price increase and OPEX inflation, returned to positive territory with a plus 6 basis point effect, mainly driven by Europe. Fourth, action plans contributed for 22 basis points to the adjusted EBITDA, including a record level of 4% productivity from the gap between sales volume growth and reduced average FTE combined with other cross-initiatives. And by geography, the progression was mainly driven by Europe and Asia-Pacific. On slide 14, we look at the bottom line part of our P&L with a zoom on other income and expense, financial expense, tax rate and recurring net income. Other income and expense to that minus 8 million euros, mainly related to acquisition and integration costs, as well as restructuring notably in Europe. We anticipate to be closer to 35 million in full year 26, as we'll further integrate acquisition and execute turnaround in some countries. Financial expense to that 113 million euros, slightly above last year, reflecting lower cost of debt and higher growth debt. It includes 37 million euros of interest on these liabilities. And for 26, we anticipate financial expense of circa 230 million, including 75 million of interest on these liabilities and 155 million on pure financial expense, excluding one-offs. This assumes current interest rate conditions remain unchanged. Our income tax rate is at 30.5% due to the impact of the exceptional tax in France. Excluding that, the normative tax rate stands at circa 27%. And as a result, our recurring net income stood at 347 million euros, a double-digit growth of 13%. Moving to slide 15, we generate gross cash flow before interest and tax, reaching 247 million euros, implying a free cash flow conversion rate of 37%. Trade working capital stood at 16.3% versus 16.9% last year, mostly coming from strong sales growth acceleration in Q2 26. It's worth noting the good management of inventory and receivables with lower days. And lastly, the capex to sales ratios stood at 0.7%, similar to last year. As shown on the next slide, on slide 16, our capital allocation is well balanced between acquisitions and return to shareholders. Overall, our net debt increased by 390 million euros, mainly resulting from two factors. First, 398 million euros cashed out from net financial investments, mainly from the acquisition of Revere in the US, TC360 in Canada, mentioned earlier by Guillaume. Second, the dividend payments relating to 2020 to 2025 for 353 million euros, corresponding to 1.2 euros per share. All this leads to a net debt of 3.3 billion euros and an indebtedness ratio of 2.4 times. We also continue to actively manage our financial structure as shown on slide 17. We extended our debt maturity profile to 125 million euros should shine with 29 and 2031 maturities and successfully issued a first convertible bond in May for 400 million euros with very attractive financial terms and a 1% coupon and a cooperation rate above €50. If you also add in the €1.8 billion liquidity, we have the financial flexibility to execute our strategy and fund growth opportunities. I will now hand back to Guillaume for the outlook and guidance.

Monsieur Laurent, so let me now turn to the outlook on slide 19 and share the reasons behind the 2026 guidance upgrade that you saw in our press release. First, we had a strong start to the year, both in terms of growth momentum and discipline execution. Second, we are capturing secular growth trends across a more diversified portfolio, particularly in data centers, electrification, and industrial automation. Third, our record backlog improves the visibility of our activity for the remainder of the year. At the same time, we keep monitoring potential risks. The macroeconomic and geopolitical environments are still uncertain with energy price volatility increasing. We are also operating in a competitive market and maintaining and progressing growth margin is a constant battle. On slide 20, let's look maybe at our order backlog in North America, which has reached record levels. We have crossed $2 billion in the U.S. and $1 billion Canadian dollars in Canada. In the U.S., our backlog now represents about 3.1 months of sales. You can see the trajectory on the chart since 2022. After a relatively steady phase, we are clearly moving up from $1.8 billion in Q1 to $2.2 billion in Q2 26, a sequential increase of plus 25%, mainly driven by several projects in data centers and in the space industry. In Canada, the momentum is even stronger. The backlog covers roughly 5.5 months of sales with a steady climb since 2024, and a sequential increase of plus 30% in Q2, mainly driven by a large contract won by TC360, thanks to the increased execution capability brought by the Wafsell team. This good start of the year leads us to increase slightly our guidance despite the still uncertain conditions, and I'm now on slide 21. We now expect same-day sales growth of around 5% compared to the previous range of between 3% to 5%. We expect current adjusted EBITDA margin of at least 6.2% compared to circa 6.2% initially and free cash flow conversion still above 65%. Let me now finish with two slides projecting ourselves beyond 2026 and using the H1 results to illustrate the key levels that make us confident in our capacity to reach our medium term target, growth guidance. The chart on this slide illustrates how our portfolio is built. And I would stress that these splits are indicative, meant to show the balance of our exposure, rather than a precise segmentation. So today, roughly two-thirds of ourselves are exposed to the traditional construction and economic cycles, split between renovation and new build in Europe and in North America. This gives us a solid, well-diversified base that will also benefit from any economic recovery. The remaining third of ourselves is exposed to structural megatrends such as AI and data infrastructure, the energy transition, and industrial modernization. And as illustrated in recent financial presentations, these markets grow socially faster than the underlying construction cycle, and this is where our targeted investments are increasingly visible. What is also interesting is how independent from each other those trends are. You saw in the first half that our good results didn't come only from data centers but also from energy transition related trends in Europe and industrial automation throughout the world. This is the kind of balance we have been trying to build over the years and which is now delivering. Now on the profitability side, and I know that the markets are very focused on our mid-term goals of 7% EBITDA profitability, let me try to share with you on slide 23 why we are increasingly confident Our Accelerate 28 strategy plan works as a roadmap. As we advance and execute it, we progressively validate the different pillars. Please note that the figures on this symbolic bridge are illustrative. They are meant to size the potential of each level and to explain our reasoning, not to give precise guidance break by break, as not all will materialize at the same speed. Let me walk you through the main pillars, starting with the drop-through on additional growth. This growth will come both from cyclical recovery and accelerating trends. There are many uncertainties here, but we know that drop-through on additional sales is usually around 5 to 10 bits by additional growth percent on volume. And we see also on this year's results, for example, the order of magnitude of how much electrification trends can bring to the top line. Second, productivity and automation. Salaries and benefits represent around 10% of ourselves and our current initiatives point to a double-digit additional productivity potential. This is where AI is a very significant opportunity for us. That said, this is a calculation one should be very cautious about for many reasons. Firstly, because this is only an initial evaluation. Secondly, because theoretical productivity doesn't always translate into real productivity, especially in parts of our organization with small groups of people. And thirdly, because in a competitive world where every competitor is working on AI, parts of the benefits may be given back to the customer in price. But you get the idea, which is that the potential of this initiative is quite sizable. Third, the turnaround of our least profitable countries. Our four least profitable countries represent around 15% of sales, and we think that there is a triple-digit BIPs profitability improvement potential here, and actually in H1 we have started to deliver that. But here again, many caveats, the first one being about execution risks, obviously, and the second one about double counting with other pillars. Fourth, Operational excellence, several programs launched under Accelerate 20.8 in pricing, supply chain, procurement, product mix, carry overall a double-digit BIPs global EBITDA improvement potential. And finally, portfolio management, adding around, as a backer of the envelope calculation, adding around 10% of acquired sales with a 200 BIPs accretive effect, for example, from synergies, who generate roughly 20 bits of EBITDA. So once again, the idea of walking you through this bridge is not to give you guidance, but rather to share with you two main things. First of all, there are many initiatives taking place. Some will succeed beyond our expectations, and some will, to the opposite, not realize their full potential. But the fact that there are so many action plans is giving a good degree of comfort. and obviously the second takeaway is that the sum of all the potential is higher than 80 bits. Even if there are double contentings, probably over-optimistic assessments and bumps in the road, we feel relatively safe that the path we are taking is leading us to our goals. So that concludes today's presentation and in summary, H1 2026 demonstrates that Rexel is delivering profitable growth, transforming its portfolio and improving visibility. We are very pleased with the performance, but we also see that further evidence that the transformation is gaining momentum. Thank you. Laurent and I are now happy to take your questions.

Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove your question, please press star and 2. Please pick up the receiver when asking questions. First question comes from Martin Wilkie of Citi.

Good evening, it's Martin at Cicely. Just a couple of questions on your revenue guidance. You obviously put the guidance to the upper end of the prior range, but there's also a very strong Q2. If you could just talk a little bit about how you see some of the benefits you had in the second quarter continuing, particularly electrification in Europe. obviously benefited from energy prices and presumably investment in solar, EV, these kind of things. Does that continue into the second half or was that really mainly boosting the second quarter? And in terms of pricing, that accelerated quite a decent amount in the quarter. Is most of the pricing from a sequential perspective now done or are you seeing signals that pricing should continue to go up over the course of the year? Thank you.

So, a good question, Martin. First of all, in the electrification trend in Europe, it's difficult to predict with certainty. I mean, first of all, it was a little bit unexpected. The turn of events triggered a high level of interest in electrification, and I can tell that this level of interest continues in July. So, this is the first thing I will share with you. Obviously energy prices were triggered. Energy prices are still relatively high with a lot of geopolitical uncertainty so we continue to see a high level of interest into that. One thing on which I'm a little bit less sure for H2 is obviously the high level of interest that we had in June in particular to air conditioning technologies. It's not a big proportion of ourselves. It's around 2% of ourselves in Europe. but that being said there was a high level of interest due to the heat wave in Europe. It seems like we are going to continue to have a hot summer so we may continue to see some of that but it's not a given and it's really weather dependent. But for the electrification trends at this stage we continue to see a high level of interest and I have to say many customers I'm talking to are realizing that it's not just adapting to the to the short-term energy valuations, but it's also making sure that they build an energy supply source which is resilient and risk-free. So I think probably the market, there is a little bit of structure in there, but obviously if the oil price drops down, you know, we may see a little bit of a slowdown here, but at this stage I don't see that. When it comes to pricing, we have a few price increases happening at the beginning of H2. I don't think it's going to be of the order of magnitude in terms of sequential pricing of what we have seen in H1. But that being said, we have a little bit of sequential pricing coming in. That's what I would say.

Great. Thank you very much.

The next questions are from Akash Gupta of JP Morgan.

Yeah, hi. Hi, Guillaume and Laura. I have a question on margin. If you look at historically, in normal years, we have a seasonality of H2 margins being ahead of H1 by around 40 to 50 and sometimes 60 basis points. I mean, you have not given a precise margin guidance in your guiding for at least 6.2%, but maybe if you can talk about some of the margin bridge and anything that we should be expecting this year that might be different than what we have seen in normal years in the past. Thank you.

Laurent, do you want to answer this one?

Yeah, I mean, we guys, on the margin side, there is two components. The first one is the gross margin, where we, in the first half, we are globally flat with two balancing acts, a bit of pressure on the commercial margin that will continue all over the year because of product mix. and we have also some inflation as we just said that will not be there in the second half so on the margin side we'll have a bit more pressure on the second half than in the first half and in the OPEC side in the first half we are benefiting from the carryover effect of last year action plan which helped us which will be left there in the second half and globally this year we have also a bit more inflation globally on the OPEC That's why today we have a kind of H2 that has not the usual drop-through that you can expect.

But you're right, Akash. Like for like, H2 margins are usually higher, and particularly this year where we have more working days in H2, so that's the basics. But Laurent is right. Laurent is right. There continues to be a little bit of pressure on growth margin, which we are taking into account. A little bit also of timing effect in the transformation plans. So it explains a little bit our caution at the bottom end of the guidance, but obviously we are shooting for higher than that.

Thank you. And just a more strategic question on HVAC. You had a very strong growth in Netherlands and France. How easy it is to expand this business in other countries where you are not expanding, you are not having this right now? Is this something that can be done organically, or do you need more like an acquisition to expand HVAC in other European countries?

Thank you. Look, I mean, in France it was done almost organically, but it was done over 20 years. So I think it would come with an acquisition if we were to do it somewhere else. Let me remind you why we picked France and New Zealand to be a little bit more exposed to HVAC. it's for two reasons first of all those are countries where the two trades HVAC installers plumbers let's put it this way and electrical installers are converging more and more we see common customers so there is a demand for one-stop shop and that's the reason why we invested in those two countries the second thing is in those two countries there is a strong trend in the direction of electrification of heating through heat pumps for different reasons availability of electricity in France Not availability of gas in the Netherlands. So we felt that the combination of those two things made it value-creative for a company like Rexel to invest in that. Now, is it our plan to invest in all European countries? No, I don't think so. We may look at opportunities, but really strategically and always looking at what is the level of synergy and what is the level of growth above the cyclical markets. in the countries where we would be interested. So that's a little bit the answer for me. We will continue to be selective.

Thank you. The next question is from Jonathan Mouncey of BNP Paribas.

Hi. Thanks for letting me ask a question. A couple of them. First of all, you mentioned HVAC and obviously the energy transition technologies. I think all of us in Europe during this quarter have probably looked to maybe buy some HVAC or know someone that has. It's basically all out of stock. I guess you didn't know there was going to be this heat wave. I just wonder, you had this amazing boom in demand. Do you actually have any inventory? Is there likely to be a hangover in Q3 just because even if demand is still there, you basically sold all of your inventory during Q2. So I just wonder whether there might be a bit of a bump there. On Asia-Pac Australia, obviously demand incredibly strong, I think from memory, 22% growth, boosted by solar, and I think that's government initiatives supporting that. What's the latest news on that? How do you feel that may play out? Was that support to end?

Yeah, two good questions. On HVAC and specifically on air conditioning because there was a strong demand in France and in the Netherlands for air conditioning. We happened for non-particularly strategic reasons but mostly because of correction of past situations. We happened to have a high level of inventory in the Netherlands. At this stage, I don't know of any particular shortage in France or in the Netherlands. We have replenished our inventory, and we are not going to face shortages in H2 if there is additional demand. Now, if there are five heat waves between now and the end of the summer, it may become an issue, but it's going to be, from a business perspective, it's going to be a good issue. But at this stage, I think we are in pretty good shape. Better but not worse than any competitor. Now, when it comes to Australia specifically, because I think the rest of the growth in APAC is mostly China and India on industrial automation, but you're right. In Australia, part of the growth, a small part of the growth is that the market is doing a little bit better outside of PV, but a big part of the growth is PV and batteries. There has been a program, a plan, the reduction of incentives in Australia. But that being said, I think the reduction of the incentives was two months ago, I think? In May. In May. And we have not seen such a sharp slowdown in PV. I think it's a little bit the same answer I was making to Martin about electrification. Australia understands that overall they are super dependent on oil, specifically oil coming from the Middle East. The Middle East conflict is not finished. And so from a risk management perspective, it continues to make sense, even with slightly lower incentives, which are still at a good level, to invest in PV and batteries. So we continue to see a good level of interest plateauing a little bit, but that being said, still much higher than one year ago. I'm not able to predict exactly what's going to happen in the future, but it feels like many economic players or residential homeowners in Australia are continuing to be very interested in photovoltaic technology.

Thank you.

The next question comes from Maxi Gates of Morgan Stanley.

Thank you, and good evening. So I just wanted to ask about the sales growth guidance. and the sort of step up of, I guess, you know, 100 basis points from sort of four to five. I mean, it looks like you can get kind of most of that from the step up in your data center guidance. So I guess I was just kind of curious around some of the parameters that have led you to upgrade the guidance. You know, I remember you talked about kind of copper prices of $11,000 within your prior guidance. Has that changed? Now, have you changed? You used to quite helpfully kind of break it out. Yes, I am.

No, I think there are many things playing into the guidance upgrade. On the positive side, there is obviously the data center business and you have seen the backlog, so we feel very comfortable with what we are going to deliver between now and the end of the year. I'm not saying it's in the pocket, but frankly it's quite secure. Then the second thing is, you know, there may be, I mean, on the full year basis, there is a little bit of electrification effect in Europe, and there may continue to be a little bit of a tail end of an electrification effect in Europe, so that's a second part. Thirdly, you're right that there is a little bit of pricing compared to the initial guidance in copper. That's contributing also. But on the opposite side, there are a few negatives. You know, the few negatives are that the economy in Europe is not doing better, and to the opposite, you remember that in the initial guidance, we had integrated a progressive recovery of the economy in Europe, given the geopolitical situation, given inflation, given interest rates. I'm not planning on that anymore. And in the US, There is also a little bit of question mark about the economic prospects. If you look at the Q2 sales, if you subtract data centers from North America or the US, and I think I'm pretty sure that you have done the math, and if you subtract price, you will see that we are probably slightly negative in the West despite automation being up by double digits. So the real economy in the US is not doing that crazily well. There may be a little bit of the fact that electrical installers are mostly focused on data centers, so the capability to install other things is reducing. But that being said, it leads us to be a little bit more cautious than what we were at the beginning of the year on the rest of the U.S. economy beyond data centers and industrial automation. So that's a little bit how the guidance is made. You're right that if I take only data centers and copper and electrification, I would get to a higher result than the around 5%, but there is also a level of caution and uncertainty around the macroeconomy.

Okay, and given you asked me once my other question, maybe just one, I'll ask a different one. Just the one off on copper that you talked about, is that inventory evaluation, and I guess what I was trying to understand, you know, if you go back to 21 and 22, you know I think you talked about quite sizable inventory revaluations then and those were kind of included in the underlying numbers so I guess I'm just trying to understand you know exactly what was that 21% offering back?

Yeah so I'm not sure I completely understand the question but let me remind you how it works which is that The one of specifically on copper is the difference between the 6.2% adjusted EBITDA margin and the 6.4% that we usually don't report. I mean, it's written somewhere in the press release, but we usually don't report on its first page. So, you know, the difference between the 6.2% and the 6.4% is the one of on copper. In times, in 2021 and 2022, and not only, I mean, there was a little bit of inflation on copper, but more importantly, there was inflation on the rest of the price of products. And when there is inflation, and therefore, let's call it inventory, one of the effects on the rest, which is not copper, we take it in the EBITDA percentage, the adjusted EBITDA margin. That's, you know, that's the way it has been built with Rexar. It's a little bit strange to understand, but copper is outside of the adjusted and the rest of inflation is within the adjusted and that's the reason why in 2021 and 2022 we disclose to the market not only the adjusted but the adjusted without one-offs also. I don't make that clear.

I was just wondering whether there was any non-copper inventory valuation caught there?

There was a little bit in H1, but relatively limited. And remember that there were also the same kind of limited one-offs last year in North America because of the tariffs. So on a life-for-life basis, the evolution is a little bit positive, but not that meaningful. or else we would have restated it in one of. Okay. Okay. Thank you.

The next question is from Aaron Piccarelli of Bank of America.

Hello, hi, good evening. Thanks for taking my questions. The first one is a follow-up on what you just talked about on the North America Growth X Data Center Industrial Automation. Perhaps could you expand a little bit about the verticals that actually deteriorated a bit and would like to understand if the deterioration happened really at the beginning of the quarter towards the end of the quarter, please?

It's difficult to enter into this degree of detail in terms of... I mean, we have seen... I don't know the answer to that, Laurent, do you know?

Well, we pointed out the ones that were going significantly and the ones which were a bit shy are quite diverse. For example, we are a bit low in the automotive industry, for example, in some regions. That's one example, yeah.

But I wouldn't point at a specific vertical or overall. I mean, growth is still positive. It's volume growth that we're talking about, which would be slightly negative. I remember that last year we had a strong activity in retail, and so maybe there is a negative here. The office space is still not super active. but nothing very dramatic apart from what Laurent was mentioning which is a little bit of...

Thank you. And the other question is on Europe and the sample is not easy to strip out the impact from energy transition products but I wanted to have a rough idea of how Europe sequentially did on residential Did it raise it further? Did it improve any stabilization?

The residential was mostly held by the electrification as we are working mostly in Europe in the renovation side. When outside of renovation, the new construction is still negative. and we don't see any structural improvement overall, but we benefit strongly from this electrification trend that is flowing into the construction mostly in residential.

I would say apart from that, if we try to do the math, we had a growth of residential overall of what, 7%, something like that. Out of that, we have 20% of Europe, which is the electrification energy transition related businesses, which are doing double digits, a little bit more than double digits. So there may be a 3% to 4% contribution of that. So there is still growth in the residential space. There is growth in the residential space, I think, in H1, mostly price, but a little bit of volume, too. Got it.

Very helpful.

The next question is from Daniela Costa of Goldman Sachs.

Hi, good afternoon. Thank you for taking my questions. I wanted to ask two things. First, maybe can you give an update on Germany and UK margins and how are they trending? I guess Germany has turned positive now. Is this past break-even? And then I'll ask the second question.

The quick answer is yes, it's doing well. In both countries we are progressing triple digits in depth in profitability with good evolutions on margin. Our actions are paying off. I mean, I'm not declaring victory here because it's a long-term effort and there may be a little bit of circumstantial. But that being said, yes, it's contributing importantly to our profitability improvement in Europe in this quarter, and this is the reason why we illustrated it in the bridge that we put in the last slide. So, yes, absolutely, it's doing according to plan.

Thank you. And then just as we start to see some announcements, like in France we saw the announcements of SoftBank and data center announcements coming to Europe. Is there any reason why we should think the way that you might or might not benefit from data centers in Europe is different to the U.S.? Is there any structural difference between the businesses, or should we assume a sort of similar trajectory as we start to see these announcements coming up?

I think overall we are less exposed to very large projects in Europe than we are in the The way the industry is organized, but large, super large projects are usually a little bit less distributed in Europe than they are in the US. It would be a long story to explain why, but that's a little bit the case. But that being said, what we have seen in the US is that there are the hyperscale data centers, but there are also the collocation data centers, the edge data centers. where the opportunity for distribution including in the wide space is much higher. So I think overall the answer to your question is you're going to see a little bit of less of an exposure to data centers in Europe but you're still going to see an exposure.

Got it. Thank you very much. The next question is from Andre Kuknin of UBS.

Hey, good afternoon, good evening. Thank you very much for taking my questions. Can I start with one on North America margins, the year-on-year kind of flashish evolution with 6% growth where you talked about normally that should generate some operational gearing. Is that the effect of now having larger projects and hence maybe a bit of margin dilution from that or is there anything else for us to bear in mind there?

William, good question. There are three effects that I will mention. I mean, the first one is you're right. I think the very large projects, including data centers, are probably slightly dilutive, not very much on EBITDA, not much because we are quite selective in general and able to compensate the low gross margin through optimized OPEX, but a little bit, so there is a little bit of that. There is a little bit of investment in the future, too. We are leading transformation programs, quite ambitious, to optimize our service and cost, to build AI capabilities and to position ourselves even better on those fast-growing verticals. That's consuming a little bit of OPEX on a temporary basis. And last but not least, I mean, we have seen price inflation that's true. but we have also seen inflation in OPEX, in medical benefits, transportation. We were overall able to serve higher volumes with stable headcount in North America, but the decrease of OPEX in percentage of cells was not as high as what a perfect sales drop-through situation would have led to. I don't know if I'm clear. And this is because of the inflationary environment, which on the other side creates over-positive effect in the rest of the P&R. But I think those are the three reasons why the margin evolution, the EBITDA margin evolution was not as high as people would have calculated from an outside-in perspective.

That's really helpful. Thank you. Second question I wanted to ask was, is it possible to take out just purely that June HVAC boom, thanks to the early heatwaves, out of Europe performance? Would you be able to say what that Europe growth would be if you just take that one particular piece out?

I didn't do the calculation. Laurent, who is super strong, will do it immediately in five seconds. Four, three, two, one. I will try again by saying it's not super major. It's helpful, but it doesn't completely change the directional picture in Europe. But unfortunately, Laurent will have to come back to you.

Yeah, no, it's not. Yeah, yeah. Inside of the segment, it's all things. Yeah.

Yeah, look, I mean, it's, no, it's not major, it's less than 1%. It's less than even 0.5%, I think.

Okay, so 2.3 could have been, yeah, one and a half or one point something. Yeah, something like that. Okay, great. If I may, just one more. On data centers, What is your assumption now for the full year growth for this segment within the 5% group guidance?

I think I said it at some point, but I said it quickly. We said more than 50% growth of data centers in the vertical. Initially, we were starting the year saying it would be more than 20%. We are now planning for more than 50%. Thank you very much.

The next question is from William Mackey of Kepler Chevrolet.

Good evening. Thank you for taking my questions. A couple. I just wanted to go through the bridge on profitability and give you a chance to call these out. But when I look at the delta on inflation point, you know, I think in the second half of last year, it was somewhat of a challenge. I think there was a headwind of about 90 basis points. and now you've managed to get that to six basis points. So could you talk through or throw some color on how you see the price-cost evolution into the second half of the year given perhaps some of the pricing and volume momentum you've achieved as you've gone through the second quarter?

In terms of price-cost inflation and price-cost delta, I'm a little bit cautious about that for the rest of the year because We are also seeing that inflation of our cars when it comes to transportation, when it comes to medical benefits and salaries, there is a lag effect from time to time. So I think the best assumption for us is to keep it neutral basically. We have taken a little bit of a head start and we are quite proud of what we have done overall. Thank you very much.

Building on the discussion around the bridge, your action plans are continuing to make a good contribution specifically, but again slowed down a little, I think, half on half, H2 on H1. Could you talk a little bit about how you see the action plans evolving? I think you redefined the restructuring charges or the one-time charges to the full year now in your earlier statements, so... How are we thinking about action plans evolving and the drop-through into the second half of the year, please?

You remember that there were many action plans initiated during last year, and we knew that the benefits of the front-end logic, so that's a little bit what it is. But that being said, we are relaunching in a certain number of countries some additional action plans. and so because of that I think you're going to have a contribution of the action plans which is going to be maybe slightly lower but not that much lower but with the different things. There's going to be less carryover from last year and a little bit more of new action plans. That's also the reason why Laurent flagged the fact that we would probably have non-operating costs a little bit higher in H2 than what we had in H1.

I think that's how you should see it.

A little bit less contribution, but not super material compared to H1.

Super. Thank you, Guillaume. If you bear with me, the last question on pricing relates to maybe some additional color on how you saw the price evolution around some of your major categories. I'm thinking, I mean, you've defined cable as we have done historically, but I'm thinking more like lighting or low voltage product or some of the specific electrification areas, which, I mean, PV, for example, that was particularly deflationary historically. So some of the trends around pricing around categories, please.

So PV is starting to be positive again. For the other categories, we have basically it's relatively homogeneous with price increases across the board between 0% and 5% effect. and Lai is a little bit weaker but positive. That's what I would say.

It's very helpful. Thank you very much.

And the final question, sir, is from Eric Lumerier of CIC Market Solutions.

Yes. Good evening. I've got three questions. The first on M&A, I was looking to your slide on M&A and I was wondering whether it was me or are you accelerating in services when I look at the electronics in particular it looks like it's very close to services so I was wondering if we should expect further acceleration in that field second question on industrial automation you mentioned a 15% sequence from growth sequence from growth in Q3 if I'm not wrong but what about you on your growth on Datacom Maybe you can show us the performance of STALE or maybe the TACACOM business in Germany, the US, in Q2.

Thank you. On M&A, it's true that we have a specific focus on services, not on services independently of products. I mean, you should look at the electronics. They are selling wire harnesses, for example, not to the automotive industry, but to professional OEMs, including in the data center cooling area. So we are always more interested in those companies which add specific value to their customers through services. And we have, you know, it's one of the main pillars of our Accelerate 28 programs. We strongly feel that to continue to be profitable and to increase our level of profitability, we need to add more value. So we are pushing that organically. but whenever we can, we also acquire companies having this particular capability and we will continue to do that. Now, that being said, is it going to be a pure new services pillar disconnected from the product's base activity? No. It's always complementary with synergy. When it comes to industrial automation, I said plus 15%, but it was a plus 15% year over year, Q2 to Q2. So it was not a sequence of improvements. No, no, no, that's fine, that's fine. Maybe I was not clear. When it comes to Datacom, I think the category overall I think was positive. I'm not sure. But when it comes to Tally, I know the answer. Tally in the Q2 was slightly negative in terms of progression. compared to a super positive quarter last year, double digit positive last year. And this was completely expected. We know that TELI is also a little bit dependent on the overall cycles of investment of the big telecom operators in the U.S. Thank you very much.

Mr. Texier, there's a last-minute registration from Aaron Ceccarelli, the Bank of America.

Hello, hi, yes, thanks for taking my follow-up. I'll start again on the guidance on organic growth, because there's a very strong momentum in the second quarter. You highlighted this long backlog in the US, also in Canada, some good visibility. So is it just a level of conservatism or you're baking in any kind of potential strong slowdown in Q4? I understand you mentioned some deterioration in Europe and the US, but I'd like to have more light around that, how you think about it, please.

I mean, look, we are not flagging any particular slowdown. Now, the second quarter was particularly good, with a good timing of delivery of orders in data centers, with the additional effect of the air conditioning, which I'm not sure is going to repeat in H2. and there is, yes, a level of caution in the guidance. We have not gone absolutely all in on the guidance because it's a guidance and we want to deliver it also. I understand. Thank you very much.

Thank you for any closing remarks. Thank you.

No particular closing remarks. As I said in conclusion to my presentation, we are proud of the set of results both because they are good figures and also because they illustrate the success of what we have done over the last few years and we hope to continue to deliver a very good year. Thank you.

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