Earnings Call: Q3 2021

Oct 21, 2021

Good day and thank you for standing by. Welcome to Rexel's Third Quarter 2021 Sales Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's telephone conference is being recorded Thursday, 21st October, 2021. I would like to hand the conference over to our speaker for the day, Mr. Guillaume Teixeir. Please go ahead. Good morning to all of you. Very happy to be with you today for this Q3 sales call. Usually, the quarterly sales call is done by Laurent Delabarre, our CFO. But given the big acquisition that we announced In the U. S, we thought it would be useful for me to be on the call as well. So if we can switch To the first slide, yes. So our sales during this past quarter were robust. This is really the right word to use. Everywhere we look in our world, the underlying trends are positive and solid, boosted by the overall strong recovery of the economy, very active construction markets, Government subsidies in many countries and an overall long term trend towards more electrification. Our sales for Q3 are 11.5% above last year and more importantly 6.7% above 2019, which was a more normal year and a good year by the way. Those are good figures, but the interesting part is that they are not at nominal level yet. Laurent will explain this, but there were several countries where things were still soft this summer either because of continued COVID constraints Or because of longer vacation taken by your customers or because of supply chain constraints. As we have seen since the beginning of this year sorry, this quarter also included a strong contribution from Both on cable and non cable products as a distributor, we know how to handle inflation. So this is not an issue for us, quite the opposite in fact. Importantly, in relation to our strategy, we continue to grow our digital sales faster than our overall sales with 183 bps gained in 1 year. The tools are in place in most of our countries. They are good and it is now a question of pushing adoption to increase the productivity benefits and also be able to address new customer segments that we were not addressing up to now. And obviously, last but not least, a very important milestone was the signing 2 weeks ago Of the Maior acquisition, which I will come back to later in the presentation, I'll just remember remind you at this stage of the main financial elements: $1,200,000,000 turnover, dollars 456,000,000 of enterprise value, value creating in year 2. We hope to close this transaction before the end of the year after approval by the competition authorities. So on the next slide, one topic I wanted to come back to is the current environment marked by inflation and also some shortages. To highlight The fact that this situation in fact is as much an opportunity as a challenge for Rexel. On the inflation side, I talked about it a little bit already, But clearly, it is a day to day job of a distributor to pass through cost inflation. We have a good track record on this. We have very detailed processes. And I would add that over the last few years, our push to more digital and more data That made us even more reactive and even more precise when it comes to managing a volatile pricing environment. You know that on the P and L side, the situation is usually a plus For any distributor, salaries tend to increase at a slower pace than product inflation. On the shortages on the supply side, I would first highlight that we have been relatively protected from that for the moment. We had to manage some difficulties in Q3, Specifically in North America and in Asia where we had to juggle a little bit, but nothing drastic at this stage. And here again, we have the opportunity to add value in this Because we have technical expertise, we can help our customers find alternative solutions if a product is in short supply, either Also thanks to the efforts we have made over the last years to optimize our supply chain, We have gained a lot of agility to put the right inventory in the right place. And also because of our scale, we have strong relationships with most vendors, which allows us to have So I wouldn't try to predict how long this situation of inflation and And short supplies for some categories is going to last. If it will worsen, if it will ease, but what I can say is that we are fully prepared for it. With this, let me hand over to Laurent for the detailed comments on the results. Thank you, Guillaume, and good morning to all. Let's move to Slide 6, which shows the geographical performance of our sales in Q3. Guillaume already commented on the trends at group level We send a sales growth of 11.5% in Q3 2021 versus Q3 2020 and up plus 6.7% when comparing With Q3 twenty nineteen, this plus 6.7 percent same day sales growth posted in Q3 versus Q3 2019 by several factors. First, the fact that customer took more vacation in 2021 after an exceptional 2020 during which They did not take any or little very little vacation. 2nd, the new COVID wave In countries like the U. K, Australia and New Zealand, third, tension on the supply chain, specifically on project Related business in North America and China. By region, all three geographies These are, however, above pre crisis levels with Europe up 10.4% versus Q3 2019 North America up 2.5 percent, so in positive territory for the Q2 in a row and Asia Pacific up 1.8 percent. On slide 7, we take a look at our overall Q3 2021 sales performance. Our Q3 sales of €3,600,000,000 were up 11.5% on a same day basis And up 12.6% on a reported basis. Organics same day sales growth was Boosted by a favorable pricing contribution on both cable and non cable products. Indeed, the positive Copper cable price contribution was plus 6.3% in Q3, similar to Q2. Non Cable price accelerated at plus 6.2 percent in Q3 2021, corresponding to a +5.2% contribution To Q3 2021 sales, largely thanks to North America, where prices are up 10.5%, But also to an acceleration in Europe, where prices are now up 4%. Reported sales We are also impacted by favorable foreign exchange of 0.9% and the limited scope effect. We now anticipate the full year 2021 currency impact to be flat assuming spot rates remain unchanged. Let's now look at each geography in a greater detail. On Slide 8, we look more closely at our performance in Europe. Overall, sales in our biggest regions stood at €1,980,000,000 in the quarter, up 10.2% on a same day basis compared to last year 10.4% versus Q3 2019, boosted by both volume and price. I will comment comparing Q3 2019 performance so that we not realize the pandemic effect. Overall, activity remains robust in Europe, driven by proximity and renovation activities. The quarter also benefited from an expected acceleration in price increase on non cable products. We saw lower momentum than in Q2 compared to the pre crisis level. This is explained by several factors, including temporary impact of Local lockdowns and the longer summer break in 2021 in several countries as already explained in the previous slide. It's also explained by your lower contribution from the stay at home effect and greater business activity. If we now zoom in at country level, in our home market of France, which accounts for 38% of our European sales, Our revenue was 14.5% versus Q3 2019, thanks to price increases on non cable products And the robust activity in all our markets, including a strong HVAC business. Sales in Scandinavia were up 5.8 versus Q319 with positive trend in Sweden, especially with small contractors, partly offset By a longer summer break effect. Sales in Germany were up 27.1% versus Q3 2019 With all end markets above pre crisis level, the quarter benefited from further recovery in industry. The country continues to face manpower scarcity issues. Sales in Benelux were up 10.1% versus Q3 2019 With the strong underlying performance in Beavix, offsetting lower sales in PV products due to the end of subsidies in funders. Sales in the U. K. Were down 6.6% versus Q3 2019, temporarily impacted by the 3rd COVID wave. We anticipate now a better Q4. On slide 9, we look now more closely at our performance in North America. Overall, sales stood at €1,260,000,000 in the quarter, up 17.4% on a same day basis compared to Q3 last year And up 2.5% versus Q3 2019. I will also comment comparing with our Q3 2019 performance So that we notarize the pandemic effect. Sales in the U. S. Are now above pre crisis levels, up 2.8% in Q3 2021 This is Q3 2019 showing a positive trend versus Q2, notably helped by strong momentum in regions driven by the proximity business and further improvement in regions that were hardly impacted by the pandemic. This is the case with the Midwest region, which benefited from better activity in industrial MRO business and Gulf Central Leveraging a better level of activity with large commercial and industrial contractors. The pace of recovery was impacted by supply chain tension, Especially on project execution, volumes remain around 20% below precalice levels, Largely from our large exposure to project activity, leaving room for improvement in the future. Moving to Canada. Sales are up 15% versus Q3 last year and 1.4% in the quarter versus Q3 2019, Notably, thanks to activity above free crisis levels in commercial and residential, offsetting lower activity in industrial. The lower momentum compared to the Q2 trend can be explained by temporary tension on the supply chain in calendar. On the next slide, Slide 10, we look now at our performance in Asia Pacific. Overall, Sales to that EUR 317,000,000 in the quarter, down 1.3% on a same day basis compared to last year, But up 1.8% versus Q3 2019. Focusing on the 2 largest countries, Australia and China. In Australia, sales were up plus 2.8% in Q3 2021 versus 2019 with positive momentum in the residential business. The lower momentum than in Q2 2021 is largely explained by the severe lockdown in the country. In China, Sales were down 6.2% compared to last year, despite the negative impact of 900 bps in the absence of the Aerobusiness this quarter. Now when comparing with pre crisis levels, sales are up 3.8% Our 23.2% restated from the contract from this contract. It compares with around 31% in Q1 and 21 illustrating the negative momentum of industrial demand in China that cannot be explained by product availability. I will now hand over to Guillaume. Thank you very much, Laurent. I'm now on Slide 12. In this section, I will tell you more about the acquisition of Meyer, which is a real game changer for Rexel in the U. S. So Maier is a major distributor of electrical products and services in the eastern part of the U. S, headquartered in Birmingham, Alabama, Founded in 1930, Malyer operates 68 branches in the Southeast. It counts 1200 employees And Generati, the turnover of approximately $1,200,000,000 over the last 12 months through the end of August of 2021. It's Rexel's biggest acquisition in a decade, building on the successful U. S. Transformation carried out over the past few years, which has really given us a robust platform led by an experienced local team. So On this slide, we present the transaction's compelling rationale. So firstly, Meyer by itself is a very solid company with an excellent reputation in the market, High quality teams and strong values that fit well with Rexel's. 2nd, the two companies have complementary footprints And Rexel will be strengthened in regions where its presence still offers room to grow and you will see that in the next slide. 3rd, Maior will be able to benefit from Rexel's advanced digitalization, sharing its tools and knowledge to accelerate Maior's growth. 4th, This transaction is fully in line with the strategy that we presented at our Capital Markets Day in February, at which we said that Rexel wanted to resume bolt on acquisitions and grow in its Key geographies in the Electrical Distribution business. Last but not least, this deal offers a high level of synergies and will create value in year 2 post closing. As you see on slide 13, the acquisition strengthens Rexel's footprint in the eastern part of the country, complementing the strong platform that we built in the Western U. S. After the 2012 Platt acquisition. The two businesses are highly complementary, which will scale up our business and help us deliver significant synergies. As you see on the map, MYERS 68 branches are located in 12 states with a strong presence in states such as Alabama, Florida, Georgia, Pennsylvania, North Carolina and Virginia. Meyer will continue to operate as a separate banner Management led by its current CEO, Wes Smith will remain in place reporting to Jake Baker, the CEO of Rexel in the U. S. We expect the transaction to deliver synergies of more than circa $20,000,000 on an annualized basis. And this will mainly come from several areas, including digital acceleration and data driven processes such as, for example, churn, upsell, pricing Local synergies, including logistics and transportation unoptimized OpEx base, taking advantage of scale And also leveraging a larger supplier and customer base. On Slide 14, we take a quick look at the key numbers The combined operations adding up Rexel and Meyer, our last 12 months revenue in the U. S. Stands at $5,400,000,000 We will have 446 branches, 6,550 employees And we will gain one rank in terms of North American market share and becomes the number 4 player. So with this acquisition, Rexel confirms that North America is a key pillar of its strategy. On slide 15, we show that the transaction is also fully in line with our strategy and ticks all 1st, it reinforces our Electrical Distribution business in the U. S. 2nd, The first synergies will be delivered in year 1, so will benefit 2022 and they will reach approximately 1.5% of acquired sales in year 2. 3rd, the transaction is projected to be accretive to Rexel's earnings per share in year 1 And it will be value creating in year 2 fully in line with the group's commitment. And 5th, even after the transaction, Rexel's indebtedness ratio will be below 2 times EBITDA on a pro form a basis. So overall, as you can tell, we really think that this acquisition makes a lot of sense both So let me conclude before opening to questions on slide 17 with our 2021 outlook. After a strong 1st 9 months, we are highly confident of reaching our 2021 guidance and confirm the The raised guidance that we provided at the end of June. Leveraging on our continuous efforts, so we target for full year 2020 That's comparable scope of consolidation and exchange rate, a same day sales growth of between 12% 15%, an adjusted EBITDA margin of circa 5.7 And the free cash flow conversion above 60%. As you saw on today's call, we are actively implementing Capital Market Day strategy, Putting us well on track to achieve our 2023 ambition. And it goes without saying that I am fully supportive of the objectives Provided at the CMD in February even if I was not there as a CEO at the time. So thank you for your Thank you, Sean. And Laurent and myself, we'll now take your questions. Thank you. We will now begin the question and answer session. Sir, your first question comes from the line of Lucy Carre from Morgan Stanley. Please go ahead. The line is now open. Good morning, gentlemen, and thanks for taking my question. I have three questions, please, and I will go one at a time. The first one was around the U. S. Momentum and specifically around the volume. It seems to me and maybe this is incorrect that maybe the volume is actually maybe lower than what we have seen in the second quarter If we compare to pre level crisis, and I was just kind of curious to understand maybe what's driving Kind of the lack of recovery on the North American and particularly U. S. Volume versus maybe what we are seeing in Europe. And if you see effectively this kind of gap in volume recovering in the Q4 and beyond or whether this is more structural? Good morning, Lucie. Laurent, I will answer to this one. Our volume in the U. S. Are still down. They are down about the same level as what we see in Q2. We have there a very strong inflation impact as we have discussed. We are Very much higher than 2019 on the proximity BNet and some of our regions are even 30% North of 2019, it's again on large project and industry that is still a bit soft, which leaves rooms for the future quarter, but we don't see any And material downside last year's Q2, it's more the opposite. Maybe Lucie one additional comment. This is Guillaume speaking. One additional comment is that, of all the geographies, the U. S. Is probably the place where we are starting to see a few supply chain issues. And in fact, when we look at our backlog of orders, it substantially increased in North America. So overall, this makes us very confident in the underlying Thank you very much for that. I also wanted to ask about the pricing. I think I was Quite positively surprised by the strength of the copper pricing still in the Q3. I had expected it to kind of tail down a little bit. So I was just wondering if you could give us maybe an update in terms of which type of pricing dynamic you were expecting for the full year, both for the copper sales and also the non cable sales. You're right. And looking at the copper itself, Start to increase last year compared to this year, so we could have expected a lower impact of cable price increase. However, it is the input cost of the manufacturer that has increased mainly on salary and benefits And to a lesser extent on transportation that has led at the end to a cable price increase Of 3.6.3 percent in Q3, which compared to 6.5 In Q2, so it's a bit lower, but when you look just at the copper price, it should have been lower than that. On the non cable price, we have seen an acceleration mainly coming from Europe. Non cable price increase in Europe was 1.4 in Q2 I'll move to 3.3% in Q3. So it increased quite significantly. And in North America, it was close to 8% in Q2 And it's at 9 in Q3, so it's a quite similar level of inflation on non cable products. Maybe one comment, Lucie, on What you were asking about outlook, when we talk to our suppliers, we get the impression that we are Inflationary environment in terms of cost of factors and indeed what we have seen which is not totally usual is price increases from some suppliers at this time of the year, which is not what we see usually. So we get the impression that we are In an inflationary environment for the months to come. Thank you. And my last question was around the Meyer acquisition. I was wondering if you can maybe give us a little bit more details around the profitability of the business, but also around the exposure and the end to which the company is exposed, is it more proximity, is it more project, is it more industry? And also, I Notice that you were talking about some synergies already coming next year, but maybe can you help us understand How do you expect the breakdown of synergies between 20222023 roughly? Yes. First on the profitability, as you can expect, we don't disclose the profitability of Meyer, but I think you have all the elements in the press release to do the math by doing a reverse calculation on the value creation In year 2, as we have explained on the synergy, a big chunk of it are coming from the purchasing synergy. So that's the one we can grasp quite quickly and so they will be coming quite soon next year. And in terms of end markets, there are more in large projects And also in the proximity, a bit less in the industry compared To the rest of our U. S. Platform. Thank you. I'll go back in the queue. Thank you. The next question comes from the line of Andreas Kukhnin from Credit Suisse. Please go ahead. The line is now open. Good morning. Thank you very much for taking my questions. I'll go one at a time. I've got a couple. Could I ask you about The comment you made on the slowdown of the spend at home trend, could you give us a bit more detail on that geographically and Kind of on significance of that please? Yes. It's what we call the stay at home. In fact, during COVID, people feel the need To be better at home and they save money during the pandemic. So when it reopens, they invest in their housing in the building. And so we see a bit of boost. It was mostly in a couple of European countries such as Austria and to a lesser extent France. So that was kind of a very high level in Q1, Q2. And this is smoothing A bit in Q3 and that coupled also with the vacation effect explain this impact, which We are not so much concerned about because there is a more longer trend about building renovation. And so it will Smooth, but stay at high level for the coming quarters. Okay, got it. So you're not I'm calling the a clear slowdown in that. We've just seen a sort of a degree of moderation. Would that be the right read? Okay, great. And second question on pricing on thank you for the details on Europe that you've just given for non cable pricing. At that Plus 3.3, do you think we're now kind of market to market in terms of where the spot prices are and have been? Or would you anticipate that To move up further in Q4. I think it will at least take that role and maybe will still increase To some extent, and it will continue also. We will have the carryover also effect in 2022. But we have seen that compared to the U. S, the inflation came slower The North America, so it will last at least at this level in Q4. Thank you. And if I may, just a final one on capital allocation post Maya deal. Should we think about now Kind of a period of digestion? Or do you think elsewhere in other regions you carry on with the acquisition strategy? And Maybe could you comment on the pipeline as well related to that? I can comment on this one. This is Guillaume Teixe speaking. You've seen the leverage after the Meyer acquisition, which is still very good and It is very much in line with what we had announced at the guidance in terms at our Capital Markets Day. So we still have room for further acquisitions. We are looking at several of them, but we are staying really within the guidelines that we had given during the CMD, which is bolt on acquisitions and new technologies basically. So we are looking at a few possible acquisitions, yes. Very helpful. Thank you very much to both of you. Thank you. The next question comes from the line of Andreas Willey from JPMorgan. Please go ahead. Your line is open. Good morning, Guillaume. Good morning, Laurent. I have two questions, please. The first one on demand. You gave some helpful comments on Europe terms of sequentially what changed versus Q2 with the summer holidays and so on, maybe you could give us an indication of Where September stands year on year, which obviously is less or not impacted by maybe what happened last year during July And August and whether that's a better indication then of what we should expect to see in Q4? And the second question On for Guillaume, in terms of you have now 6, 7 weeks at Rexel. Maybe you could share some impressions, some preliminary views Also in terms of where do you see potential to reinforce or change certain elements of the strategy, investment priorities, I think that will be helpful. Thank you very much. Yes. On the demand side, I mean, We looked at the quarter, of course, by every month. And clearly, we saw a better momentum in September Dan, in July August months in several countries and when dealing with our local management, This vacation difference was highlighted. And I can confirm also that The momentum in October is very comparable to the September 1, again being better than the last the 2 months before. And for the second question, and thank you for your question. I think it's a quarterly sales call, so it's not the real right time to talk about And also I'm only 50 days in the position, so I will not dare to draw conclusions too quickly. But that being said, first impressions, first of all, Very good teams at Rexel. Very good action plans to implement all the actions that are behind the CMD objectives. So it makes me very confident in what we are doing. Importantly, very good underlying trends in the markets The way that we look, I mean, you've seen the results of the quarter, they are robust. We've had a few one off items and we have some supply chain shortages. But overall, the underlying trends are very robust. And you know, interesting times for distribution, as I mentioned, a time of inflation, a time of shortages is also a time to prove value from the distribution in the value chain. So overall, A very good and strong first impression of what Rexel is doing in terms of action plans. And I will update you more about what I think in terms of strategy beginning of next year. Thank you very much to both of you. Thank you. Thank you. Our next question comes from the line of Martin Wilkie from Citi. Please go ahead. Your line is now open. Thank you and good morning. It's Martin from Citi. So my first question was just on the project business. It seems that some projects might be Slower from the customer perspective because of their own supply chain issues. But just to get some sort of sense, you will often have to Price and so forth for future projects. When you look at the pipeline of what customers are asking you to price for, so projects going into the beginning of next year, Is there any indication that, that's stable or slowing? Or just to get some sense as to how the projects are looking for new projects and, of course, the ones that are currently happening? Thanks. Yes. I would say the level of activity, especially in North America, is still at quite low level. We start to see kind of shortage that are also slowing the delivery of some Project because some products are still missing. However, when we look at our backlog, they have increased. In that, there is A bit lag on the book to bill, so we execute them slower than in the past. But however, we are quite confident With this backlog that it will come back knowing that as a diagnostic distributor, We try to as explained to find alternative solution when some products are missing to help To execute their contract. To be clear, the backlog in North America overall is at record highs. And Overall, in the world, wherever we look, I see no slowdown no signs of slowdown in terms of the, let's say, order intake of new projects. Thanks. That's helpful. And a second separate question. Obviously, in some parts of the world, particularly here in Europe, we're seeing big spikes in electricity prices. It may be too soon to see an effect of this, but Has there been an acceleration in energy efficiency type projects or products even, and obviously, certain things like LED lighting or Certain systems can cut power consumption. Has there been a marked change recently because of higher power prices? Or is it too early to tell the So I think it's clearly a little bit too early to tell, but obviously, this will even reinforce the trend that We're already at play in our space. So this will go in the direction of energy savings projects, which are mostly Consuming more complex automation and more complex products, so I think this is really going to be something which will add To the already underlying good trends, you're right. But for the moment, no. For the moment, it's way too early after only 1 month to see Great. Thank you very much. Thank you. Thank you. The next question comes from the line of Philip Louris from Goldman Sachs. Please go ahead. Good morning, everyone. Thank you for taking my question. My first one is on I'm just wondering at the group level, why are volumes being flat year over year, especially if you say supply chain tensions are [SPEAKER SEBASTIEN DE MONTESSUS:] Seeing a limited impact, that's my first question. Yes. We discussed the different reasons. The first, the one you mentioned, but there are also Temporary reason as we explained during the presentation being the 3rd wave of COVID, especially the U. K. Strongly hit in the summertime, Australia and New Zealand, second is what we call This stay at home, so a bit of acceleration in Q1, Q2, smoothing In Q3 and then we have also the impact of This last project we had in the aerospace in China where we have also a base effect In Q3 compared to Q2, so that's the main reason for this slowdown. Okay. Thank you. And then just on the supply chain issues, do you expect them to worsen from your perspective into Q4? And how long Do you think overall they could last? I think when I talk to suppliers And most of them are also issuing their quarterly results in the next few days. I understand that many of them are juggling with the supply chain. They continue and they anticipate for many of them that the situation will continue for some time. We are fortunate, as I explained, to be in a position in the supply chain where we have a lot of flexibility in terms of Offering different products, different vendors when we need different systems to achieve the same functional goal. So we are in, I would say, a relatively comfortable position, but I expect this Theme of supply chain scarcity, which is punctual and limited to some categories, to continue to be part of the picture for the coming Okay. Thank you. Your next question comes from the line of Miguel Borrega from Sanga, BNP Paribas. Please go ahead. Hi, good morning, everyone. I've got two questions. The first one is on the Meyer acquisition. I know you don't talk about profitability, but if I could push you a little bit more, If you could give us a sense of where the margins sit relative to Rexel, are they above or below the level of Rexel He's reporting now. And then what are you thinking in terms of integration, any material refurbishing? Do they have A digital platform equal to yours, are suppliers and customers mostly overlapping or complementary? Is there a lot to do on the Meyer? Or is it just plug and play? No. I mean, A few comments thank you for your questions. A few comments on the MAIER acquisition. First of all, on the profitability level, To give you a little bit more information, Meyer is profitable in the U. S, but it is less profitable than the group and less than the U. S. But this is a high quality company with very good teams and we believe that we have a strong plan to bring in closer to the average maybe higher Depending on how it goes. So that's the first thing I wanted to say. The second thing About the kind of synergies, are they complementary or are they overlapping, etcetera? You've looked at you've seen that in the footprint. They are mostly complementary in terms of footprint, in terms of customer base. Overall, obviously, there are some overlaps, but I would say that for the most part, they are complementary. And I think one thing which you were asking the question about digital. I think One interesting point is the reasons I believe why major sold their business, where the owners of major sold their business and why they So these 2 rigs are, which is the fact that they have a digital platform, but it's not extremely well advanced. And they deeply thought that they wanted to align with the company, which was more advanced than them and where they could benefit From the already existing platforms. And that's the reason why I believe they made the transaction they signed the transaction with Rexel. So this is probably the field, digital, processes, data in which MAIER can benefit the most From being a part of Rexel, for the rest, it's going to be mostly complementary between 2 very good teams This is part of the U. S. Okay. That's very helpful. Thank you. And then my second question, if you could comment on How price increases will evolve into Q4? Is there further to go in Europe? And how should we start thinking about pricing Into 2022, if copper prices start to come down and as you see economies reopening, do you think You can sustain pricing where it is today? Or do you think you may adjust pricing to remain competitive volume wise Into next year. So on the price increase, as we have already commented, we think that the level We are today, I mean, quite acceleration in Europe. On the level, we have around 3.3% in Europe We'll continue over Q4 year around 9 in North America should continue into Q4. I cannot put that on the non cable. On the cable, it's difficult to predict. We discussed the input cost and the value Of copper, I will not bet on copper price, but all we can read today is that the level will continue to stay Quite high because of the conference on the production capacity and on the other side, the high demand. And I anticipate on inflation to have next year, I mean, the carryover effect of this year plus probably An additional part next year probably coming from higher input costs from our supplier. Great. Thank you very much. And last question on the queue will be Alice Del Leslie from Societe Generale. Please go ahead. The line is now open. Yes. Hi. Thank you. Good morning. So a couple of questions. Just the first one, I suppose, is a kind of follow-up on your expectations around the U. S. Clearly, confident on underlying demand there, citing the kind of growing backlog underpins that, etcetera. So you also seem to be saying that supply chain tensions are increasing. That's impacting The project business, which is obviously where the volume upside is. So how quickly realistically do you think those kind of issues can be resolved? You touched upon Just before some flexibility there to work through those issues on your side, but I'm just wondering whether overall you're kind of as confident as before about the timing of the volume recovery in the U. S. Or whether kind of incrementally the supply chain issues now are starting to push out your expectations a little bit? If I understand well, your question is about how long it's going how long is the situation going to last. I wouldn't bet on that. It's a very complex and tricky situation where supply chain issues are not coming from our direct suppliers. They are coming from The level 5 suppliers in the supply chain, so very difficult to predict how long it's going to last. But what is important is that we are fully ready in terms of collaboration with our suppliers, in terms of training Our experts in the branches to face that and to take advantage of that when it's possible. So really difficult for me to tell you when it's going to ease and at what pace it's going to ease, but we are ready. That's what I would say. When we talk to our suppliers, they seem over the immediate future, which is the next few months, to think That this will continue very clearly. Great. Thank you. And then just for the second question, and apologies if this was already covered because I missed part of the call. But you give us some more color around the trends in China? You maybe comment on the sequential development there. How much of the kind of industrial slowdown that you know Relates purely to kind of product scarcity, versus a kind of an underlying softening in the market in your opinion? Thank you. Yes. I mean, China on one side, we have a base effect with a large aerospace contract That was in our 2019 2020 performance and now which is completely over. In Q3, It's a 900 basis point impact on the performance and restating from that, We see a good improvement compared to 2019. But in that, discussing with our local team, We start to see some bit negative momentum because of product availability. So a bit of slowdown, especially on the execution on projects. And that It's going to last at least to the Q1 of next year when we discuss with local management. Okay. But did you see the headwinds sort of accelerate in terms of product scarcity towards the end of the quarter and continuing to October? I would say on the product shortage, it has accelerated compared to Q2. It's a bit too early to say if it's going to accelerate more than what it has in the recent months, But it is at the level already where local management consider that they are Losing momentum and losing sales because of the shortage of product. Okay. And then just you think that the slowdown in the industry in China that you're kind of calling out just is largely driven by product scarcity Well, there is a bit of underlying softness as well, but I cannot tell you yet. Hadid, it will go down. When discussing with local management, They don't expect that to go very strongly down in the coming months. Okay, great. Thank you very much. Thank you. There are no further questions at this time, sir. Please continue. Thank you very much. Thank you very much for being here today. I will conclude by reaffirming our guidance. We are highly confident in what We have announced in June when we had updated our guidance and we see good underlying trends. So thank you for participating. And the next call is going to be for the yearly results in February. Thank you very much. Thank you. This concludes our conference today. Thank you all for participating. You may all disconnect. Thank you all for joining and stay safe everyone.