Rexel S.A. (EPA:RXL)

Earnings Call: H1 2020

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Jul 28, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 Sales and H1 2020 Earnings Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. Listen. I must also advise you the call is being recorded today, Tuesday, 28th July, 2020. I would now like to turn the conference over to your speaker today, Patrick Breuer. Please go ahead. Good morning, ladies and gentlemen, and thank you for joining us today. And welcome to this presentation of Rexel's 2nd quarter 2020 sales and first half results. And next to me is Laurent Delabarre, our CFO. And both of us will bring you through the presentation and obviously at the end to answer any questions. We continue to operate in an uncertain and volatile environment. But as you will see, Rexel and have also shown its resilience. All the investments we have made over the past 3 years in people, In inventories, in branch openings, in IT, in digital transformations, all have proven to be relevant and contributed to transform Rexel into a much more robust company, able to navigate the current turmoil without compromising its medium term ambition. It was my goal. We always explained it But until you are in the middle of a real crisis, you never really know, and now we know. And I will start this call explaining how we are adapting to the current environment and how we have managed to mitigate its impact. Laurent will bring you through the detail of our Q2 sales and first half financial performance, and then I will conclude with a look at our immediate priorities and actions. And obviously, we will take all your questions. Now. Now if I look at Rexel in the crisis, and if there would be one way to set Under this agility and one company responsiveness, what does it mean? If you look at This slide, Slide 3, successfully navigating the turmoil, it means, 1st of all, Protecting our people, protecting our customer, protecting our stakeholders. And across the group at every site, From branches to logistic to our headquarters, we have implemented all sanitary measures to ensure the health and safety of all employees and all our customers. We have put in place a strategy called 0 COVID-nineteen at Rexel, and I am pleased to report that we have largely contained the first wave of this and that we are gradually resuming normal working conditions, 2nd, preserving the business continuity for our customers. We managed to be very quickly We have been able to switch our operations online and at home, while at the same time maintaining a high level of customer service. We've always kept a high level of delivery. This allowed us to preserve the quality of our customer relations. 3rd, we demonstrated a great agility and responsiveness. And as promised in our Q1 presentation, We maintain a very strong focus on OpEx management and free cash flow generation. This allowed us to reimburse at the end of June the senior credit line we have drawn down as a precautionary step in mid March. And 4th, leveraging our digital investments. From an internal point of view, our enhanced digital tools, Such as Power BI enabled us to monitor the business in real time and take agile decisions. From a sales standpoint, Digital sales reached almost 21% at group level in each one and represented 31% of sales in Europe, A level never reached before by far, and as you can see, up 5 72 bps. And last but not least, further this crisis, Rexel operated as 1 company, only. One way of doing, one way of protecting the people, one way of preserving business continuity, One way to create agility and responsiveness, nobody was out. One way of leveraging our digital investment, nothing was forgotten. And sharing best practices and applying clear strict rules across the group. And I'm very proud of how the team responded, and a listen. What does it mean to be a robust company? During robust KPIs in H1 2020, despite sharp sales drop in Q2, it means Same day sales in H1, minus 10.6%, but digital sales up and listen. And as you can see, the key aggregates of this first half show that we managed to deliver robust KPIs, Whatever the challenge was at the outdoor. We maintained the drop in sales, notably thanks to the strong online performance. Digital sales really came as a way to get to mitigate the outside world changes in the pattern in the way they were purchasing. Cost margin was resilient at 24.6 points, down 36 basis points, and this drop was mainly due to an unfavorable country mix as our most profitable countries recorded significant drops, while at the same time the drop in volume directly impacted the amounts of rebates we anticipated to receive from our suppliers. Call. Our adjusted EBITDA margin stood at 3.3%, down 136 bps. Listen. This resilient performance is attributable to the major efforts we made to reduce the OpEx in Q2 by adjusting our cost base throughout the organization, either through internal actions or by taking full advantage of our measures We are aware some available. We managed to reduce salary and benefits by 19.7% in Q2, while our top line was down 17.7%. At the same time, we posted very strong cash flow generation At almost €177,000,000 versus an outflow of circa €17 in H1 last year. Listen. This enabled us to lower our net debt to €1,690,000,000 the lowest level since 2,008. As a result, our leverage ratio was even better than last year at 2.59 times EBITDA after leases despite the crisis. On the page after, we wanted to share with you the gradual recovery Since mid April and recognizing through the curve that North America is lagging and lagging behind. When you look at these curves, We reached the worst in the 1st 2 weeks of April when group sales were down 27.7 percent, and then we saw gradual recovery, quite uneven, to reach minus 5.6% in the 1st 2 weeks of July. This gradual recovery is largely driven by the residential market, while commercial recovery started later due to sanitary measures. Industry has been harder hit than with sharp and continuing drops in sectors such as Automotive, Aerospace, Oil and Gas. Europe saw the biggest fall and as much as 37% in early April, but has since gradually recovered as lockdown measures were lifted. Overall, in the 1st 2 weeks of July, sales are down 3.6% year on year despite very contrasting trends from country to country. France and Belgium have rebounded quite well, while U. K. And Southern Europe continue to be affected. North America has lagged behind falling less at the start, but taking longer to recover, and we experience very diverging trends from region to region. Pacific, overall trends were resilient with the low point at minus 19.2 percent before bouncing back to minus 0.7% in the 1st 2 weeks of July. Here too, there was a clear difference between Australia that helped well through the crisis while New Zealand felt the impact of a very severe lockdown. One thing, if you go on Page 6, we have succeeded to navigate without compromising our midterm ambition as shown on this slide. Despite the fall in activity, we have not closed branches during the crisis. And listen. First of all, this compare with 265 brand closures during 20 eight-two thousand and nine crisis, and we believe our broad footprint will be a competitive advantage and allow us to benefit from the recovery. But the long term patient We built that we just had been finished in the U. S, we didn't want it to jeopardize. We have not done. It's all intact. We have adjusted the staffing, adjusted the OpEx, not given away the asset of the footprint. We also took the opportunity of the crisis to reinforce our relationship with our main suppliers. We have intensified listen only to the interaction with them. Our analytical tools make us The eyes and ears of our suppliers in our markets, providing them with business intelligence to navigate the crisis and demonstrating our key role in the value chain. We continued investing for growth, notably in digital, in all three layers: data, on a layer of transaction and layer of predictive, as well as we have continuous Progressing in automatized storage solution that plays a broad offer at the disposal of our customer with minimum time spent, Enhancing efficiency and productivity, and we will not stop doing. We will continue. Listen. This also minimizes human interactions and improves safety condition in a COVID-nineteen context. Only. Finally, we continue to favor social and environmental actions. For instance, we did not suspend any contract in France to protect youth employment and we are revising transportation as we target carbon neutrality. Listen. On the Page 7, for the crisis, we also changed and in order to continue having the full benefits and the full support and engagement of our Board, and therefore, for example, we had 9 exceptional short board meetings since mid March, while enabling rapid decision making and buy in for all our measures. Our Board is experienced, diverse, International with 80% independent members, nearly half of our directors don't French, and we recently appointed Brigitte Pantaloup as an independent director and so that we have reached full gender parity at our Board. And this Board worked in a very reactive way, fully supporting of us in these special phases. Let me also point out that our recent AGM, which was held behind closed doors due to the pandemic, it was decided to extend the age limit of the formation that has put Rexel in a stronger position to navigate in turbulent waters. Now I will come back later In order to go through Q2 sales and H1 financial review, I leave the floor to Laurent. And I thank you all the employees, all the Board members, all the stakeholders Thank you very much, Patrick, and good morning to everybody. I will start on Slide 9, where you see the geographical breakdown of our sales In H1, Q2 and June to share with you the latest trends of the quarter. Let's focus on Q2. Patrick has already commented on the overall trends on a biweekly basis region by region. Let me remind you that same day sales We are down 17.7% in Q2 with minus 23% in North America, minus 16.7% in Europe and minus 0.6% in Asia Pacific. In June specifically, conditions remained difficult in North America with sales down 20.5%. Europe benefited from a gradual recovery and was down 6.9%. IAPAC for its part was down 2.2%. On the next few slides, I'd like to show how our sales have evolved by region, starting with Europe on Slide 10. Europe sales were down 16.7% in Q2, with a particularly sharp drop in the first half of April, followed by a gradual but steady recovery overall, reaching minus 3.6% in the 1st 2 weeks of July, with diverging trends from country to country. Let me highlight 4 key trends. 1st, we saw an imperfect V shape performance in our most profitable markets, France and Belgium. Specifically for France, sales dropped up to minus 64% in the last week of March before gradually recovering, mainly as a result of positive momentum in the residential and industrial activities. Commercial business lagged in the recovery phase, mainly due to sanitary measures in large project and lower public expense, and our digital offering translated into circa 2 points of market share gains in the 3rd 6 months. 2nd, the countries that had light lockdown measures, namely the Netherlands and Nordic countries, posted a resilient performance. Nordic countries also benefited from good demands from utilities. 3rd, Germany and remain positive throughout the crisis, notably thanks to the construction related business and the limited lockdown. And 4th, Southern Europe and U. K. Were particularly hard hit and the rebound is slower. In the UK specifically, activity was hit by the lockdown until beginning of July and the continuing effects of Brexit. On Slide 11, let's have a look at the situation in North America. Sales were down 23% in Q2 in the regions with a broadly similar performance in U. S. And Canada. Overall, the drop was less severe than in Europe, But the pickup is less noticeable as well, with sales down circa 13% in the 1st weeks of July. This is largely due to the stop and go measures on lockdown and to contracting performance in different regions that I will comment on the next slide. In Canada, sales dropped by 23.6% in Q2 in the same day. Sales recovered since mid May, driven by the western part of the country, notably helped by more positive downstream activity in oil and gas. In the U. S. On the next slide, we observe very divergent situations from region to region. As an illustration, the western part of the country, namely California and Northwest, were the 1st states to lock down before gradually recovering. In regions like the Midwest or the Gulf, activity was largely impacted by depressed end markets such as automotive, aerospace and oil and gas. In the New York area, the pandemic impact has been significant, and we are adjusting costs and taking the opportunity to adapt quicker the organization. Overall, recovery in the U. S. Will, of course, largely depend on whether some regions see a second wave of lockdown. Line. Finally, in Asia Pac on Slide 13, sales in the region were resilient at minus 0.6% in Q2 with sharply contrasting trends. China was hit by the pandemic earlier than other countries and also rebounded earlier and was up almost 14% in the quarter. However, much of this Due to a catch up in activity, and we anticipate a lower pace of growth in H2. Australia benefited from a relatively mild lockdown and was broadly stable at minus 0.9%. New Zealand and India were severely impacted by stricter ground measures, with activity dropping between 80% to 100% in April before gradually picking up. On Slide 14, we take a look at our overall Q2 sales performance. Our Q2 sales of €2,800,000,000 were down 17.7% on a same day basis and minus 19.1% on a reported basis. Organic Sande Sales growth was impacted by negative copper impact of minus 0.7 percent, even so copper price have recovered in the quarter. Sales were also impacted by a scope effect from the positive foreign exchange impact of plus 0.2 percent. And we now anticipate for the full year of 2020 Currency impact to be circa minus 0.5 percent assuming spot rates remain unchanged. On Slide 15, we turn to our profitability by region. Overall, with adjusted EBITDA of €199,300,000 in the first half. Our adjusted EBITA margins stood at 3.3%, down 136 basis points compared to last year with a negative contribution in every geography. In Europe, adjusted EBITDA margin was down 193 basis points to 4% with a gross margin contraction of 60 basis points, mainly due to negative country mix from France and Germany, Negative customer mix, especially in the Nordics and lower volumes leading to lower rebates. On the cost side, we have been reactive and agile in Q2 after having increased OpEx in Q1. I will come back more specifically on the major initiative in every geography on salary and benefits when I will comment the evolution of the operating expense on Slide 18. In North America, adjusted EBITDA margin was resilient, down 73 basis points to 3.2%, thanks to gross margin stability, notably through good pricing management. Increased by 89 basis points to 0.8%. The gross margin contraction came mainly from negative country mix due to stronger growth in China and negative product mix in the Pacific. Here too, we have been very agile and reactive in OpEx management. Lastly, our corporate costs stood at €9,500,000 down by €3,400,000 compared to last year from lower project costs and partial unemployment measure. For the full year, we anticipate the corporate hosted costs to be close to €25,000,000 On Slide 16, we turn to our H1 adjusted EBITDA bridge. Adjusted EBITDA was down almost 37 percent to €199,000,000 and margins stood at 3.3% than 136 basis points. This can be explained by a negative volume and price contribution of 2 61 basis points resulting from the pandemic crisis. This was partly offset by cost discipline, which had a positive impact of 128 basis points from personal employment and internal measures. So the cost inflation was limited to 60 basis points and more than offset by structural productivity gains, mainly from last year's restructuring that and contribute for 26 basis points in the half. Lastly, our investment for growth initiatives were reduced to the most critical areas, Representing only 12 basis points, and we now anticipate circa 20 basis points impact for the full year. On Slide 17, we focus on the different actions we took to manage our operating costs. Overall, we succeeded in limiting the increase in OpEx to 111 basis points as a percentage of sales, while our sales in the quarter were down 17.7%. By cost category, 1st, our fixed costs were stable as we managed to completely offset inflation through lease or renegotiation, notably in the Pacific and in the South of Europe. 2nd, our flexible costs, mostly salary and benefits, decreased in Q2 more than sales, dropping by 20%. This is a result of the combination of making use of governmental measures in Europe to support salaries of furloughed workers and internal measures to control costs. I will detail this on the next slide. Our variable costs were down 10%, impacted by bad debt provisioning and delivering costs that cannot be made fully valuable in such a volatile environment. Only. On the next slide, Slide 18, we illustrate how Rexel has demonstrated agility and reactivity In the face of this new environment, using all available measures to quickly adapt the workforce to protect profitability. Overall, we have temporarily reduced workforce by the equivalent of 4,000 full time employees, a 16% reduction. By geography. In Europe, we have largely used flexibility offered by various governments, especially in France, Belgium, the UK. In France, partial unemployment has been negotiated until end of August and until end of October in the UK. In North America, we have combined governmental and internal measures, which put in place temporary layoffs, mainly for logistic and transportation staff. We put in place absence no pay and follows For people working in our branch network, we put also in place salary reduction of between 10% to 20% for management and back office functions. In Asia Pac, we put in place absence of pay policies in Australia and froze salaries in China. We also implemented more structural measures in some countries or regions, as illustrated by the in the Northeast region in the U. S, in the UK and also in Germany. Lastly, The 20% cut in CO and in the Board compensation was extended for 3 months. As a result, Salary and benefits in Q2 have been cut by 19.7%, more than the 17.7% sales drop in actual days. On Slide 19, we look at the bottom line part of our P and L. Let's start with our adjusted EBITDA of €199,300,000 down 36.6%. Reported EBITDA was slightly lower at €192,300,000 down 39.9% year on year, reflecting the non recurring swing in copper price. Other income and expense amount to a negative €482,500,000 largely due to a goodwill impairment of €486,000,000 on which I will come back on the next slide. It also includes limited restructuring costs of €1,900,000,000 as most of the workforce adaptation in H1 bore no cost. For the full year 2020, it's arbitrary to provide a precise number as it will largely depend on the economic situation as well as the evolution of the pandemic and the level of government support. We will update you more precisely in our fiscal call, But at this stage, you can forecast restructuring costs of circa €30,000,000 on a full year basis. Our net financial expense decreased by €31,200,000 mainly due to the €21,800,000 1 off cost of the bank's refinancing that took place in H1 last year as well as the reduction in our effective interest rate, which is now at 2.43 percent versus 2.82% in the 1st 6 months of 2019. Excluding one off ForEx and interest rate hedging impact, we now anticipate our financial costs to be close to €87,000,000 in the full year compared to €96,600,000 in 2019. Our income tax was up to €79,900,000 With a combination of 2 one off effects, a €29,000,000 release of a tax provision in H1 2019 and a bad guide of €33,000,000 deferred tax asset depreciation in H1 2020. As a result, Net income was negative €439,800,000 and our recurring income stayed at 80 €2,500,000 down 50.7%. On the next slide, let's Details the charge of €486,000,000 coming from goodwill impairments, mainly reflecting lower volume related The COVID-nineteen crisis and higher WACC as risk premium increased in the COVID-nineteen environment. Overall, Despite these impairments, medium term profitability at group level have not changed, and ensuring that we will maintain our road map. It's good to be determined from some various countries, including The U. K, U. S, Canada, Germany, Australia and Norway. Those countries carried historical high level of goodwill either from the Gabriel step up in 2005 or from the Hegemayer acquisition in OA. On Slide 21, we turn to our cash flow statement. We generated a very strong cash flow on the half, reaching 170 of €800,000 reflecting in part the effort we made to manage working capital. This compares with the slightly negative through last year in the period, which is traditionally negative, as you know, due to the seasonality of our business. The strong cash inflow translated into a high conversion rate of 77.7%. Concerning working capital, which is a main factor behind the cash flow improvement, the bulk of the evolutions come from trade working capital, which I will detail on the next slide. There was a smaller but significant contribution from non freight working capital As the reduced level of activity led to lower tax and to lower rebate receivables. Let me share a few details on the evolution of CapEx. It is broadly stable in the half, but most was incurred in Q1. In Q2, we reduced CapEx by €9,000,000 Our strong cash flow performance, Combined with the proceeds from the disposal of Czechs Pro Service and to a lower extent our Spanish export business, allowed us significantly reduced net debt, which was down by nearly €500,000,000 to €1,600,000,000 The lowest level since 2008. This led to a leverage ratio of 2.59x, and answer session. Let me focus specifically on our cash generation on Slide 22. As we already mentioned in Q1, we have focused relentlessly on cash collection as shown on the graph. We made strong effort to manage inventories to adapt to the abrupt drop in demand. Between March June, inventories were down by about €190,000,000 while trade payables were down by about €130,000,000 Which also contributed to the strong cash generation. We focus strongly, of course, on trade receivable, with particular emphasis on receivable monitoring, credit management and cash collection. As shown on the graph, our trade receivables were reduced by circa €230,000,000 between March June. On Slide 23, we turn to our liquidity picture, which shows that we have no short term issues. As of June 30, we have €1,270,000,000 of liquidity, including the available cash And the undrawn facilities on the senior credit agreement. As you remember, at the start of the crisis, we drove down €550,000,000 from our €850,000,000 senior credit line as a precautionary step. Thanks to our efforts to preserve strong cash generation. We were able to more than offset the expected drop of our securitization receivable, which were down by a limited €230,000,000 Given our debt maturities and debt reduction, We were able to quickly pay back this facility that was paid back end of June. As you know, We also decided to suspend the dividend payment this year, and this will result in a cash saving of €145,000,000 in H2. Our leveraging efforts over the past few years have strengthened our balance sheet, and this is really an asset in the current environment. Call. Let me conclude on Slide 24 by reiterating our capital allocation priorities, which we are maintaining unchanged despite the crisis. First, we will reaccelerate our digital journey and finance it through organic growth in order to continue our transformation. We anticipate CapEx to sales of Around 0.9 percent of sales this year and a normative rate of around 1% in the medium term. 2nd, after an exceptional dividend cancellation this year due to the crisis, our dividend policy will resume in 2021 with a minimum payout of at least 40% of adjusted net income. The objective is to maintain a good balance between shareholder return and investments. 3rd, our priority is to focus on the deleveraging of the company, thanks to our free cash flow generation. 4th, We will also consider targeted bolt on acquisitions with a priority on the digital space to acquire competencies and speed up our development and on some geographies, notably the U. S. Any acquisition, of course, will have to respect strict criteria to be completed. With this, let me hand back to Patrick for his concluding remarks. Thank you, Laurent. Let's now look at our priorities going forward in an environment that remains obviously uncertain and volatile. One thing which we will not compromise on is our fundamentals with clear five priorities here. 1st and foremost, continue to preserve the health and safety of our employees and customers. We have done every day. We will continue to do every day. 2nd, continue to ensure business continuity. We have been able to adapt fast. We have learned a lot how to continue to do so even better, therefore, to preserve business continuity under any circumstances. 3rd, focus on liquidity as our key performance indicator. All the company is really engaged behind that, and we will continue to do so every day. For us, protect the company and prepare it for the resumption of, let's say, more normal activity by focusing on gross margin, OpEx and cash management. Gross margin, OpEx, cash management, 3 pillars by which all our country, BUs, Entities are all driving the business every day, and this is the main focus to adapt to all these volatile situations. And Fizz continued the digital transformation through the systematic rollout of our digital capability. Even more through the crisis, we found reasons to do so, to accelerate, to get the fundamentals in place if they were not everywhere, listen so that there is absolutely no delay in this transformation. As such, we will continue to act as one company. We realized through the crisis that we were able to act to behave and to have one way of facing the For a company made of so many acquisitions, it's a real company. It's a one company with sharing best practices and like we never had before. Under Page 27, I'm well positioned because We want to capture and we are well positioned for the new growth opportunities. There will be different plans after the COVID pandemic, some are financed by big governmental heads, some are financed by the EU level, call. Come from different angles, and we want to be definitely part of the green recovery plans, The social responsibility and health and well-being plans, which will structurally increase in any case the electrical usage. Electrical usage will be more and more demanded in most of these plants. And as an illustration, the emergence obviously of electrical vehicles, But also of many other adoption like heat terms, alternative energy increase and so on in order to Electrical products solving also a portion of the CO2 reduction emission. And I should not forget Intelligent Building Solutions. Pandemic raised Intelligent Building Solutions can be a major contributor to it as well as a recovery of the economy. And we will see in parallel, we will see a greater use of automation. It's also a way to social distancing and partial lockdown risks. And we see that in the lips of many People having to make their decision soon, and we will see this greater use, and we will be part of it. Our broad value proposition in product and solution and position us well to seize these growth opportunities. And we are working closely with several suppliers to push innovation into the market around IoT, building automation and more. To better size these opportunities, we have revamped our organization. Our organization will be more and more aligned with customer needs. We are increasing customer touch points Without adding staffing and manning, but through lockers, for example, through automation in logistics, too. Other solutions and services to bring us faster and closer to our customer contact and needs. We are also enhancing the competencies to our employees to increase their ability and prescriptive capacity while building up the sales force of tomorrow. The sales force of tomorrow will be extremely important to influence on all these new choices. On Page 28, we will reaccelerate. There was a little bit of a put on hold in term of Mid March, when things came out, put on all the few developments while seeing where How is it going? We zoom forward, how and how fast and the amount of money involved and kind of stuff. It's clear now that even more than before, we will accelerate this digital transformation road map. And we will not and we will not compromise on the three levels. The data and the uniformization of line. Customer segmentation across Europe is almost finished. The uniformization of product segmentation To better address customer needs, optimize pricing is actively being done. All the transaction No tools, web, BDI platform, track and trace, email to EDI, digital customer is investing. They have proven so valid, so needed, so accurate, So powerful. There is absolutely no doubt that this has been part of the solution throughout the crisis. It will be the solution for Totally facilitated by data handling is allowing to have a much better coverage of their needs at a much lower cost. And all the predictive modules, even if historical data series were interrupted, We realized how important these predictive modules were and are now once we get out of the crisis even more. And making rollout of branch assortment readjusted right now rather than doing 1 by 1, Having a tool in order to get it done and adjusted, we have to restrain retrain the machine. We are retraining the machine. We have to improve. Yes, we are adjusting. We have the skills, we have the people, we have the capability, we have the tools, they are all valid. Same for customer churn, Same for the next best offer ready to be deployed and we will deploy. And there was a short interruption. Nobody could make the test. There was nobody outside. We weren't even allowed to do so, but we have not forgotten how to get it even better. Therefore, all these modules are ready to be part of the solution for Being more efficient, more agile, more customer driven, even much more, let's say, lower cost for after the COVID. Now on Page 29, how do we see the situation? I I mean, nobody has a clear view on where it was, how it could be. Allow me to be quite a little bit advanced in trying to make The shape of potential curves, you remember the pre crisis level, the group at minus 27.7 It's a fact. It went down, boom. Now on the way up, you have seen the curves before. They are not of the same shape, same speed, same kind of. Right now, where are we? We are about to recovering at a minus 10% compared to where we were, Okay. How is it going to happen? I don't know. But one thing I know, we are ready to take both a bumpy road Or any pockets of growth that would offset pocket of depression, we are ready to be more agile. And therefore, the question is when do we cross the next line level in activity? Yes, everybody would like to know, but in fact, It's not the target. The target is continue to be more effective even if It does not come back to the level of activity of before because we don't know, but we have to be prepared for lower. Recognizing that automotive, aerospace, oil and gas will remain under pressure and should not be opportunistic solutions short term, it's only fundamental of structural solutions that will help us making it happen. And therefore, where are we going to be in H2? We are reaccelerating the medium term digital transformation road map. It's on its way, making digital multichannel And the backbone of the organization, we see an increase in number of customers that during the COVID became Mono channel, they want to become multichannel. They were digital channel, and they want to come back to multichannel. Fine. There is no volume price sensitivity to low margin. Therefore, gross margin, there is an OpEx. Let's to chase any OpEx that is not directly needed in order to get the leverage on whatever the sales level could be. And free cash flow and liquidity, we have demonstrated we can generate free cash flow, and we will continue to demonstrate We can increase this generation of free cash flow throughout the quarter. And Also, we have our own KPIs and objectives. We manage by we don't manage by budget anymore. We manage by the next 6 months phases because the budget for this year obviously was shaken up heavily and therefore we have set targets for the first half end of first half we have demonstrated and they were shown to you. And now we have our targets for second half, so that people reach their maximum. And at least You can count on us for managing the different components of the P and L in order to provide the max results that we and get out of this industry and our market positions. And I hope we have provided you with certain clarity on how we have responded to the unprecedented situation that we were facing, but also how we look at The future that we are facing, and as of now, Laurent and myself will be very happy to take your questions. Thank you. Thank you very much. Sorry, there was plenty of noise. We didn't got anything. Okay. I do apologize. The first question we have today comes from the line of Danielle Costa from Goldman Sachs. Hi. Thank you for taking my question. I hope you're all well. Call. I actually have three questions. I'll ask them one at a time. The first one is regarding you mentioned you've started some first of structural measures. I think you mentioned the Americas and Asia. I was wondering if you could talk about the opportunity to turn more of the of temporary savings into more structural savings as you walk into the second half in twenty twenty one, namely With the things that you talked about in automation, sort of what shall we expect there? You want to put this 3 or should I answer this 1? 1 by 1. 1 by 1, okay. On the measures, first of all, the measures are of different nature. You have In the adaptation, you have the measure that we are looking at everything that we could stop, put on hold, knowing we would have to restart depending on volume. And they are the ones that we decided that we could do differently and never restart. That we could re internalize the reduction, something a few things that we decided, okay, we don't need to do anymore, don't do it, and so on. Meaning, you have a lot of management measures that when we thought it was suspending, It becomes suspendable and now it becomes non indispensable and to the point that it becomes a structural change. And it's true in logistics. It's true in making everything more simpler, more shorter. This is what we call XLEZ, With partners or it could be internally and so that we can reduce, for example, the temps and use our people. We can reduce over time And or run very differently by new ship system and different way of using the time available and optimization. All of these things we went through, which already lower some of the cost base. Complementary to it, obviously, due to volume, There was a lot of temporary measures of people benefiting from furlough, partial unemployment, Quote termite, name it the way you want. And we all use in different places where they were. The question is, How much is only to face, let's say, fall and how much will come back And how much will become structural at the end depending upon the level of the comeback. Now obviously, a portion due to the volume came back Because there is a minimum to be done proportionally. And by the way, in doing so, we have new productivity targets. We have the targets That we have increased so that even in this phase, we maintain the pressure on how to be efficient. And it is obvious that part of it will not come back, and it becomes structural. Now we already done Several of them. We have done a portion of them. Depending on the market, they are more or less severe. And we are still uncertain exactly how much depending on the market. But for example, I can tell you Without naming it in detail, that one region in the U. S. Has already done, even if people who are on furlough, a portion We'll never come back, as been told, and it becomes structural measures. And we are doing this and we look at it every week, everywhere in order to come to New structural level compared to before. In that spirit, that's why we have this around €2,000,000 of restructuring costs allocated for H2. Got it. Thank you. And then in terms of the gross margin, as you said, sort of call. You had a negative mix in the gross margin, some of your best margin countries falling down sharply on your slide. It looks like some of them have Recovered quite nicely towards the end of the quarter. Do you expect could we go back to prior gross margin level in the second half. Do you expect like a reversal of the mix? Yes. What we say is that on the gross margin down 30 6 dp, 1 third is linked to the country mix. That obviously will come back. 2 third is what we call The trading margin is done of 3 blocks. The front margin where you have the customer mix, for example, we have more direct customer In the U. S, the one coming to the branch, driving lower margin. We have also a product mix Well, we sell less of, for example, own brand toolings and things which are carrying high margin. So part of that will come back in the second half. Then we have the global relationship with our supplier with less volume. It's not a major part of our rebate, but we have conditional rebates to volume. On the other side, during This period, we create a stronger stickiness with our suppliers who are a lot of analytics. So There will be some discussion around that part, but that could decrease to some point. And the third, because of the sharp drop, We are a bit mechanically hit by the OXXO on our inventory and we are pushing out to make sure that We can get rid of that second half of the year. So I would say that probably a good half should come back Quite quickly in H2. And the second part, we have to really to work strong on that. Line. Understood. And my final question relates to, I guess, sort of this point on working capital and on cash into the second half. Can we assume that you can continue to destock in the second half? Or would you have to get sort of Working capital back, how should we think about the second half free cash flow basically compared to normal seasonality? Well, first, I was very quite conservative in April around the cash flow Of the half and we push a lot. I mean, Patrick put strict rule on replenishment Simply call the 2 to 1, so you can only replenish 1 when you sell 2 products. As such, we managed to drive inventory down, of course, helped by the better momentum on the top line than what we At first, on the minus 27 months of April, we were anticipating for Q2. And then the good part of it is while having a better top line, we get a very good cash collection from our customer. Most A lot of them helped by also this temporary measure, government subsidies, postponement of payments. So Having even more receivable, we managed to cash a lot and this give us a stronger free cash flow generation in H1. All the measures we have taken will continue, and we will be very cautious also going into H2 on the inventory side. We believe on the customer side, probably the month of summer It will be a tough one. So we are very, very cautious on that. And we expect today that our full year Cash conversion should be probably very close to what we achieve at the end of H1. We will also have the help of our digital tools in order to optimize the assortment, which we will use more in the future than in the past. And these assortments should bring us to really be even more closer to our pure exact needs. At the same time, and yes, to your question, there is potential to go to a little bit lower level, better Optimization and better adjustments and better turnaround. It was the first adjustment, which was really brutal. And when it's brutal, we reacted brutally. And obviously, there is a lot of fine tuning that has to be done after. I would like to add that in Europe, We don't face that. But in the U. S, the industry, it's not just Rexel and probably Rexel due to the complementary Supplier that they do have, we suffer less than others. There are supply chain issues in the U. S. And therefore, there is a limit to how far we can go out as long as people try to keep A minimum level of inventory should there be some more severe supply chain issue in the U. S, which is an unknown depending on the COVID in Mexico. Line. Thank you very much. The next question today comes from the line of Lucy Carrier from Morgan Stanley. Please go ahead. Hi, good morning, gentlemen. Thanks for taking my question. I have three questions and I will also go one at a time. The first one is more maybe a shorter term question. Your exit rates or your starting rates in the Q3 are significantly better than what we've seen in a lot of other companies in the sector. And I was Particularly looking at France, where I know you tend to have sometimes a bit more market intelligence. This is almost Going back to flat now at the beginning of July, how much visibility do you have in terms of the sustainability of the momentum in France? Are we talking just about a rebound post the lockdown? Or you are seeing genuine activity resuming? That's my first question. The French market, which has been really severe and disciplined in the lockdown, didn't found an easy way out in the way we that our customers could operate. Therefore, the exit went slow. And because how to cross on a job site, how to be more than without being more than 2 in a car to go to a job site, these were Conditions to operate until 10th July, a little bit earlier than this for most of them, but mid June. Therefore, right now, what do we experience? There is, first of all, a catch up effect of what has been delayed, slow or not done. And this effect is bringing us through the summer for sure. Therefore, what we see is close to normal. On the construction dimension, I leave the production, the industrial side. And on the construction side, and you see lots of job sites just catching up because they need to be finished, need to be done. And this could bring us through the summer. Some company may work in August, some others not. We know some will, limited so far, but it will be probably and keeping the pace, the momentum through into September. And there is a similar effect in France, Even if the industry is not a very strong one, they stop like everybody else. They restarted, They will have to run through maintenance and kind of stuff, which I consider will be needed in the second half of the year. Therefore, we should go back to Slightly lower, but no catastrophic level in industrial demand for us. It's different than an output of the industry to the world, Okay. Industrial Products and then to Rexel. And which we are less dependent upon how many cars will be produced, but we are really dependent upon how efficient the automotive lines are working Because they need electrical maintenance. That's where we are. And then there is a third uncertainty, which should bring We should be ahead to the market. The mayor election happened the first two the day of the lockdown, Meaning no community could really elect the mayor per se and no mayor We're really in charge of anything before early July when the second tour happened. Then they could regroup their Then they could be elected and meaning everything which the money and the Spending and the budget that should have been voted in March couldn't be now voted until now. And this now means how much will we spend for schools, for the swimming pool, for whatever, which is public buildings of communities, And this is still to come. Meaning, we suffered a very, very, very low and we are still suffering Very, very low demand on that side. However, there is money for. However, there are grants, there is money floating around, but the decision making process, we are not free up. And this, I expect, to come, let's say, for September 1st choices, and I expect some demand to come by the end of the year, Which will for sure help next year into next year. The uncertainty for me, what could it be in October, November, Jan, Feb. These are the 4 months where I don't know, but some of it is inevitably needed and will come out. Now when it comes to the construction, obviously, there is a contraction of demand in the buildings For new buildings, commercial buildings, so far, there is a high need for residential buildings, even more after than before the COVID, people realize how uncomfortable it could be, how much they need to change in the housing the way to be able to do remote working and kind of stuff. It's not just a Long term horizon, there is already a short term demand for. Therefore, I don't see a depression. There could be up and downs, but nothing severe in the next 18 months in the residential. And the big uncertainty is on the commercial building because the old ones, People didn't even came back to work in the old ways. We have to wait for the summertime for the year to see how they will run and what kind of a new demand so far, there is not a lot of project going on, except outside of Paris, Grand Paris, Olympic Games and the rest, which so far is a driver for demand, and we are focusing on like many other people. Therefore, the market is not the worst market. The rest of Europe is probably I was surprised how residential building resisted in Germany. Listen. We may have a few surprise, positive and negative, but we are adjusting to it. Line. Thank you very much. To some extent, this is bringing me to my second question a bit more long term. We've heard a lot of rumors and then there has been some preliminary information about the EU Green Recovery Plan and renovation in buildings. I was hoping you can maybe give us some color in terms of how that could be possibly applicable to what you're doing in terms of product, but also in terms of type of buildings that you think could be applicable to this program. Lucie, whether it's in France or outside of France, I will speak for Europe, but France, I know by heart. There is a huge demand For making existing buildings, commercial buildings, let's say, I could even say COVID compatible. Allow me to say that it's a little bit I mean, who wants to be compatible to the COVID? But because you need to reorganize differently, manage the lighting, manage the airflow, manage the access, manage differently, And there will be a lot of it could be automatized. It could be a lot of controls, Data controlled buildings, intelligent buildings without being too smart, but just making life possible and so that they can have a better use of. We know it's feasible. We work on it. We have solutions. We work with suppliers. During the COVID after the COVID, we have intensified which solution could apply to what, for whom and what, meaning if there is a real support, financial support, So that people go and invest in this, there should be a push for more, let's say, intelligent data driven, Capturing information in order to work with this constraint of the COVID to become COVID compatible. There is a business of making buildings COVID compatible, and this is emerging. We work on it, And it's needed. The economy needs it. And that's what we work on. And it's long term, but it's also it starts next year. It starts tomorrow. And the vast majority of buildings, 1,000 medium sized buildings, 2000 Square Meter to 8,000 Square Meter Buildings. They are all under equipped for that. In the moment, there is a demand for energy efficiency, COVID compatible and kind of stuff. This is becoming a demand. We work on it. We will be there. Right. And maybe just my last question on digital. Now. I appreciate maybe you cannot give quantitative comments on that. But if you think about your digital initiatives line. And how they helped during the COVID crisis, can you maybe highlight a couple that were particularly help? And also as I was looking in your CapEx or even the EBIT bridge, it seems that even though you might have reduced a little bit some of the investments, you have continued to invest for growth during this crisis, especially on the digital. Is that correct? The one thing first, nothing of what we invested Got lost. It could have been. Let's put it this way. When a crisis likely comes, you don't know how much you have spent in the past that go to the garbage, okay? Nothing is a wrong investment. Everything is valid. And when I say valid, it means everything is being restarted. When you do predictive stories like customer churn. Customer churn, Last week in March, every customer was churnable at minus 70%. And you don't need an algorithm. And I was really thinking, Jesus, maybe you have done all of this for nothing, Patrick, because if at 70%, you don't need an algo. In fact, guess what? Achun, today my sales force is asking, I cannot go to customer more easily. I cannot go and share a coffee. I Cannot go and say hello like this, it's me, and shake the hand, but I need to know who is fragile, who I should give a call, who I should do things differently. Opposite to the past, my own sales force now is asking for, hey, when do we have a churn, the machine retrained so that we can work with it? It's a total shift in the way we will behave vis a vis also, but you know it's it's a fact. It's what has happened last week, Meaning, we will continue to maintain this and therefore, I'm able to tell you nothing got lost, first of all. 2nd, Right now, the investments we are making, as I say, it's to retrain the machine, retrain the algo, Work on the fundamentals and the things which has happened during the last 4, 5 months, we have used a lot of time and leverage our initial investments. And when it comes to the payback, our initial investment will have a broader base, It's not France, it's not Belgium. This is 80% of Europe will be able by the end of the year to use 100% of all the tools that we have already Spend money for. And obviously, branch assortments. Branch assortment algorithm, which have which were in the early stage of Become now even more needed. Which branch in Toulouse in the region of Airbus listen. When there is no demand, is the assortment the same as the branch in Paris when the Grand Paris will create a total shift in demand? And you take yesterday, they were close by. Tomorrow, they will be quite different. And here, we have all the tools so that we can adapt immediately. We can adjust on the job without creating over inventory. We're now creating obsolescence. We are creating all this pollution that we hate in our And this is where digital, we have a high leverage. Now yes, where we spend time, money, efforts, We have maintained 100 percent of our digital teams. We have not reduced anything as part of the structural changes. They are not the one to be the negative in the structural changes. We are making other efforts on other fronts in order to maintain that. And I'm really, really glad. Customer churn is great. Branch assortment is great. All the predictive things or Track and trace of the web shop, such functionalities by which 100% where every packet is where and how during the crisis, and you can tell the guy exactly by the minute where he should get the goods received. These were elements quite decisive. Thank you very much. The next question today comes from the line of Supriya Subramanian from UBS. Please go ahead. Hi, good morning. Yes, thank you for taking my questions. Again, 3 from my end as well, and I'll stick to the pattern of going 1 at a time. Line. Just a question on working capital management and with the good sort of results in the second quarter. I remember back In the Q1 results, you had mentioned that the nature of products being sold was different with more Products, etcetera, are being sold to the healthcare end market, for example, versus the traditional products. So how are you able to navigate your inventory levels? And do you think you see sort of sales going back to the more normal product mix? The inventory level in term of normality, so to speak, of the mix, obviously, will be more Adaptation regional adaptations. Where we were heavily dependent, I will take the example again, Airbus in Toulouse or if you say automotive in certain region in Germany and so on, there is a mix, Which is no longer the same in terms of proportion to serve the local markets. Okay. We are adjusting to it. That's therefore, the normal mix of B4 in term of value, number of SKU and the depth The width and the depth of the inventory will not be the same. We are driven by Net Promoter Score in order to make sure that the customer gets this is our number one function. Therefore, we need to adjust all of this. It's a permanent effort. Obviously, sometimes it creates a little bit of obsolescence in the moment you change the mix. These obsolescence will exist, some of it. Obviously, we are supported sometime For some product by the suppliers who understand and help us in the adjustments, sometimes we face and we have to take our own Hit on, so to speak, okay? The hit could be it takes longer to get rid of and the hit could be that some product keep And at the end, there is no demand for. We try to reduce this to the max. The size of the group allows this to be minimized, however, it could happen. And it's funded by the way of the margin erosion at the end of the day when it comes. Nevertheless, when I look at the number of days today where we are compared to where we were the year before, We will continue to drive our inventories in order to come to more normative numbers. A huge portion has been done, But there are still 4, 5, 6 days to go depending on the countries. And it all depends about how fast the recovery come. In the U. S. Right now, it's a bit slower Because when you are at minus 20 for 3 weeks in a region, then it goes up to minus 10 and then it goes down backwards to minus 25. It's quite delicate to what is the pro form a normative that we should have. In Europe, it's time to normalize in 80% of the countries. And we still have days to go and we will use it and we work on it. The digital branch assortment type of thing will help also. The more accurate it is and less normative and the more fine tuned down towards The assortment is the better we can even reduce further, meaning there is still ways to go. On the other hand, Fine tuning takes longer than getting the bit bolt as we got, but we don't give up. By the way, I'm not sure there will not be another pandemic regional crisis here and there. And at the same time, I don't want to be overloaded by inventories. I will all remember that when it happens mid March, Europe was doing so fine that we were building inventories for significant growth. And when you get all the orders Being delivered and at a sudden it falls down. It's not just vis a vis the previous year. It's vis a vis the one that we wanted to get to capture the growth. And this correction was huge to make. Let's say, this is gone, but I don't want to reenter into another kind of, Let's say, to enthusiastic inventory build up before the sale. Therefore, we have enough to take an enthusiastic bump If it would come in the market without having to add inventories too. Right, right. Got it. Thank you. And second one is on the digital sales. And you also again reported a growth impact listen. Do you think that the current environment has potentially, of course, accelerated the shift into digital channels for sure, but do you see a permanent shift in the change of Customer behaviors more acceptable to use digital channels versus physical channels? And line. How much of this do you expect to continue maybe on a long term basis and also Eventually impact on profitability as well. I was quite happy to see the 30% digital sales Line, a floating line that we crossed in Europe in the last month. COVID has accelerated, but without having done all the tools before, it would have been impossible, and let's go in like this. What we saw is everywhere, we saw 8 to 10 points increase at the worst moment of the lockdowns, whether it was in Switzerland, in France or in other countries. We saw between 8 10 points of an increase, and we saw an increase in the number of existing customers becoming Digital customers. We saw also new customer coming for digital, but the vast majority was existing customer becoming Digital customer. And when everything restarted in a more normal way, they became multichannel customer, meaning they didn't stay as Pure digital, but they remain, meaning less a little bit less digital and a little bit more branch driven, Recognizing the branch is more probably for different function than before, this is what we are looking in detail now Because when it comes to the cost base of the future, depending upon what is the role of the branch, obviously, will depend certain of the cost structure elements. It's too early to say there is a shift, but there is not a big bang. There is An optimization, it becomes really multichannel. The big bang, we will have to produce ourselves by changing the right OpEx and cost allocated to get this multichannel mix being ramped. And but on the long term, there is no customer, not a single customer, Which now is not interested. They are all interested by being a multichannel. Great. Great. Thank you. And allow me to say, we gained probably 2 or 3 years of cultural adoption by 3 months of crisis. Okay. And lastly, on the restructuring and And cost savings, so you did mention that the €30,000,000 in 2H. Could you quantify potentially how much of savings you from this or even subjectively, do you see savings from the restructuring program Enough or even more than offsetting the partial reversal of the short term savings that you had taken We don't want I mean, we have no visibility. So it's even that we don't want is that today we know already in some places that We need to adjust and we have implemented that. We started end of last year when we reorganized The Northeast region in the U. S. And to a lesser extent, the U. K, so this is structural. And Out of the 4,000 people that were reduced at the end of H1, We've got around 600 that were structurally down. So we need by pocket, by country adapting. What we wanted to show you is the agility by which we are monitoring the short term with very low visibility. So we have a couple of plans that are or should be or could be activated depending on The outcome of the coming weeks, but it's purely to guide on what could be a full year impact on H2. The one thing to support Laurent's point, the one thing that we are running with our managers is what if there would be 10% less in the U. S? What if there would be a x percent less in certain regions, markets, segments and on? We are running all these what ifs Looking at ourselves, not what is in theory, what is when we look at ourselves and what could happen here and there. It's only 1 month That we have a minimum of visibility of how it's getting operating. And but we are ready and therefore we are able by all the Simulations, we do ready to do the structural adjustments. Therefore, we're able to say with restructuring cost, As we have said before, we have enough to face the structural reorganization that may be of different shape, Different nature, different timing in different parts of the world, but it's already going on. As you say, the 600 of the 4000 are gone. And every day, there are some of it being done here and there. And we cannot wait. It's a permanent adjustment, Structural adjustments because the first stage was support, and now we know we will be alone. We will be alone one day. And therefore, we face our own destiny and reality. And therefore, we do daily adjustments where it's needed. Vis a vis you, it's normal that we try to quantify. And therefore, we have been able to quantify the what ifs It's a different scenario, and therefore, we can tell you the €30,000,000 we should be able to do what's needed to do. Okay. Great. That's it from my end. Thank you very much and hope everyone stays safe. Thank you. Thank you. Line. Thank you. Thank you very much. The next question today comes from the line of Andreas Willi from JPMorgan. Please go ahead. Good morning, everybody. I have two questions, please. The first one to follow-up on the market share if that was possible to already measure. Was there a benefit in the U. S. In terms of others having bigger supply issues in terms of Mexico? And that could be temporary. And maybe if you could comment a bit on the market share gains as well in France. While this is due to having the digital capabilities during the lockdown and what do you think is actual underlying momentum, if that's possible, And the second question I have in terms of The U. S. Trends, which are quite volatile from kind of if you look at your chart also by regions, and some of the regions that have improved lately are also the ones who have seen a pickup in virus. Is that just some restocking ahead of feared lockdowns? Or How do you assess that? In the U. S, there are regions which face Fundamental structural issues, the Gulf region due to the oil and gas activity, due to our related industries, Plus the pandemic, which is quite severe, where all the entertainment business is closed. And We never speak at the entertainment business as a segment, but we should speak at the entertainment business, Whether it's bar, hotels, real entertainment or even sports, stadiums and the rest, Which driving force of the demand. And this is the first time we really measure That it could be plusminus20 points, up and down, depending of this is open or this is closed. And such, let's say, service economies where people live partially outside May vary by $1 out of 4 will be related depending upon If it goes. Now there is another issue, which now start to be visible. At the beginning, people, lockdown, furlough, Passion unemployment. Now some region face a real, real issue of no employment to come Until many other things really comes back. And it's the Midwest, The automotive industry and the and all these heavy industries, where the internal demand is low and so on. Therefore, For certain regions, coming back to previous levels is not on the horizon for me. It's how do we adjust our own cost base in order to cope with what will be available. And there are other regions where it's much more volatile. It can go fast, quite fast and up. All the West Coast, for example, Whether it's California or whether it's the Northern part, it's ready to go up again at any time. In many industries, from the nuts industry in the north To the other industry in the south, even if you have pockets like Boeing in Seattle creating a hole, at the end of the day, the total cost He's ready to adapt again if there is a little bit of a demand and visibility. I think the political by the way, the political situation of uncertainty, It's adding uncertainty to uncertainty to uncertainty. Right now, immediately, when 1 or 2 would be released, there's plenty of money available to go and get a boost. Therefore, we will adjust according to this between these two. This is for the U. S. And I wish I would be more intelligent in telling you more what's behind each of the curves, but it's not easy, Even for our sales trend, we have weekly, weekly calls, weekly watch, weekly analytical things. But there are customers ready to go forward. There were projects completely abandoned, many in Vegas, for example, many projects were abandoned. But Abandoned, but they could I should say put on hold because they could restart if there would be some visibility and trust in something. And That's probably an additional layer of demand missing right now. This is the demand of having trust in something, which need to be reestablished somewhere in the U. S. And because de facto, they operate with the virus More than in Europe. In Europe, the virus brings real lockdown. It brings real stuff to the economy Unhappily because they deal with the risk, the life, the health, the death. They live with it in a different way, And it impacts less the economy than the global demand, which is psychologically hurt, not just by the pandemic, By the way of life. In the moment, the way of life is disturbed, the spending is disturbed. And in Europe, Market and by the way, market share in the U. S. To continue on it, if there is market share gains, It's because we deal with suppliers that could have been probably lesser by. And okay. We have our own difficulties more limited than others. It's true. But they are maybe hurt on projects, and projects are down also, meaning you don't know What is what in this vicious circle too? On the other hand, We don't lose market share. I'm sure of it. We probably gained some in certain places Well, we were low. I know that in Florida, we have gained. In the Northeast, We have stopped closing. We are regaining the first because we see all customers coming back even for limited amounts of wood that They are coming back. I know that in the Northwest and California, we gained continuously and in Denver region too. The branch opening of the past made that happen because in fact, we never mentioned that because there is these big issues and this But the investment of the past, you remember, branch opening, it takes 24 months up to 36 months to get the full effect before, Nazzana. We still have the positive effect of them. Phoenix, Albuquerque and a few others where we had 0 market share, we are gaining market because we have opened the branch before all of this. And they make their living, and they are obviously lower staffed than we thought, But making their living and coming with additional sales. Therefore, yes, we do gain market share. And in Europe, it's more contrasted. One thing is clear. You remember this discussion that were on the table during the last 2 years that if there would be a crisis, All the digital platforms and would whip away conventional distribution. They couldn't face it. The fact that we transformed ourselves quite severely, the fact that we have this digital link to every customer, The fact that we have the physical link, the fact that we got the mobile links and the mobile push, the fact that we had all kind of features with such powerful CRMs being used everywhere in Europe, probably has avoided something of that kind and probably kept every customer through the crisis every day in a direct link digital verbal link with us. We didn't lost any of them. And therefore, I think, yes, the digital investment made us Getting out of the crisis in the shape we are today. Yes, I can answer firmly yes. Thank you very much. Thank you very much. The next Question today comes from the line of Martin Wilkie from Citi. Please go ahead. Thanks. Yes, it's Martin from Citi. The first question is about Projects and obviously, you have limited visibility in the best of times. But now, Are you beginning to see any signs of new tender activity for projects? Or when we look at the rebound in sales or the less negative sales In June July, is that really a reflection of projects that had stopped and restarted? Just to get some sort of sense if in any part of the world you are seeing Any signs of activity in new projects? Thanks. Well, they are the new projects that Needs to be new project. In the Paris area, around the Grand Paris and around the Olympic Games, the tenders were out. The tenders were a bit suspended during for months, but this has to happen. This has to accelerate. Yes, we are working like on such structural Project, we are working on it and to be part of. It's only a little bit of a shift in time. The flow project, if this exists like in the U. S, it comes regularly on, they are down. They are down and either suspending no news or they are simply canceled. Now again, canceled in Miami, canceled in Vegas, canceled in L. A, But you know, we know also the U. S. In 6 months' time, it could be contradict because there will be another surge of different project, Different nature. The one abandoned will be taken over by somebody else. But for the time being, there is no yes, there is decrease in projects. For example, lighting project in all the malls. In the moment, the malls for social distancing in In certain region, you can bring people into it. It's all suspended. It may come differently Because the more time one day, if they want to exit, they will have to refurbish differently, whether this is the lighting, the social distancing, the way it will be set up. All of this, we wait for clarification. Now conventional projects, I also expect from the health World, hospitals, elderly people, houses, this will be a demand I mean, there is a tendency not to talk about it, but there would be huge, there are billions available for this. And this is probably a demand because it calls for electrical solution, it calls for detection solution, it calls for sophisticated solution From cabling to lighting, from power from panels and power to reception desks, And all of this, there is, let's say, demand waiting for translation. This should come as projects quite soon and we wait for. And what we can see overall in the U. S. Where we have Backlogs compared to a year ago are down around 8% and are stable since May, I mean, the crisis, they didn't decrease as much as the top line. So they are steady. So We have no big pickup, but it is rather stable, probably a bit of hedging into this pipeline of projects Because they have been the start have been postponed. But 8% decreased year on year, not that much. It's surprisingly resilient. And I mean, you would have asked me before the crisis, I would have said 25, and it's only 8. Now maybe it will become 10, and maybe it will be delayed by 3 months, but they are not gone. And it's still going on. Therefore, yes, it's impressive, the pandemic, but the way in the U. S. Its impact, It's much more it's never resolved. It's heavy. It's pressure, mental pressure. It's blocking certain industries, gathering, gone. And a lot is based on gathering. But on other aspects like projects right now, quite low impact. Call. It's an inside visibility. We share with you quite, let's say, intimacy numbers in such numbers, But it's the best we can give you as a benchmark of the market. Yes. Thanks. That was actually very helpful. If I could also just ask a follow-up, just coming back to the market share. So it sounds like some of that market share gain should be quite sticky, whether it's to do with your digital investment on new branch openings. But is some of it are you expecting some of it to be transient? If some of it was to do with perhaps turmoil at some of your smaller competitors, line. Would you expect to give a little bit of that market share back as the pandemic eases? Or do you think that all the market share gains should be and listen. I always say that in this industry, nobody dies. And I'm now 18 years. It would be the first time that I would see a recession putting some people out of business in the distribution, and it could be that people give up because it's Too complex because of succession, because many issues. Will this one create a wave of people Giving up and disappearing, it could be small guys not having digitalized because they realize that it's too late. They realize that the effort will be too big because if she had not done it before, I think it will be quite complex, Heavy to catch up. But the one which are multi channel today, I don't know if Some bouncing back to the people who have not done so well during the crisis, I doubt. Customer behavior, If they feel there is no longer the loyalty is to efficiency. Through such a crisis, the loyalty, It will be an amazing moment. Yes, it's personalized, but it's less to the sales rep than it was before because they cannot even come together. They cannot they talk together. The sales rep role is key, but he's now selling the company capabilities and less of a 1 to 1 person relationship. And through his credibility, he sells the multichannel digital capabilities of the company. And in the moment we sell these capabilities, it creates new links. And this is what's going on. Therefore, I don't think a lot will bounce back. Thank you very much. The next question today comes from the line of Alfred Glaser from ODDO. Please go ahead. Yes, good morning. I have two questions. One is on the demand side. How do you view Demand evolving in the next few months between residential, commercial and office. And I'll detail my question on costs and margins afterwards. If I would know, I would be rich. In full fairness, industry, you can derive from You watch them better than me as much as I do. What will be the automotive world, the airline world, the aircraft world, This is part of the industry, which is key, because they drive a lot of OEMs, a lot of subscale companies complementary. They drive even logistics. They are key industries to the rest of the economy. The food and beverage industry, the water treatment industry, all these things that we do fine, But the fundamental heavy industries, I would like to know. It's really I watch every index and kind of. They have destocking issues for some of them, and they have a fundamental demand for others. And they have a survival issue. And the big names will survive, but the medium name behind. And how much of this, for example, in our cash, I can tell you that the credit in our company are watching each of them every day. We have not seen yet the consequences of this on this front. We didn't talk about it because so far there was enough liquidity in the market. But if long term demand is not there, there will it's not just a matter of liquidity to pay the bill of today. It's a matter of activity to exist tomorrow. And this question is on the table, nobody wants to touch on, But believe me, it's part of what I watch very carefully. It's more volatile and easy on the construction and on the construction side. The residential, we can we will watch carefully in the coming months, the new housing starts, the new permits, How much the permits will be released by different administration in different countries. And as long as the interest rates do not go up in the U. S. Severely, not half a point, but more severely, The trends I think we can consider it will continue to be rather stable. If you neutralize the 4 months Down or even 6 months of down, we may go back to similar pattern. That's what I see coming. The building commercial building, I see a real issue. I don't know if there is an overstock, an understock, if there is a need for refurbishing, which would be great for us, but just average for the market. There will be new condition of how to who will change and relocate a headquarter today. And there is a reconfiguration of how things should be done. There could be a 6 to 12 months delay until the market find The ways to go, what to do, the kind of building they need and for whom and for what. The fundamental question behind, Would 20% of the workforce now work from home compared to working in an office? 20%. If in Europe 20% of the blue color This appeared a couple of years ago. What if 20% of the white collar would not come to an office tomorrow? Same revolution. And in terms of demand, square footage, type of nature of the building, Operational conditions, all of this. We watch. We are I'm not better than others to try to figure out. It's a more complex subject. I don't see an easy demand in this particular one, except few places. Zurich is a place where it's a lot is being done. And again, maybe we will see something we already share more actively on that front. There will be the city, 50 driving cities in Europe and the rest. And there will be 2 types of demand. And I feel it. I cannot substantiate it yet. There are other players who could answer this better than me probably. You are following Nexity and Or Ephys Group or and so on. And they probably have a more precise view on the short term in any way. Line. Thank you. That was very interesting. I wanted to ask you about Costs and margin outlook. You mentioned before that some of the costs reductions will not be permanent. Dan, you also described the challenges you're facing in terms of gross margin. Well, when does it leave the margin outlook going forward this year and maybe next year? And you're looking at different scenarios together with your local managers. What would be the bandwidth of margin you could imagine going forward in terms of operating margin. Why don't you with a sense of humor, why don't you send me your Excel spreadsheet? Line. If I could fill it up, I would answer. I will tell you one thing on the margin. We run scenarios. What if it's minus 5, minus 10, minus 15 in a country A, B, C, D? What if it's only residential and We maintain and the risk collapsing. Would if then. And obviously, we have margin targets in our mind, okay? I have EBITDA percentage as percentage of sales in my head. It's obvious that as a management team Going to last year and going back to our future numbers is on our list Key list. Now we are working backwards. What does it take to do it? And it's very different if it's 5% or 10% lower demand and depending on the mix. Now, yes, we are on it. Yes, we are watching how to get there. Yes, this is a target and to be above previous years. And yes, because we want to leverage our investment, and there should be a payback for. Now it's more or less tough depending on the volume. And therefore, we run these scenarios. My best answer is We have not forgotten to get there. Is it next quarter, in 3 quarters or in 5 quarters? I cannot answer today. This is otherwise I would guide. And if there is no guidance, it's because There are too many balls in the air, so they can fix one way of getting there. There are too many subjects around. All the cost saving has been borne at no cost in H1. We have guide on what we could expect We need to address restructuring costs. So it shows you the intensity we want to put into the performance of the second part and as pointed out by Patrick, we have To have a 3.3% in H1, allow me to say, It's like having erased years of effort from a pure numbers standpoint. Nobody can be happy with this. On the other hand, we are happy that it is 3.3%, because it showed we have been able in very difficult time to reduce it, Yes, to constraint and make it at 3.3%, but it's not the target is go back as fast as we can to where we were And partially through cost, partially through margin pricing, partially through model evolution and capitalizing on digital and how much of the above. We have not done all of this to stay there either, but I don't want to speak about it right now because We have to readjust. And is it $1,000,000,000 less? Is it $1,500,000,000 Is it $600,000,000 less? I don't know. And if I would know, then it would be easier, but we are prepared for all. Thank you very much. The next question today comes from the line of Iris Zheng from Credit Suisse. Please go ahead. Good morning. It's actually Andre Kukhnin with IRIS here. I'm sorry I had an issue with my line. As conscious of time, we're limited to just one question. And I guess the main one I have is on your digital transformation I'm looking at your road map. How would you assess your current status In terms of that digital transformation versus your traditional peers and maybe if we drop off the Kind of small mom and pops that haven't been investing, but more kind of really traditional peers, other large distribution players. So how would you assess the current state? And then where would that next step take you with all the priorities you very helpfully outlined? Where would that place you? And also, if I can then extend that on how would that compare to Broader distribution industry, not maybe specifically in electrical industrial and kind of state of the art best in class players, Specifically on digital. On the road map, You could consider that we have put things on hold for 3, 4 months, but with probably an impact on 6 months Because some side effect as I say, you need to retrain the data, retrain the machine, 6 months, but nothing has changed. The difficulty to roll out was also a difficult fit to be in the countries with the people and when you cannot travel. We are relearning how to do it, reorganizing how to do it because we will not be able to travel easily either in order to make sure the rollout is fast enough. But on the other hand, every country has such a desire to capture everything that I know we have done in the group I think that will be an easier from the management standpoint, an easier penetration of our digital solutions. Listen. This is level 1. Level 2 is that By customer behavior changes, some of the developments will be more urgent than others on the one that we had in view. And we are making some of them right now, Which probably by the end of the year, we will be able to make it more visible that is highly demanded by customers In the way they are changing their habits. And it has to do with supply chain too, Because supply chain could be also digitally information in order to make the product available to people in different ways than ever before. And that's what we work on. We talked about lockers, but they are different systems, Some of them in the industry, some of them for the residential, some of them for special accounts, 1 to 1 with accounts. Full digital integration of key accounts, for example, has never been is very high on the list. It's on product portfolio, product management, inventory management for them. They know exactly what they have with us For which job, this is an increasing interpenetration of the relationship, both on the customer digital interference and relationship, both with customer and with suppliers. These are new things that we work True, even and we define and work through the difficult time because we don't give up. We don't stop. It's not a reason to stop this. The rest we adjust, this is unconditional. I think it's part of the answer, but I forgot some elements, sorry for that. Patrick, sorry, I think I misled you a little bit. I was just thinking more in terms of your current digital capability. Does that how does that compare to digital capability of your competitors from what you can see. And then so in terms of Customer segmentation, track and trace, churn assessment, etcetera. And then if we go forward on your road map In terms of things that you're targeting to do, once those are done, where would that place you versus your traditional Competition. And then I was just thinking more broadly in terms of kind of other distributors outside of your traditional space. If we take the best of class Best in class of those, how would that benchmark? I understand better. Thank you. Sorry. No, no. On our journey, we are 80%. On the future, there is a second wave of different sets of developments to be made. We have the resources to do. And we have the resources internally, both in digital and in non digital, meaning application people roll out. And if we need to allocate more people to it, we will allocate more people to it. And today, we capitalize on what we have. And by the way, remember, we have 50 and so people in the U. S. Around Portland, we have an equivalent of 40 to 50 in Europe. They are absolutely untouched by any measures. And not that they can do what they want, that's in terms of numbering. And only. It's not part of the adjustments by no means. And we also add to them Good digital marketing candidate. We also add new categories of complementary products to them Because developing is one thing, running is another thing. Leveraging require Certain capabilities like digital marketing. And this is, for example, a place where there might be an increase, Just to give you a sense for, how do we benchmark vis a vis the best in class? If I take Ranger as being a real benchmark for me, if they are on the level of on the digital multichannel, If they are at 10, we are probably at 6, and we still have ways to go, Not just functionalities, but the large use and the agility and certain use, how they can leverage it. And they are probably in our world a very good benchmark. The pure players are always in different lines. And I don't want to pure players, they have their own competition between themselves and level of sophistication, And they do not apply to our needs anyway, this sophistication. It's more the people coming from, let's say, Alla Granger, who really developed over time a real digital strategy where every customer is a multichannel customer, Where they have 2 banners, the Zoro banner and they have which is more the Very open to different contributor and they have the Granger banner. This is a digital, Well maintained and evolving benchmark for me. We are catching up. Thank you very much. Okay. Thank you very much. The final question today comes from the line of Pierre Bossier from HSBC. Please go ahead. Yes, good morning. I'm conscious of time, so very two quick questions. First of all, on pricing, what has been the contribution of pricing in the 10.6% decline on the like for like basis? So what is the policy of your supplier? And the second question is on COVID-nineteen. COVID-nineteen has given you to review the value of some of your assets. Does it change also the way you look at disposal? Do you review some of the asset? And could you do some more disposal in the future after Gxpo? Thank you. The last point is deferral into the future of? If you in the future, Because of COVID-nineteen, a lot of things have changed in your markets. Will you consider to do more disposal of subsidiaries in the future, JEKSpro being not the last one, for instance? Well, first of all, on JEKSpro, we sold JEKSpro Services, By the way, before the COVID, thank you, we sold the EXPLOR Services because it was a non strategic item. That's one piece. We have no other JAKspro services in the pipeline. JAKspro as a banner in the U. S. Remain a banner in the U. The second thing is we don't have a plan for disposal right now. We were focused heavily on managing the situation. We will see at the end of all of this, If we go back to the way we were looking at what is core, what is less core, what is to be adjusted, where to grow and what to There are always a few evolutions that we keep alive. I give you an example. The Rockwell APR in the U. S. We buy and sell Rockwell APRs throughout the year. We could sell 1, we could buy 1. There is always discussion in the world of Reorganization of Rockwell, we participate to sell and buy of components. Therefore, The disposal is not on the agenda, but acquiring and dispose of an EPR, I don't consider it being part of it Because it's part of the footprint. Now to the rest of the question, I will on the pricing, I will hand over To Laurent, if you don't mind, Laurent. Yes. The pricing impact in Q2 is around 2% at group level, excluding cable, Around 1.7 in Europe with a positive pricing in the Nordics. Mostly it's compensated negative currency, especially in Norway. North America is at plus 2.8% and APAC at 0.9. And that's excluding cable and we have seen that copper is going up and is back now to the 6,500 USD per tonne. We have not seen major supplier increase today, Probably, I mean, with all the distancations, the productivity will be lower and may drive in the future Some price increase, but it's not yet factored in our figure at the end of June. Okay. Thank you. First of all, I would like to thank you for all your questions. I would have loved to be sometime a little bit more precise on the outlook. I think it's not a matter of prudence, it's a matter of transparency not to speak about things where I have no visibility. And we will keep the line open with you, obviously, whether on a one to 1 or whatever you would like to get. And I thank you for your time. Thank you working on our case and helping us going through the crisis. And I wish individually in case we don't see each other, I would like to wish you all of you Good vacation. And as I tell my own people, protect yourself a lot. Thank you. Listen. Thank you very much. That does conclude the conference for today. Thanks for participating. You may all disconnect.

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