Earnings Call: H1 2019

Jul 30, 2019

Good morning, ladies and gentlemen. First of all, welcome to this presentation of Rexel's First Half twenty nineteen Performance. Today, I am with Laurent De Laber, our Group CFO. I will start with a look at further progress we have made On the key transformational initiative on our strategic plan, we will highlight our Half year performance and our performance by geography. Laurent will then detail our financials in H1, I will conclude with our 2019 outlook. And then obviously, we will be very happy to take all your questions. Now let's start the presentation. If you go to Page 3, you see that we have successfully executed our strategic plan. Adraxel is on its growth path. Since the end of 2016, we have generated EUR 1,000,000,000 in incremental organic sales, and we have gained market share in our key markets. And this is the direct result Our more customer SKU strategies that I have already mentioned and an improved service level that we are reaching now to higher than before and which has led to an enhanced customer experience. In parallel, We have also accelerated our digital journey in key countries as you can see from the numbers here, with digital sales now Presenting 17.2 percent of our total revenue, and we have a ramp up across Europe, Which now the penetration level is now above 25% with strong progress in large countries like France. And we now have 7 countries in the world with digital sales above 30%. Thanks to these initiatives Over the last 2 years, we clearly became a leading digital player in the B2B distribution business With between €2,000,000,000 €2,500,000,000 of annualized digital sales. Another source of satisfaction of our H1 performance is the early signs of recovery in Germany, which as you know underwent a significant restructuring last year. In H1 underlying same day sales grew by 2.3% and profitability improved. These highlights are the results of the transformation journey we embarked upon more than 2 years ago and they were enabled by a regain sense of confidence from all of our key stakeholders, customers, suppliers and employees. This gives me the confidence in Rexel's continued recovery going forward. If you look with me At Slide 4, and on this slide, we look at the key highlights of our Q2 sales performance. Rexel posted another strong quarter with sales going for the 11th consecutive period to reach nearly €3,500,000,000 Supported by North America and key European countries and China. These represent same day growth of 2.4% Or de facto 3.8 percent if we exclude the effect of turnaround measures in Germany and Spain that had an unfavorable impact of 1.4% on our sales. The strong performance comes despite a non favorable cover contribution in the quarter of minus 0.2, while corporate had a positive impact of plus 0.7% in the comparable period last year. So our underlying business trends were solid. On Page 5, Overall, we posted a good performance in this half year. Our sales at almost €6,800,000,000 were up 2.7% on same day basis. Our gross margin was up 11 basis points to 25%, which is a solid performance in the current environment. Our adjusted EBITDA rose by 2% in the period to €319,000,000 and margin at 4.7% was stable versus same period last year. Recurring net income was up 9.6% At €167,700,000 the highest level since 2014, Thanks to good operating results and also helped by a favorable currency impact. This good H1 2018 performance Came after I'm sorry, it's H1 2019 performance, came after 2 years of double digit growth of our recurring net income showing the payback of our initiatives. Free cash flow before interest and tax was an outflow of €17,300,000 and Laurent will explain This is in greater detail shortly after. Look at Page 6. In the 1st 6 months of this year, we adapted rapidly to volatiles conditions. And The performance in all in the more notable that we faced various headwinds. Indeed, we are operating in an environment That is more volatile than in previous years. And in addition to such technical effects as a negative calendar impact and copper contribution, Which should be reversed in H2 assuming unchanged copper prices until year end, we faced a number of external challenges. They include an unfavorable business mix, which was weighted towards lower margin business lower margin project notably in the U. S, and this at the expense of proximity business b, trade tensions Reflecting in tariff increases that could not be immediately passed on. See, cost inflation linked to wages and transportation in some markets, notably in the U. S. And of course, the continuing certainty in the U. K. Regarding the Brexit. In the face of this complexity, Rexel demonstrated its ability to adapt quickly. Took a number of measures, including reinforcing our focus on the proximity business in the U. S. Towards the end of Q2, Increasing our business selectivity in such market as France and the U. K. And sharpening our focus on price increases in the U. S. These efforts allowed us to contain the impact from these more adverse environment and see a sequential improvement in EBITDA towards the end of the first half. On Page 7, we expect the environment that I have mentioned to remain volatile, Rexel will continue to show its agility to continue delivering solid results. On this slide, we believe that our repair journey is now nearly completed. We have taken all the necessary measures in our key markets And we'll not need to allocate further resources for branch openings, inventory buildup or adding to the sales force. The only exception I would mention is the U. K, where the uncertain situation surrounding Brexit may lead us to take further adjustment measures Going forward, we will focus on 2 main aspects. From an operational point of view, We are concentrating on improving our operating leverage through a number of actions. These include The implementation since Q2 of productivity measures to offset cost inflation in the U. S. And other key countries, A focus on the proximity business in our mix, continued efforts to enhance margins And finally, reaping the fruits of the turnaround measures taken in such market as Germany and Spain. From a strategic point of view, our priority is continuing our digital transformation through such measures as Rolling out in the U. S. The platforms across the entire nation, introducing across the board New functionalities such as track and trace, e mail to EDI and other tools to improve business operations in Europe deploying analytical tools to enhance the customer experience and further improve our productivity. The capacity to adapt that we demonstrated in the first half, the action plans we are deploying and a more favorable calendar effect in H2 On this page, you see that we posted sales growth in 2 of our 3 geographies: In North America, which accounts for 39% of our sales, same day sales were up by a strong 6.8%. In Europe, which represents 52% of our sales, same day sales were down 0.9% with growth in most key markets except Germany, where we are executing our turnaround plan. In Asia Pac, accounting for the remaining 9% of our revenue, Sales were up plus 3.4%, and they were up strongly in China, as we will see shortly. Now let's look at each of the region in more detail. In Europe, sales of EUR 1,800,000,000. Europe is down by 0.9 points on a constant and same day basis in Q2. However, if you exclude the impact of branch closures in Germany and Spain, Which we've initiated last year, growth was 1.7% up, demonstrating good momentum in key countries. In our home market of France, which accounts for 38% of our European sales, sales rose plus 2.6%, with good momentum in our commercial project, also in residential and also in specialty businesses. We saw very good trends in most of our European countries, notably Benelux, up 12.1%, Sweden up 5% and Switzerland coming back with up 1.6%. In Germany, sales were broadly flat, Restated for the closure of 17 branches in Q3 of last year as part of our plan to focus our operation on the industrial segment. Only the UK continues to be a difficult market and sales were down 8.2%, but it reflects a conscious decision to be more selective product our margin and the effect of 30 branch closures, including 13 in the quarter. Let's move to Page 11, which is North America. In North America, we continue to see strong growth, Reflecting both the positive effect of our transformation actions in the U. S. With a more regional customer centric approach As well as the robust activity in Canada. Overall, sales were up 6.8% on a constant and same day basis, Reaching €1,350,000,000 In the U. S, representing 79% of our North American activity, We continue to outperform the market. Sales were up 7% on a challenging comparable base as we are cycling over 4 quarters of high single digit growth. By end market, while commercial project and residential are up between 9% 10%, The industrial business slowed down. Our past investments over the last 18 months in sales reps, inventories, Branch openings and branch refresh are clearly paying off, and we have added 54 branch openings since 2017, contributing for 1% of growth in this quarter. The returns on these various initiatives are in line with our expectation. I said earlier, the repair journey in the U. S. Is now completed and our focus is now on digital. In Canada, we also saw good growth of 6.3%, driven by the industrial project and our initiative in our proximity business, where we have developed a core offer with key SKUs that we have rolled out nationwide. On Page 12, if we take a closer look at how our regionalized approach in the U. S, Now divided in a region is paying off in terms of growth and market share gains as you can see from the numbers and the arrows on this map. To see double digit growth in such region as California, Mountain Plains and the Southeast. On Page 13, when we move to Asia Pacific. Asia Pacific, where sales were up 3.4% on a constant and same day basis and 4.5% restated for the impact of the disposal of the Rockwell Automation Business in Australia at the end of April 2018. Also restated for the disposal, sales in Australia were up 2.1%, mainly driven by positive momentum in Infrastructure and Mining Businesses, while Residential and Commercial are slowing down. In Asia, sales were up 7% and up 10.1% in China, thanks to an off contract that accounts for most of the growth in this country. We also benefited from our repositioning in the business on promising markets, and we are seeing good results. Asia was also impacted by the non repeat of a large contract in Middle East that contributed €6,700,000 in Q2 'eighteen And restated for these 2 large contracts, Asia is up 4.4% in the quarter. Now for more detailed information on our financial performance, let me now hand over to Laurent de Labard, our CFO. Thank you, Patrick, and good morning to all of you. Before getting into the H1 numbers, Let me begin by presenting on Slide 15 the main impacts of the IFRS 16 standard adoption, which did, as you know, with Commerford Ladies and came into force as of January 1. So it is our first publication under IFRS 16. For sake of comparison, we have also restated the full year 2018 numbers that have been reviewed by our auditors. Those restatements are presented in the note to the consolidated financial statement. As you will see, the impacts are very similar to the estimates we presented at the time of our full year 2018 results. The IFRS 16 standout impact our P and L, our balance sheet and to a lesser extent, our free cash flow statement. The main impacts are as follows. It has a positive impact of 147 bps 4 basis points on our adjusted EBITDA margins, which now stand at nearly 4.8% in full year 2018. The impact is, of course, lower than on the EBITDA as we are incorporating higher depreciation. On the other hand, it had in 2018 an unfavorable impact of €11,000,000 on recurring net income Due to the saving effect that will reverse over time with the aging of the network of branches as we currently have more financial expense then debt repayments. Concerning the balance sheet, we have introduced 2 new lines, The right of use and the lease liability is the latter where to be considered as financial debt. Our financial net debt would increase by €933,000,000 and our leverage ratio by 0.4 times. Let me remind you that our bank covenant excludes IFRS 16, so the new standard has no impact on our bank financial flexibility and on our bank leverage ratio. Lastly, on cash flow, the impact is unfavorable by €6,000,000 on free cash flow before interest and tax Because financial leases were previously recognized in cash flow for financing activities and are now included in the free cash flow from So it's mainly a geography reclassification. On Slide 16, we begin our H1 financial review, taking a closer look at our Q2 sales performance. At nearly €3,500,000,000 our sales are up 3.3% on a reported basis and up 2.4% on a same day basis. We benefited in the quarter from a positive currency effect of 1.8%, thanks to the euros appreciation versus the U. S. Dollars, while facing an unfavorable scope effect As you know, in Q3, with a favorable impact and it will have a favorable impact on our adjusted EBITDA growth In H2 2019, concerning currencies and assuming spot rates remain unchanged, we expect foreign exchange to have an impact of 1.7% on sales in full year 2019. Concerning scope and taking into account disposal announced the end of 2018, the expected impact stands at minus 0.4% in full year 2019. As mentioned earlier, copper's contribution was unfavorable 0.2%, the 3rd consecutive quarter with a negative copper effect. Assuming stable copper price, H2 2019 will benefit from an improved base effect as the copper price stood at circa USD 6,150 per tonne in H2 2018 compared to USD 6,950 per tonne in H1 18. On Slide 17, we turn to our H1 adjusted EBITDA bridge. Adjusted EBITDA was up 2% to €319,200,000 and margins stood at 4.7%. The stable EBITDA margin in the half year on a comparable basis is explained by the following elements: A positive volume and price contribution of 30 basis points, resulting from all our operational initiatives, A negative 10 basis point calendar effect on our adjusted EBITDA margin to be reversed in H2. Productivity gains, especially in Germany and Spain and in UK, partly offset by cost inflation, notably from wages and freight And 24 basis points reflecting our investments for future growth, especially in IT and Digital. Please note that for 2019, as already mentioned, we expect our transformation in Germany and Spain to contribute to circa 10 basis points To the group adjusted EBITDA margin with a higher contribution expected in H2 2019 than in H1. As explained by Patrick, our priority is now to focus on improving operating leverage while maintaining investments in digital. On the right hand side of the slide, we show that the adjusted EBITDA growth patterns in H1 2019 It's similar to that of 2017 2018, excluding the calendar effect. In both previous years, H2 proved to be stronger than H1 in terms of adjusted EBITDA growth. As an illustration, Our adjusted EBITDA grew by 3.1 percent in H1 twenty eighteen and by 9% in H2, With a less significant calendar impact in H1 of last year than this year. On Slide 18, We turn to our profitability by region. Overall, with adjusted EBITDA of €319,200,000 in the half year, Our adjusted EBITDA margin stood at 4.7%, stable compared to last year, with slight positive contribution from North America and Europe Offsetting Asia Pacific. In Europe, adjusted EBITDA margin was up 9 basis points, thanks to the positive volumes in key countries, The gross margin improvement in Germany and France, partly offset by cost inflation, increase in IT cost and investment. In North America, adjusted EBITDA margin grew 8 basis points to 4.1%, thanks to volume growth that more than offset the negative channel mix, Tariff, cost inflation and investment in people. In Asia Pacific, adjusted EBITDA margin decreased by 9 basis points to 1.7 percent with volume more than offset by the disposal of the Rockwell Automation business in Australia As well as cost inflation, especially in China and Asia. Our corporate costs Stood at €12,900,000 unchanged versus last year with our investments in IT and digital offset by lower corporate costs. For the full year, we anticipate the corporate cost to be close to €40,000,000 slightly higher than last year because of the central hosted IT and digital On Slide 19, we look at the bottom line part of our P and L. Let's start with our adjusted EBITDA of €319,200,000 up 2%. Reported EBITDA was slightly higher At €319,600,000 up 5.3% year on year, reflecting the nonrecurring swing in copper prices. Other income and expense amounted to a negative EUR 22,400,000, including restructuring costs for EUR 13,500,000, Mostly related to the closure of a distribution center in the UK and additional reorganization cost in Germany As well as intangible asset impairments in finance for €9,300,000 For 2019, we anticipate restructuring costs to be close to our normative level of €45,000,000 to €50,000,000 Our net financial expense increased by €21,100,000 due to the one off cost of the bank refinancing that took place in early March. Overall, we benefit from a reduction in average effective interest rate of around 3 basis points to 2.81 percent. We also saw a sharp decrease in our income tax to 32 point million. Our effective tax rate of 16.6% is exceptionally low as it benefited from a release of a tax Following a positive legal judgment. In 2019, our normative tax rate should be close to 33%. As a result, net income was €163,900,000 up a very strong 70 point percent and our recurring net income grew strongly to EUR 167,700,000, up 9.6%, a positive achievement. Let's turn to Slide 20 to our cash flow statement. Our free cash flow before interest and tax moved from EUR 15,600,000 in H1 2018 To minus €17,300,000 in H1 2019, mainly due to the higher restructuring cash out this year Linked to restructuring costs in Q4 last year and to the change in working capital due to payable. Please also note that in H1 2018, CapEx benefited from the inflow resulting from the disposal in Australia For FICA, €20,000,000 Looking at our gross CapEx, that stood at €55,900,000 Up from €48,500,000 with still 60% related to IT and Digital. For the full year 2019, we anticipate our gross CapEx to be close to 1% of sales. As you know, our free cash flow is strongly marked by seasonality, with most of the inflow coming in Q4. As a reminder, in 2016, our free cash flow before interest and tax was about minus €7,000,000 in S1. In 2017, it was minus €77,000,000 and in 2018, it was nearly minus €5,000,000 restating the one off inflow from the disposal in Australia. In addition, the refinancing of the €650,000,000 bonds View 2023 cost us circa EUR 20,000,000 in H1 2019. Lastly, our income tax paid increased to EUR 62,500,000 in H1 2019 from EUR 24,000,000 last year. I remind you that in H1 2018, It has benefited from the cash inflow from the reform of 2017 income tax overpayment in France And the reimbursement following the decision related to the 3% dividend tax paid. Overall, the increase in EBITDA resulted in a slight improvement in our leverage ratio in the first half, which stands at 2.86 Thanks. On Slide 21, we took a look at the breakdown of our debt maturity. As I already mentioned in our Q1 call, we successfully refinanced our 2023 bonds With €600,000,000 issued at 2.75 percent maturing in June 2026, We have no debt repayment before June 2024, and our average maturity has been extended by around 0.7 years to about 4 years, With the bond refinancing and the recent securitization program renewed in Europe. This refinancing operation help us optimize our financial cost and mitigate the slight increase in short term interest rates. We expect Our recurring financial results 2019 to be slightly below €100,000,000 pre IFRS 16, assuming no major volatility in currency or interest rates. The IFRS 16 impact We'll add around €45,000,000 to our full year financial charges. Let me now hand back to Patrick for his concluding remarks. Thank you, Laurent. Let's go to Page 22. We are adapting To become more agile, and we already did in Q2, and more agile in an increasingly volatile environment. With our repair journey being now completed, Rexel's operational focus is on improving operating leverage, And our strategic priority remains more than ever to advance our digital transformation. As we told you during today's presentation, we expect H2 to benefit from a reversal of the calendar effect we saw in H1. This, combined with the continued execution of our action plans, put us on track to achieve our full year guidance. Consistent with our medium term ambition and assuming no material changes in the macroeconomic environment, We target for 2019 at comparable scope of consolidation and exchange rates 2% to 4% same day sales growth, Excluding an estimated unfavorable impact of 1% on 2019 from branch closures in Germany and Spain, A 5% to 7% increase in adjusted EBITDA and a further improvement of the net debt to EBITDA ratio. This ends our presentation and we give plenty of time now for the question. And thank you very much for your attention. Let's move to the questions. Hello? Hello, this is your operator. We just a reminder for the participants Thank you. We Yes. The first question comes from the line of Daniela Costa. Please go ahead. Hi, good morning. Actually, I have three questions. Wanted to ask you first if you can give us a little bit more color on the payables on whether that's something just related to the timing on how you pay your suppliers throughout the quarter or whether there's anything more structure which Good read from there. That's question number 1. My second question is also on the CapEx, on the slight increase CapEx in the quarter, can you talk us through how you will manage the CapEx if we go into a downturn, whether Is sort of a more structural increase in CapEx for digital and other initiatives or whether you have some flexibility that you will consider there? And my final question is regarding the 9% of sales you still have in Asia. And if you can remind us sort of what are the Strategic rationale for still having such a small position there. Understand you serve some key suppliers there, but would Not having that hurt your relationship with those suppliers in other regions. That would be it. Thank you very much. Daniel, Alain speaking. I would take the payable 1. We have a day less payable at the end of June. It's a mix of supplier and country, and there is no underlying structural trend behind that. So nothing specific. And as I commented, our free cash flow, when you restate the impact of the good guy of the disposal last year It's where we expect it to be at the end of June. On the CapEx side, On the level, we have a priority list of CapEx. So we are always able to adjust the less important one if some sign negative sign would appear. What we said that we don't want to compromise anything around IT and digital. That is our key priority. But then we have Branch reset up and different things that are that could be deferred in case we would need to. On the 9% of sales in Asia, We have done a lot of restructuring by which we choose to be present in the Industrial segment And Automation segments. In doing so, yes, we have abandoned more residential and certain commercial In the past, in commercial segments. In the moment we concentrate on this, We could benefit from, 1st of all, local demand, but also our evolution towards more industry capabilities and into automation capabilities, including gaining certain contracts, Which make us, let's say, pretty strong on this segment. And there is enough room and market share for us so that we get this 9% sales. So far, this is working very well With our key suppliers underlying, which we had already developed in the past and we remain together The next question comes from the line of Lucie Carrier. Please go ahead. Hi, good morning, gentlemen. Thanks for taking my question. I have also three questions. The first one is on the U. S. Specifically and a very strong performance in the Q2. As we stand now at the end of July, how much visibility do you have, I would say to the Q3, but mostly to the end of the year in the U. S. And do you think the outperformance versus your peers, which seems to be by a factor of 1% to 2% can continue into the rest of the year. So that's the first question. The second one is just more mathematical around the bridge. You had about 25 basis points impact on the margin from Investment for Growth. You said that you are pretty much Finish now with all your with the repairs you were calling it. Should we assume that this headwind is now into the second half going to progressively or gradually disappear? And then my last question was around the free cash flow seasonality. Thanks for all of the color around the normal seasonality. But considering the working day impact, which is more positive In the second half of the year, as well as what you're expecting in terms of momentum, Should we expect or possibly see the free cash flow seasonality to be even a bit stronger than usual in the second half? And I think you've also mentioned a lot of the inventory initiative were finished as well. Thank you, Lucie, for your question. I will take the first two, and I will have Laurent helping me on the second and the last one. The U. S. The 2nd quarter good sales level, we didn't took any special order or a Special magnitude. Therefore, there is a fundamental trend by which we are continuing to grow. And it's obviously some due to the past investment in the previous year that you see here happening In terms of top line, but it's also due a little bit to the fact, which was against us on the mix of business, Due to the fact that certain threats on business components that tariffs Would put in jeopardy as push certain customer to accelerate their project business as much as they could. The Mexican Threat on tariffs and the second wave of the China has a little bit accelerated certain big projects, Which by the way put on hold other things that will materialize in the second half of the year. And there is also this is for your first question. And therefore, to the end of the year, I continue to see good momentum, probably less Major projects and more proximity business as we have invested in it, which also When it comes to transforming into the operating leverage, I will privileged in order to materialize what I said before, The repair journey by putting more branches and investing in inventories and OpEx in people in order to address this, we are Now having finished, and we are now going to try to get as much as we can from our past investments. To your second question, Laurent, you want to take it over? Yes, yes. On the bridge, You are totally right. And that's what we call that the kind of repair journey were over. So adding More people adding branches to the network. We came to a point where we think we are at the right level. So yes, you're right. Now what is important is to have a good flow through and a good contribution of all this action into the performance of the country. So what we call in our bridge volume and price contribution has to be increased in the 2nd part of this year Next year, to partly or more than offset the investment for growth That is in the bridge today at 24 bps. In that now, we don't have any branch opening in the U. S, but We have IT and digital. And probably, this 24 bps on a full year basis would be close to last year, So going to 30 bps, something like that. So that's on the bridge. Before you move to free cash flow, Let me be clear on this. It is a conscious decision beyond the midyear statements and beyond the rest of the year to be done that after 3 years of having done investments of different kind that we have In the past, we privileged for the coming, let's say, probably 2 years, we privileged, A, the operating leverage stepwise throughout the time and also the digital transformation Because we have joined now the club of the people with significant trading and we want to grow and become one of the leading in that field, meaning operating leverage and digital IT, But more digital than conventional IT, by far, much more. These are the selectively only targets, Which we are at a turning point right now, where it was repair in the past in a conventional way And moving to the operating leverage of what we have done in the past and the IT developments. I tried to make it now because you gave me a chance, Lucie, to express that very clearly. Now the free cash flow. Yes. On the free cash flow, you are right that the pattern is a strong cash flow generation in the second half. This year should be strong as well. You're right that we said that we are at good level on this inventory, And we have given some country specific cases where we are a bit over the level we anticipate at the end of June. So we have action plan to correct number of days with specific targets, the level of inventory. So far on the receivable side, The days are good and the collection is continuing in the right trend. So we expect to have, yes, a strong free cash flow in the 2nd part of the year. And the target is to be close to 60% of cash conversion. So the transformation of the EBITDA into free cash flow before interest and tax. The next question comes from the line of Pierre Bossier. Please go ahead, sir. Yes, good morning. I have three questions. First of all, I just would like to come back to the slide, Page 17. I'm a bit puzzled by this stronger EBITA growth during the second half of the year because the basis of comparison is increasingly difficult. Where is it coming from? Is it because you get larger rebate from the suppliers? Or how you can expand that? That's the first question. So second question is a follow-up of what you have said. The WePay journey is now nearly completed. So going forward, what sort of Oppression leverage would you expect, let's say, if you have 1% of any growth, would you expect 10 to 15 basis point increase in EBITA margin? And Malo, last question is on digital. Can you give us a little bit of a granularity on what's happening in the U. S? Is penetration of digital is increasing or not? And what are your plans going forward? Thank you. Thank you, Pierre. Maybe, Laurent, you will take the first question. Yes. For me, there is 2 questions in the first. The first part of the question is the H2. And in the H2, Compared to H1, we have various things that will help us. I already commented largely on the debt impact, which bring us roughly 2% more EBITDA growth compared to H1. Then we have the turnaround country, Germany and Spain, the impact will be greater in H2 than in H1, so this should bring us 2% to 3% growth. Then in H1, we suffered also from the copper price, which cost us roughly 1% of growth in H1. And with the level currently we have, it should not impact H2. And of course, we have the ramp up of our action plan That have more impact in H2 than in H1. So that's the first answer comparing H1 and H2. Then the second question for me is how you reach to do 3 times in a row a 9% growth in H2. And that's Mainly because when you are in a top line growth momentum, you can materialize, let's say, after summer, Some stronger negotiation with the supplier. You can reallocate purchase and you grasp, In fact, additional rebates that are the result of the work of the 9 months. And of course, there is also The ramp up of actions that are delivering usually more in H2 than in H1. Okay. There is also the fact that we shared with our teams that they need to focus Also on the operating leverage, I mean, when I took over 3 years ago, remember I say, I will and in the service level, including transportation costs and everything. When you do this, Obviously, this is creating momentum after years of going down. We have done it. And there is a moment where, obviously, As I told you and we shared many times with you, the community, in saying and the question was when do you turn to more operating leverage? Yes, we are turning to more operating leverage because this is a good time. We have done what we had to do. We see also that we can now we have the right setup in order to get the benefits of our actions. It's always A shift in the criteria by which we manage. It's always a shift in the way we Get our people to focus differently on different elements. There is always a shift into the What do you privilege in terms of resource allocation on a daily basis? I would not Give you because I would be foolish to have already today Full pattern of how much it would improve in terms of bps, things could get faster or slower depending on many conditions. I mean, in the same way, we are focusing on organic growth, we will focus on improving the operating leverage. And that's at least the point I want to make clear. And this is also how we see the H2 Already confirming this beyond the calendar effect and beyond the copper variance vis a vis previous year as we already And when it comes to your third question, the digital, it's part of it too because Focusing on digital doesn't mean to transform everything, but to make sure, especially in the U. S, That everything we have developed, and let me be very specific. We have now developed the total What was available into the plat mode available to be available to all of our sales rep, including the one in the other banners, Including the fact that it has to interface a different IT, different data layers and all of this has been spent. It's behind us. Now it's up to everybody as of this summer to start developing the web sales on a generic using the new features And all is available in terms of web development still ahead of us. And obviously, the more we grow in digital, The better it will help also on the operating leverage at some point in time. And it's a similar pattern than what we have seen in Europe. If you remember a year ago, you had very advanced countries, Switzerland, Belgium, just to name it 2. And we had countries much lower in web sales. France was one of them. France today is a very accelerating full Pete, into the digital journey and all our customers more and more are becoming omni channel customers Using the pattern of the branch, using the telephone and using heavily the digital interface, whether it's an EDI or web. We are entering into the same journey in the U. S. Where every customer will continue to use our banners and branches. We use our telephone capabilities and our quotation plateau, and we use our web sales and EDI. Therefore, we enter into this phase. The speed at which things can materialize, the conditions are good. It's an adoption speed, which we have demonstrated in other places that it works. I think we know the recipe. We have the attention. We have the capabilities. This is where we go. The next question comes from the line of Alfred Glaser. Please go ahead, sir. Yes, good morning. I've had several questions. The first one is on your Forecast EBITA bridge, could you detail a bit more What kind of operating leverage do you see there? Can we go back to some kind of relationship Between organic growth and margin evolution from now on, you said previously that this equation was no longer valid. Is it now valid again? And to which extent should we integrate more negative elements coming from Tariffs, less favorable mix and so on in the EBITA bridge going forward. And then I had 2 other questions. One is on France. Could you give us some More insight on how do you see the market evolving, growth in the underlying segments, residential, industrial, etcetera? And my final question is on pricing. Could you give us the pricing, sales pricing by region in Q2 Excluding copper price, please. I propose that Laurent takes the forecast EBITDA bridge. I will come for the tariffs in France, if you allow me. And then he will take the pricing also. Yes. On the bridge, on the first column, the volume and price, we ask And we challenge the country based on drop through, which is to bring something north of 10% Any additional sales in a normal environment before any investment. So that's the way we are channeling it, And we can get more than that. In some countries, the right the strong performer in Editas can deliver Far more in terms of the stop through and any additional sales. So it's a mix of country. But the way we are pushing the country to say, as you are performing on a stand alone basis, you need to deliver the maximum. And then you will have The envelope for investment, which we discuss and follow a bit separately. In that, by country, there are some specific situation, and Patrick countries, the high performer, they are delivering very strong growth through. Then it's more difficult, for example, in UK. It's a mix of everything that flowed into these estimates. On the pricing, globally, the environment is a bit More favorable in terms of price inflation, excluding cable than in Q1. Q1 was 1.6% the group, and we are at 2%. And by region, excluding cable, Europe is at +1 in Q2 compared to plus 0.7 in Q1. And North America is at plus 3 In Q2, globally in line with Q1. It's a bit early in Q2 To see the 2nd wave of tariff, I think it will impact more Q3. That's why there is not so much gap between Q1 and Q2. Let me take over maybe France and the tariffs. The tariffs in the U. S. When they when it really materialized last year, we got the impact To be passed to the market in November December, that's where we had to explain to every single customer. Now prices are different because of the tariffs for the first wave. And by the way, people started to React negatively by the end of Feb March when they saw that they had to pay the bills and they were really seeing that there was a quiz for them between their projects when they did the quotations and what they got when they had to pay their bills. And therefore, we were facing a wave of people asking for compensation, overrides, Blocking and there was a very intense market discussion or discussion with the market In the April, May moment. And at the same time, if you remember, there was a moment when President of the U. S. Decided that there could be a 5% each month for everything coming from Mexico. And he was also announcing the next wave of tariffs from China and on EUR 300,000,000,000 import from China. And probably because the threat on the Mexico one was really a major concern to everybody in the U. S, The pressure to the past one, the one of previous year, November, December, was a little bit released, and it was like restate, rebased for the new one that was, by the market, more or less Accepted where we were. The fact that the Mexican one didn't materialize, I mean, so far and the threat is gone For the time being, as probably given some release and given the China second wave of tariffs being announced And not being lifted up, we still wait from supplier how much they will This will be transformed into price increases to us because some of them are still waiting which category and when and how by the administration. But we expect this to come if everything materialized that it was announced. I give you here the sequence of events By which we are living through this. Now whether it comes or loss delayed or not, we have a clear strategy And a clear way of dealing with this. First of all, price increases to be passed. No squeeze Allowance, no squeeze acceptance. There is also that out of the first, we told every single customer in Q1 projects To be signed, let's sign price adjustments for the future. And yes, we can make quotations today, These costations are subject to price adjustments. Now is it going to have to be easy if It's never. Therefore, we have to be cold blood on certain top line when it comes to it. And therefore, the drop through and flow through become a very important criteria for managing such period of time that Taking deals without flow margins just for the sake of the top line is not what we will pursue. It's not. And it will all be looked at by the drop through capabilities. This is how we are working. We adopted. It's our capability to react to something that we don't really manage, but when it comes we have to take it into consideration. When it comes to your question about France, I'm reading like 2 different indicators. So far, three things. It's still a good market in volume. It's still good ahead of us because Grand Paris, all the Ping games on the horizon are Creating very little for us today, but significant probably over time in the coming years because there will be Traction for the time being, it's more in the underground, but very soon it will be above the ground level, probably in a year of time, and there's enough backlog and enough in the system so that we can bridge to this moment. Now Paris does not make all of France, but in the moment there is a strong demand, such a strong demand in the Ile de France region, It gives relief on the rest because the big guys will be busy with this and there is enough good level of activity in the rest of the country. I don't expect a major issue from the demand side. And industry is just positive slightly above. Commercial building is slightly positive and residential is really depend by regions. It's collective residential, which is sustained and to a high level, only individual houses are a little bit down. But every 6 months it may vary. The next question comes from the line of Andreas Willi. Also, Mr. Pierre, please press star 1 again. So Because you booked a question, but I lost it. So if you can call it again. Please go ahead, Mr. Andreas. Yes, good morning. Just have a few follow-up questions. On your message on the focus On operating leverage and maybe selectivity in some area, focus on the proximity business and focusing on Driving leverage now, what part of that is linked to where we are in the cycle and the environment that may be a bit weaker? And what is part Of that is just because of the stage of your own development you're in. And in light of that also, if you maybe could comment on Some trends you've seen in June, July, particularly in the U. S. And Germany and industrial markets where we have seen some weaker data points. And lastly, On the U. K. Ahead of the Brexit deadline, what are you doing in terms of inventories preparation for that? I guess it's difficult for you to say what customers are doing. We are a bit too far away from maybe that deadline. On the operating leverage, We would have been, in any case, if not at the Asymptote, having achieved The majority of what we wanted to achieve, it could have been 6 months earlier, it could have been 6 months later, but it was roughly The 3 years that I had mentioned when I took over and or I given to myself, which was a little bit less when in February 2017, I was Hello? Hello? Now you never know before what is the optimum time. And by the way, we were lucky enough to have the I would be foolish as a CEO to tell you that I don't look at the cycle. Now the cycle is not over. I don't know when the cycle will turn, but the cycle in the U. S. Is not over, and there are things which continue to be under pressure. When I see the demand in both coasts or in the south or in the gulf, when I see how much it's booming due To the oil in the Gulf due to the on the West Coast. And when I see the salary pressure, When I see people having to raise by $2 per hour, otherwise, they cannot get the job done. When I see the pressure on unionized electricians' availability where you have to wait for months to get guys to do the job, It tells me that we are still the economy demand still create the tensions There is not yet the beginning of a cycle now. A cycle can turn fast. There must be something that could happen. I have no element to judge on Disruption capabilities. For the time being, it's still strong. But there is a moment And you were part and you remember that going digital is also a must for me, Making every customer omnichannel, digital and non digital. Therefore, the first phase Was to be able to show to the world and to ourselves the organic growth could be done in the conventional way and prepare and we have invested also, Prepare the way to make them the digital customer of us as much as the physical customer of us, if I may say so, so that now the focus, Despite I could have continued a little bit in the U. S. The usual way, it's a conscious decision To invest in digital because the operating leverage beyond Of the future beyond focusing on good drop through now is also due to the fact that I need to have a critical mass In digital, so that the future beyond a year or 2 is also in term of operating leverage guaranteed by a much By a different business model, where certain costs will be lower than today and the transform than the digital Attractivity of our solutions, whether it's CDI, Punch Out, email to EDI or more on the website With all the functionality that made pure players extremely strong that we have now, let's say, Tracked in our system and made available to our customers the track and trace, where are the goods and when do they reach you out and all these service Driven capabilities will help the 3 years journey on operating leverage improvements. And when it comes to Germany, Germany, yes, I'm like you. I'm reading the indicators on the especially on the industry. What we serve in the industry is related to maintenance, productivity. We are not in the output. We are not in the what we serve is not volume driven by the German industrial customers. To the opposite, it's more their investments, investments in productivity, investment in safety, that so far We are less hurt than certain industry are showing signs of having less to produce. And it doesn't mean at the level of investments where we are, which is not capacity driven, that it does not materialize today as being getting weaker. But long term, we are also prudent where we see. Certain industries are not suffering the same way. There is one thing of the Industry and it's another one when we are in fine chemistry and it's another one we are in food and beverages. The refinancing around Several of these segments is really helping us managing where to put our resources, Qualified industrial specialist in order to take the best of it. So far, so good. UK, Allow me to make with a little bit of a sense of humor. As much you know, please call me Because it's still very uncertain. The one thing I know, we are and we have created a cluster With the head of internally, with the head of Benjamin and Benelux Pierre Benoit, who has joined the COMEX, so that he leads The UK effort into having an optimized footprint and if the Brexit would create, let's say, Slowing down the reduction of the demand or maybe unbalanced demand by where we had to be, we would adapt and fast. And we are developing different plans ready to go depending where it goes. Regarding big customers, Big customers with low margin, we are working away if the margin too low or if therefore we work from floor margins. And therefore, our EBITDA will improve from, let's say, quality of the top line driven by the margin. And also, we have to take into consideration that some customer If the contraction of the market is becoming too big that some of them and I would never forget the carry on case months ago That potentially could become default customer and we don't want to take that risk. If we could identify, we would walk away. The prudence and the prudence is probably the way we will approach the UK market until we see we have a better clarity. The next question comes from the line of Supriya Subrah Maniyan, please go ahead, ma'am. Hi, good morning and thanks for taking my questions. Most of them have been answered. Just had a couple of questions. One is around your digital sales, which has been growing quite nicely. So Could you show some light on how you see that growth coming through in the next few quarters? And also, I think you've already touched upon this, but when would you start seeing the, let's say, the drop through come through from the digital sales because it's now reaching The good threshold levels in quite a few countries of 30% of sales. So how do you see margin improvement, let's say, coming through Due to that. My second question is on the margin expansion from The branch closures of the restructuring in Germany and Spain, could you give some indication of how much of that Contributed to the 1H margins and how do you see that contribution coming through in the rest of the year? And a last question on North America in terms of branch openings, now you're at about 54 of the 100 branch openings of the medium term Target, how do you see that progressing? Do you expect further branch openings in the next two quarters? Or are we done for the year? Thank you. On the allow me to stand by the last one. In every country of the world and North America, we have the same rule. We have regularly branch to close branch to open, but the total number of branch will not increase anymore. We have to close because the bad location, because we are being asked to leave the premises or whatever or good reason that we may decide The highway exit is not in the right direction anymore, whatever it is, and we have to get out of there. Permanently during each year, We have to relocate some branches. The new thing in the light of the digital increase is that we will do it with Lower footage, whether it's square meter or square foot and very prudent on manning, how many people to do what. And all the evolution in North America or Europe or Asia will be on the same rule. Productivity on square meter or square foot, productivity per internal sales rep Or counter people? Because in a moment, we took drop through. It's not just a top line that you generate by more customer, more SKU, it's also the way we manage this fixed asset, this fixed cost structure That obviously over time, the more digital we progress, we will have to manage in a downward trend. There is no exception to it. The 54 branches, there might be 1 or 2 in the process of being started may become 55, 56 could go back to 50 whatever, but the 55 take a bunch number of 54, This is the Delta additional and which have created the density in the places where we want it to be and that's it. I will also recall you for the sake of the operating leverage of the future that we have refreshed a higher number than this 54. We have done renovation of, let's say, probably 2 times as many as these 54 of the existing previous buildings. De facto, We have probably 50 for new and more than 100, I don't have the number in my hand like this, but it's more than 100 fully refreshed, which is more than 50% of the total number of outlets we have in the U. S. That has been completely redone or open brand new. And I count on this now when I look at the drop through. Now your question of the drop through Top line, there is a minimum bottom line contribution. And they are different per country, Per where we are, there is a minimum to be reached in order to improve our EBITDA their EBITDA contribution from the top line. But it has also to do with the existing business. And here, the digital is coming in the party. Every country which is above 35% digital trading, That's what we have noticed in a few of them, roughly 30%, 35% have all the growth more done by digital sales at lower operating expense than the previous 10. If you do 10% or 15%, you don't see any effect in our bottom line impact yet. There has to be a critical mass that we have measured in Switzerland in the past, in Belgium in the past and that we measure in different places Where we are at this level. Therefore, I'm asking the large countries to improve, increase and accelerate this Because when we will see this, then obviously, there will be a major another operating leverage improvements beyond the one that I have said that will happen anyway before that level. Margin, maybe Laurent, you could take over. Yes, on Germany and Spain. In fact, the H2 last year in Germany and Spain was very low. So we have a quite positive base effect. So when we looked at the 10 bps, it's 70% will be in 70% roughly will be in H2 and 30% was in H1. We have a next question. Yes. The next question comes from the line of Lucie Carrier. Please go ahead, ma'am. Hi, hello again. I wasn't I mean, I didn't know I was going to ask another question, but as I have you on the line, maybe I just can follow-up On something you had asked earlier, just for the bridge for the second half on EBITDA, sorry to ask again, but Were you saying that you expect the investment for growth to be a 30 basis point impact or higher than the first half? That was not very clear, and I had some question coming in the meantime. Yes, yes, yes. We need to I said that the investment for growth will be higher than the 24 basis points, probably close to 30, and that The volume and good contribution of the country should be slightly higher than the 30 bps we had in H1 Through different action and measure we have taken during Q2, and that should start to materialize In the second part of the year. Lucie, are you there? Yes, carry on. Lucy, you can talk now. Yes, sorry, apparently, we are all being cut out after you answered the question. So just to be clear, the net of volume price contribution And investment for growth, do you expect it to be higher in the second half than it was in the first half? Because in the first half, it was plus 6 bps. Then it's probably, it will be slightly higher, yes. Thank you. Yes. And I've got another question from the line of Pierre Pauset. Pierre, do you want to ask a question? Yes. Me again, sorry. I have two questions. The first one again, if the repair journey It's completed. So it means that you say there will be no further major disposal or restructuring maybe in Italy, for instance? And similarly, is there some room now for some specific M and A maybe in the U. S. To increase your market share? That's the first And the second question is on data analytics. Some months ago, you mentioned a software which can reduce the Churn in your client base by predicting whether or not the client will stop doing business with Rexel. Is it working well? And in which country have you that with sort of result? And are you going to roll out this software in a large number of countries? On the M and A and disposal, there is no taboo That if we have disposal to make, whether locally For country, we would do. But you have noticed in the past that everybody was predicted certain Geography, we're wrong because it could be sometime very local within a country. Look at Germany, what we did in the North. It could be an activity based. Look at China, what we did when we exited the residential. And therefore, allow me to say that this is we looked at it very analytically from a different standpoint and from an outlook Further down the road outlook, I think a distribution company like us will permanently review where to be, How to be, for what to be and be there is some kind of an agility here. And at least the choice for Rexel is really to create value. And if there is situation where there is no chance of creating value, Midterm at least and not 10 years when I say midterm, it will be like 3 years, 4 years down the road. Then obviously, I would take The necessary steps that could be this. On the M and A side, I keep saying to everybody, I will not go for market share gains by acquiring company Exactly like we are. We have demonstrated that organic growth, more than €1,000,000,000 gains, We can do by ourselves. We know how to. And first of all, today, everybody has Every time I'm looking at an acquisition of the conventional business, there are multiples which are, Allow me to say sometimes ridiculous and outrageously high when you think of the future. And therefore, I'm not a great fan today unless there are very local good cases. I'm not a great fan of spending resources at acquiring far too high multiple companies doing exactly the same For which digital is not there or not enough, for which restructuring or IT conventional has to be redone and kind of things. On the other hand, The more digital we go, the more a qualified digital complementary business, Whether it helps for the industry or whether it is for commercial building, I would really I'm looking for. But there are not so many, 1st. And second, where there are a few, there might not be for sale now even if somebody would tell me everything is for sale. But There is a time to everything and there are not so many of them. But we look systematically It would make sense for us to accelerate the digital journey. When it comes to your question about Data Analytics, we continue To make some developments, you mentioned 1, there are others. We continue to improve, test, Get machine learning as much as analytics predictive analytics per se. And in doing so, Yes, we see the acceptance by the shield, the branches, the sales reps, the inside sales. It's a long journey. When I say we will focus on digital, you have the digital transaction and you have the internal way of working, And this is one that you have mentioned. We will take the time probably before Christmas For reviewing this and put some facts on the table, but everything I could tell you today would be too early in the process. Once I have real statistics, then I will come out and share. There are no further questions at the time. Well, if there is no further question, first of all, I would like to Thank you for having taken the time. Thank you for your questions. Thank you for giving me and Laurent a good chance of Planning the why and the how and the direction we go. And I hope to meet This August month's coming. Thanks a lot. Bye bye. Participants, you may all disconnect. Speakers, please hold on the line so I can transfer you.