Rexel S.A. (EPA:RXL)

Earnings Call: H2 2018

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Feb 13, 2019

First of all, good morning and thank you for having joined us today. We are here in the headquarter of Rexel and on the line, we have many of our people following us around the world. Therefore, when it comes to Q and A, there will be the Q and A from the room and Q and A from I should say the cloud. Before If I may ask you one thing, turn off your mobile. There might be some interferences for the people who are coming by line. I'm very pleased to review today because we will present you the results of the previous year and the Q4. Laurent Delabain, who is our CFO, is here helping me in order to bring you all the clarification, clarity to, first of all, better understanding where we are, what we do and also giving an answer precise answer to any questions that you would like to raise. But the one thing I would like to start with is really to tell you where we are right now and solid results and strategic advances that we are making. And if you go to Slide 3, let me say in a nutshell, and I'm very pleased to tell you First of all, we have done the job. We are back on organic growth. This company was not an organic growth company. And in the last 30 months, we have done 1,000,000,000 Organic growth sales. It's something that has never been in our group, where we grew by acquisition, M and A, integration. And when I took over, you remember I was telling you We will go for organic growth. The second thing which is quite key to me That everything that we have done so far and I remember all the question you raised in the previous quarters But when do we see, is it ongoing, is it the macro and the operating leverage, you re Invest part of it, when does it come? Fair question. I listened to all of them. But first of all, I would like say here, it's a profitable growth with a lot to come and continuous Because we grew more customers, more SKUs, more digital and with some densification with branch opening here And we are especially in the U. S. With transformation of certain countries that at the end of the day, it's a robust Organic Growth Profitable Growth. We have made progress in every single In all the countries regarding the service level, we are measuring now the customer satisfaction, The Net Promoter Score KPIs in order to figure out how to improve the service to get even more customer, Even more SKU and accelerating the digital interface to them. Another big question I'm pleased to tell you is the U. S. During years, we were not performing in the U. S. And we couldn't capture The macroeconomic favorable trends. In the last 24 months And even accelerating in the last 12, the U. S. Results are significantly better. We are gaining shares. We are growing organically. All the branches opening is exactly on track to provide the results we expect them to bring. And it's a very robust organization redesign that we have done, agility locally, focusing by regions and really getting the support of both the customers and the vendors. Regarding France, which is very often a question by which you start telling us, yes, you are dependent on France and should France becoming weaker, what's And it's exactly on our plan. Regarding the disposal program, Where in February 2017, I was telling you that we are starting a divestment in certain region, Whether we couldn't non strategic or where we didn't have the condition to succeed in this program It's already at reach by the promise that we are delivering 25 bps EBITDA improvement as promised and we have reached EUR 650,000,000, the initial program is over. And the evolution of our model, At the time, you told us many times that there is threats coming from here, threats coming from there. Digital could take us out of the market. I'm very glad to tell you we have made significant robust progress. More than €2,000,000,000 sales is being traded digitally. 1 out of €4,000,000 in Europe is is made by digital trading. We are implementing order evolution, which I will comment at a later stage of the presentation. We are on track to be one of the player in the digital field. I wanted to put this as a nutshell As an opening remark, it's already I have highlighted some of what you will see in the later slides, but I wanted to have this kind of a summary being presented to you because if you go back to February 17, that's where we and we are there, okay. And I realize that some people could have some questions at the time, but it's good some To be very transparent, where are we? And obviously, the Slide 4 is really supporting that. We have consolidated the footprint. We have revamped the operating model and we strengthened the financial structure, which was another commitment. Let's go to from a certain Level of leverage above 3 and we went down below 3 and we are now at 2.67 and we will continue to deleverage ongoing further down. And on the Page 5, you have also the exiting geographies, which We just finished in Q4 with the exit of the non industrial business in China. And therefore, I'm happy to tell you this program, initial program is over. And we have done some Acceleration in 2018 in terms of turnaround, I took a conscious decision Of getting a little bit of more power into restructuration, which is reflected in the numbers in In order to be safer for the future in an earlier stage, therefore, we have divested in Germany the C business in the north of Germany and we are only focusing on the industrial footprint in Germany plus And only in the South where we have the proper density in order to be robust. We had to adjust similar elements in Spain, Where we have closed the branches and reduced some of the warehouses footprint in order to be more agile and more present locally where there is better market. And we have done and we are conducting some further downsizing in the UK in order to adapt to the Situation, which we had to do once we had done the regrouping of the 5 banners into 2 that was finished at the of 2017, early 2018, therefore, we could then get to a better position to adjust to What the potential Brexit situation could mean or whatever it could be, if you could help me on that front would be great. On the Page 6, the one thing which is and revamped our operating model and we are To do this every day, improving the business model per se, definitely more customer satisfaction, more customer OFKU will not stop. We have reached a certain level. This is proving the case and we continue and we accelerate. There is no reason that's the only way to gain market and to grow organically with the best results that we can get from there. We are working also a lot on pricing initiatives along. It's not Growth at the cost of margin, it has to be growth with robust and solid margin generation. We adjust the skills and we adapt the skills and the managerial model. There has been many changes and some people ask why and if and so and what. It is a fact that going from a company making growth through acquisition and you go to organic, Coming from conventional going to more digital, coming from very independent banners to structural countries or Umptime cluster of obviously there are a lot of skills to be added and lots of manual changes to be done. We even The way we interface with our countries, we are doing deep dives, which are sessions of 1 Today is where we go through all elements and of which transformation into more robust model, we look at the robust Obviously, we look at the financial moment, but we look at the transformational changes, which needs to be done in-depth so that the future is And this is working and it's well understood and it works well. And we have the increasing multi channel interaction, We start to really be visible. There is always a ramp up time, but I can say the last 12 months have been accelerating and we have invested additional skills, we will continue to do this and to do more and to accelerate. We are on the right place where we want it to be. And obviously, I have always more ambitious targets, but the results are highly visible. And we are reinforcing through all of this, our supplier Higher relationship, this is a business where you have to make good with your customer, but to really serve with the value added your suppliers, otherwise Life can the robustness could not be very long term stable. And this is what Slide 6 is describing to you and which lead us to Slide 7, where we strength I say that for people being online, allow me to say the paging of the pen because of this. We strengthened the financial performance And this is very important because we will follow and continue to follow and continue to do and we have done leveraging the balance As I told you, we come from 3.04 and we are down to 2.67 and we are continuing this effort down regional HQ or in central HQ or even the country management team in order to reinvest in the digital world in order to reinvest in the transformation towards the future in terms of skills and teams. And therefore, we are able now to have simple or simpler processes. We will continue to do more of this in order to free up resources to go to the digitalization. And also to add the financial performance because this is the kind of cost that we take out in order to get more Leverage out of this if we put them in the field. And rebalancing the OpEx, first, field coverage. The one thing which is to reach the more customer, more SKU, we have an increased sales force efficiency, not just through the tools, but through the quality of people, Not just through the number of people, but through ongoing productivity efforts in order to have enlarged Customer portfolio for each of our skilled sales people, which is the first priority and the second is Strengthening the digital program, I think I have already give you a flavor of this. When it comes to the results, we got a successful Reflected in the numbers, you know the numbers of growth, 3.5% of adjusted EBITDA, 608,300,000 EBITDA, recurring net income continuously growing. And the one thing which you see on this chart on Page 8, this is what I call the value creation chart, which was key to us. We are back now to have reached and to pass above the work line, the work. And we were below, but creating value for our Shareholders on the long term means we have to be above and therefore we have returned to be above the WACC level. And it was critical for me, therefore, I put it here as a benchmark by which now we enter into value creation above the work line. And obviously, the EBITDA margin And deleveraging, which I have already commented, you see the numbers here on the last two elements of the slide. 2018 achievements in absolute value, we are at 13,300,000,000 which is a +3.5 percent on same day basis. EBITDA, EUR608000000,608 point €3,000,000 which is another plus 6.1% comparable to the previous year, plus 6 point 9% year on year. And recurring net income at +12.8 compared to previous year. The gross margin, very interesting, the gross margin, because I keep this as A message online for the future to stay in this 24.7% range, which is very key When you grow, it's not done at the cost of the gross margin and the 3 bps here are not representative of a trend. The adjusted EBITDA margin 4.6%, 10 bps above and indebtedness ratio, I already which is 70 bps improvement year on year. And with these are the picture. And obviously, now I will pass to Laurent so that he will give you more flavor about the numbers, about the geographies and I will come back in order to put the global picture of the future and the outlook. Laurent, I don't want you to come here. Okay. Another view of our strong Q4 performance, we just reflect the trend that Patrick I commented, those are demonstrating that our strategic plan is delivering results. Our transformation initiatives in several countries The Slide 10 shows the sales and profitability improvement in Q4. Our sales grew for the 9 consecutive quarter, reaching nearly €3,500,000,000 This represents a same day growth of 1 point A satisfactory performance given the more challenging base effect we had this quarter, The negative contribution from copper and the impact of the transformation underway in Germany and Spain, I will comment further. Concerning profitability, our adjusted EBITDA grew by close to 9% with increase of 27 basis points on a comparable basis to 5%, driven by the strong performance in North America. Recurring net income was up by a strong 9.7% in the quarter. From a more business point of view, I'd like to share with you 2 key highlights of this quarter. First of all, thanks to our transformation efforts, our U. S. Business It's back to sustainable growth. 2nd, we have repositioned our business in Germany to focus on its more profitable segment. This lays the foundation for future profitable growth. At the same time, we continue to restructure UK in a difficult market and environment. We will also continue our disposal plan in Q4 with the sales of our retail and just really all our commercial business in China. On the next slide, I'd like to comment on our top line growth in the full year. On a reported basis, our 2018 sales were up 0.5% as a result of the positive 3.5% Same day sales growth and a positive calendar impact of 0.3%. On the other side, we have 2 unfavorable effects. First, the scope was minus 0.7 percent, resulting from the divestments in the Southeast Asia end of 2017 And currency for minus 2.5 percent, mainly due to the depreciation of the U. S, Canadian and Australian dollar and the Swedish krona again the euro. Concerning currency and assuming spot rates, We expect foreign exchange to have an impact of circa plus 1% on sales in the full year 2019. And concerning scope and taking into account the previously announced disposal in China, The expected 2019 impact stand at minus 0.4%. Breaking down the sales growth by quarter, You see on the bar chart on the right hand side of the slide that we have posted growth every quarter, not just in 2018, Over 9 consecutive quarters on a constant and same day basis. This achievement came in Q4 despite an increasing challenging comparable base over the year and the lower contribution from copper, which ran into negative territory at Minus 0.3% compared to +1.6% in Q4 'seventeen. Let's now take closer look at our top line performance by geography in the coming slide. On Slide 13, you can see that we posted solid same day sales growth in Q4 at book level of +1.9 percent or 3.1%, excluding branch closure in Germany and Spain. In Europe, Representing 55% of our sales, revenue was down 0.8% on a difficult comparable basis With growth of 5.5 percent in Q4 of 2017. In North America, which account for 36% of our sales, Sales rose a strong 6.9%. And Asia Pac, which account for the remaining 9%, Sales were broadly flat at minus 0.1, but we are positive after taking into account, as you remember, the disposal of our Automation business In Australia, and we also have a slightly more challenging base effect in Q4. As shown on the slide since December 2016, Rexel added almost €900,000,000 of sales on an organic basis With all three of the geographic contributing, it's a big number, which is very close to the anti Nordic zones. Let's now look at each region beginning on Slide 14 with Europe. Sales in our biggest regions stood at €1,900,000,000 in the quarter, down 0.8% on a same day basis or up 1 0.2%, excluding Germany and Spain. In our home markets of France, Which accounts for more than 1 third of our European sales, our revenue were down minus 1.3% on a challenging basis Due to lower export project and temporary impact of lower activity in December, business was however in the quarter supported by good demand in residential and industrial markets. We are also seeing positive trends in several key countries, Including Switzerland, Benelux and Sweden. Switzerland benefited from its strategy of focusing on project And grew by 6.9%. Genelix posted solid plus 13% growth, Good momentum in Belgium, where we acquired 1 branch in Kothrais and in the Netherlands as well. Sales in Scandinavia were up 5.2% with robust growth in Sweden up 5.4% and to public spending And large C and I business has more than offset negative trends in residential. In Germany, with the closure of the 17 branches in C and I in the north at the end of September, our sales in the country were down 15.9%. However, excluding this impact, our sales were broadly flat. Lastly, in the UK, sales were by 6.4%, mainly due to lower business with large C and I accounts and 33 branch closure. In a highly uncertain policy context, we will continue our effort to control costs in that country. On the next slide, as part of our strategic plan, we said we would turn around our operations in several key markets. And I would like to focus on 3 of them, Slide 15. Germany First, we moved decisively to refocus our operation on more profitable market segments. With the closure of the 17 branches in C and I in the north at the end of September, our network reorganization is now completed. We have also closed 2 of our 5 distribution centers and adapted the cost base at the HQ. The industrial business is now at around 42% of sales in Germany and we have market Between 20% to 30% in the region in which we are still present. In Spain, we have adopted a more regional approach with a new organization around 5 regions, The closure on merger of 16 branches and the new management team in place. We'll be progressively implementing 4 urban spoked in 2019 as we continue to optimize our logistics. The measure in Germany and Spain should lead In 2019, to around 10 basis points of EBITDA margin increase at group level And the reduction in sales estimated to around EUR140,000,000 in 2019 compared to 2018. And in the UK, where EU funded projects have gone through us, we have closed 33 branches to adapt to challenging market conditions We are focusing on margin driven businesses. On Slide 16, now we turn to North America, where sales grew by a strong 6.9% on a constant and same day basis. Let's look in greater details At where we stand on our transformation in the U. S, we are very pleased to report today that our Q4 performance provides another demonstration that our new regional approach in the U. S. Is positioning clear results. That grew in high single digits for the 3rd consecutive quarter at +8.5%, Confirming our regain ability to capture market growth and gain market share in specific regions. The backlog is now back to normative level and will support 2019 sales growth. We have gained 3,600 Customer in the last 12 months are seeing strong double digit growth in every precond distribution in several key region, Notably, Denver, California, Texas and Florida. In addition, we have opened 48 new branches or counters The launch of the plan in 2017, contributing to 2.4% on our Q4 sales growth And about 2% in the full year, in line with our objectives. In Canada, sales were up 1.3%, Driven by mining potash offsetting the non renewal of a large wind project. On Slide 17, we focus more specifically on this chart on our U. S. Transformation, which again It's paying off with acceleration of our profitable growth. As you know, we have reorganized our business in 8 regions, We are seeing a past trend of branch closure. Our 2017 plan called for opening 100 branches or counters in the medium term. At the end of 2018, we are about halfway there. About half of the opening are branch and the other half These counter into agencies. Those 48 openings are concentrated in our key priority Notably for Odia, Texas, California and the Northwest, where we have really a strong market presence already through Platts in the Northwest. Let me also highlight on Slide 18, What we have performed in Canada, where we are a market leader with 20 3% market share operating through the largest network in the country with 190 branches in 3 banners, Westburn, Netco and Rexel Atlantic. In Canada, we can say that our business is now firing on all cylinders. From an organization point of view, we have strengthened the management and our teams. From a regional point of view, business has picked up throughout the country. From a banner point of view, performance is strong across And from a segment perspective, we are seeing improvements in oil and gas and have broadened our offer in other segments. We have a very strong business with Rockwell Automation in the country and we have recently been awarded a distinction of best distributor This has been reflected in our numbers with 2018 sales up 3.6% on a same day basis. So overall, if we look at North America, what is important to note is our adjusted EBITDA in 2018 grew by strong 18%. Moving on Slide 'nineteen with Asia Pacific, where our sales were broadly stable, but are up 2.9% When we restate the impact of the disposal in Q2 2018 of our Rockwell Automation business in Australia. In Australia, excluding Gas and Disposal, sales were down minus 1.8% on a more difficult basis and lower commercial project in public area. In Asia, sales were up by a strong 6.4%. In China, despite a challenging base effect, sales were up 9.3%, reflecting good underlying demands in the industrial product and solution, more than offsetting the negative trends in our retail and Commercial business, which we sold in Q4 2018. We also saw favorable dynamic impact in India, supported by strong automation sales. On Slide 20, We turn to our full year profitability with our adjusted EBITDA bridge. Adjusted EBITDA was up 6.1 percent to EUR608,300,000 and margins stood at 4.6%. Our 10 bps improvement in the full year on a comparable basis is explained by a 50 basis point volume and price contribution Existing from our investments. In the quarter, sales price increased by 1.7% at group level, higher numbers than in H1, future growth of 33 basis points. Lastly, productivity gains partly offset the cost inflation, notably in our Wedges and the Strikes. 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 improvement. Our priority will remain to further improve operating leverage while maintaining investments in digital. On Slide 21, we turn to our profitability by region. Overall, with the Adjusted EBITDA of €608,300,000 in the full year, our adjusted EBITDA margins stood at 4.6%, a 10 bps Increase coming mostly from North America and Asia Pacific. In Europe, adjusted EBITDA margin was down 19 basis points, Impacted by country transformation, the one we mentioned Germany, UK and Spain, the more competitive environment in Norway, which more than offset the very good performance in France and It's more than offset the cost inflation and the carryover effect of investment we made in people, IT and branch opening. In Asia Pacific, adjusted EBITDA margin rose 64 basis points to 2%, thanks to volume and supplier concentration offsetting the disposal of the Rockwell Automation business in Australia. And our corporate costs stood at 30,700,000 reflecting investments in digital and strict cost control at HQ and this number is in line with our objective. On Slide 22, let's look at the bottom line part of our P and L. Let's start with our adjusted EBITDA of €608,300,000 at 6.1%. Reported EBITDA was lower at €600,400,000 up 1.1% year on year, reflecting mostly the impact So the non recurring swing in copper prices. Other income and expense amount to a negative €24,900,000 including restructuring costs for €82,500,000 mostly Related to the reorganization in Germany and Spain as well as goodwill impairments in Norway, Finland and Spain for nearly €62,000,000 and also the asset impairment relating to our Chinese retail and commercial businesses disposal for 26 For 2019, we expect restructuring costs to be closer to our normative level of €45,000,000 to €50,000,000 Our net financial expense improved to €100,600,000 This is reflecting a reduction in average interest rate on our gross debt to 2.81 percent as a result of the active refinancing, especially the one down the end of 2017. We also saw a sharp increase in our net income tax to €157,000,000 Note that in 2017, our income tax benefited from the one off gain from the U. S. Tax reform. In 2018, our tax rate fell at 50.8%, sharply above our 33 normative level Due to the non deductibility of goodwill depreciation, asset impairment and restructuring expense in Germany and Spain, Well, deferred tax assets cannot be recognized yet. For 2019, we anticipate our normal tax rate To be between 32% 33% depending on the decision taken in France for the tax rate for 2019. Net income was €152,300,000 up a solid 45.6 percent and our recurring net income grew strong €328,100,000 UP 12.8 percent. On Slide 23, we turn to our cash flow statement. Over the year, our free cash flow after interest Tax improved by €11,000,000 to €191,000,000 Before interest and tax, our free cash flow was 3.57 €1,000,000, EUR 27,000,000 below last year. This results from several effects. Firstly, as mentioned earlier, An unfavorable year over year €22,000,000 impact of copper second, €32,000,000 cash out related to the restructuring in Germany and Spain. 3rd, higher outflow in working capital of EUR 43,300,000 Resulting from our decision to increase inventory in North America to improve service level and support growth. As a consequence, our conversion of free cash flow before interest and tax into EBITDA stood at 51%. We expect to improve this conversion rate in 2019 to be closer to historical levels. Net capital expenditure was down to €93,800,000 from €110,300,000 in the same period last year. This includes the proceeds from the disposal of our WorkWell Automation business in Australia and our gross CapEx €122,100,000 in line with our objective. For 2019, we anticipate the CapEx level as a percentage of sales to be around 1%. Our net debt was reduced to close to €11,000,000 at €2,000,000,000 also impacted by negative currency effects. On Slide 24, let's take a closer look at the breakdown in maturities of our debt. The chart shows that we have no short term maturities on our bonds with no significant repayments before June 2023 During the 2017 refinancing, our average maturity is 3.8 years. Our debt can be split between securitization backed by our assets, bonds and the senior credit agreement. Our net debt to EBITDA ratio stands at 2.67 times at December 31, 2018, down 17 basis points year on year. Our active financial management is reflected in the average effective interest rate on gross debt, Down 37 basis points year on year to 2.81%. We also maintained strong financial flexibility with liquidity €1,300,000,000 at the end of December, including our undrawn senior credit facility. Our hedging policy protects us from the current volatile credit market condition. We expect our recurring results for 2019 to be close to the 2018 level. We also remain attentive to market opportunities to further for the 2018 financial year will be paid in 2019. Rexel will propose to Shareholder dividend of $0.44 per share, dollars 0.02 higher than last year, payable in cash in early July 2019. This remains subject to approval of the Annual Shareholder Meeting to be held in Paris on May 23, 2019. This dividend represents a payout ratio of 41%, in line with our policy Of paying out at least 40% of recurring net income, it offers 4.2% On Slide 26, I'd like to highlight 2 changes in our reporting that will impact 2019. First of all, I'd like to take the opportunity to inform you that our Board has decided to move to half year and full year results And we'll improve our operational efficiencies. 2nd, a few details on the adoption of IFRS 16 accounting rules, which as you know relates to real estate and lease. We will first report on the IFRS 16 in H1 twenty nineteen, Providing comparable numbers for H1 2018. Our first estimates lead to the following impacts: An expected increase in net debt of €900,000,000 an increased EBITA margin of 150 An increase in EBITDA margin of 30 basis points. Our leverage ratio according to the The senior credit agreement definition will remain unchanged. Let me now hand back to Patrick for a look at our Going forward and his concluding remarks. Thank you, Laurent. And I'm sure there will be question around this presentation later on, but for the Allow me to take you a little bit for you. You're still away from me. Thank you. The one thing on the road And it's not a new strategy. This is how we're going further in our improvement And at the same time, becoming even more robust and more competitive because the environment is changing. And the one thing I want to highlight, Very often we forget that this business has by in itself is right now generating the future growth. It's getting to be a major. We are in a good business. We are in a good business because there are now New avenues by which growth will come on top and above of the previous usage. And IoT is not something It brings a lot of IoT everywhere, but this require from the electrical installation, some evolution, Some enrichments and new solutions, new approach, but this is enriching. And it's not just Something that everybody can do, it also something that electricians are now embarking and we'll get the installations made. New safety norms, very key. I mean, the more norm, the more safety, the more moment to measure, to Pleasure to stop, to allow this to happen or to prevent things to happen. It's all an electrical. You can take it by Anyway, it's always there are always electrical connectors, devices and to adapt. Quite importantly, something which very often we see by the end users, For example, electric cars. Electric cars mean charging station. So far, it's a device, it's a product. When you look at the installation, The main board and the main kind of the connection at the extension, at the relay, at the dispatch and how to send the information to your home and It's amazing how in terms of non visible electrical equipment installation, this is Slowly but surely growing demand. But one more important thing, whether we took carbon free, I know only one carbon free real way of getting there, electrical. Now electricity can be produced in one way or the other, that every engine carbon free, an engine in a factory, The way you get it done, the way we move and more of this, it's all electrical. And for us, irrelevant from how electricity is being made, nuclear, wind, solar and more, We are at the other end of the chain and in that part of the chain, it means a lot of growing demand. And therefore, very often we forget to look into it, but obviously there are macroeconomic cycles, but there is also A resilient growing demand for electrical product at the same time by structural support and evolution. And very often we forget about this. I have been long enough in that business to tell you that what is coming is more than what I have seen in the last 15 We are evolving towards and not forgetting what we have done and continuing what we have done, which is what I call the perform. What we have done is really restoring repair, go to go to capture the growth, get money out of it, do the repair job that Margins, supplier, improvement in the supplier relationship, the turnarounds, the focus we already mentioned. And there will be more, probably more portfolio active portfolio management to be made over years in terms do we stay? Where do we develop? How do we increase there and a bit less in another place? It could be geography, but it could It could be even product line. And so then we are sorting out what is good to be in, what is needed to be in for the long And at the same time, we need to get into it. And there will be new activity, new services, new ways of making the performance happened. And one of them is obviously the digital transformation, our internal one in order to gain more flexibility, more productivity and lower the fixed cost base. And it could be obviously done by In our own business model, we have initiated some of the moves, but there is more to do. And probably in the coming quarters and Europe, we will talk to you more about our own personal transformation, individual transformation, how to generate ourselves more performance through this digital transformation. At the same time, the business is in the transform mode and we need to capture if you allow me to say, the line, the dark blue line on the this is more EBITDA generation and the above line, if you compare to the WACC, this is If I make it simple, because we will be much more data driven company, we will use all the huge And amount of data that we collect every day in order to make better decision, better assortment, better anticipation, We have to put the resources out to spend the money in order to get higher returns. This is what data driven And there are lots of programs going on right now and developments being made and hiring being made in order to be able to really get this done and It's being developed and embarked on as much as there will be improved services and adaptive metrics to it. In the moment you measure data, you can get to new services and there is a whole range ways by which we will monetize certain services, which are just bubbling up today, but very efficient to others tomorrow. It could be for our customers, could be with our vendors, it could be vis a vis maintenance companies, it could be many other partnering. And obviously, there is a huge trend towards customization. During years, we were treating our customer base by nature, residential, industrial and so on. Tomorrow, it's more by which service To provide to them in order to help them making a better job. It's no longer the product we take to them. This is a service we bring to them. The service being some logistics services, which we will continuously to improve, but much more individualized and customized Services that data allows to provide sensitivity to price, sensitivity to marketing, sensitivity to innovation, To each of our customer and we will do more of this. This customization process is probably the avenue of the future, so that we are getting in the value chain, even more finding our own value and space. In doing so, on the page after, the dotted line is where we come from. We invested in acquisitions. We invest growing the customer base and we are doing more customer on SKU in an organic way because it's a phase by which we do The more digital allow to have the book better assortment, predictive assortment, predictive churn in terms of Management of the customer base. There is room for additional growth. How often do we lose a customer without having known and do we need to work out to placed this one. This is the B2B syndrome, which we are now tackling heavily in order to get a better leverage from our sales force And process and back office optimization, obviously, this is what we are doing more and more now. And the future, which we are paving the road to is really a future of customized individual value proposition through data driven. And for example, we take care of every individualized customer experience in order to be able to propose and And very soon, if you go to our website, you will see that there is a personalization capabilities, which is already envisaged, which is now on the even on the homepage, Some information will be dedicated to the customer depending on this login, so that we are really getting now as fine tuned as a retail business has been Doing recently, we will do in the B2B world. Just to give you a sense for and obviously segmented services and collaborative supplier And to end, in order to have a very good track and trace of the future and knowing where is my product, I can even find it, whether it's still The supplier are already reaching in 20 minutes to draw our customers. This is a kind of new business we're We can provide to them. We used to say internally that this is what is next best offer and next best action. I have mentioned this 1 or 2 times already. And I'm really obsessed with all my people in order to get there, telling our customer and telling our sales force, telling everybody on the phone, on the web, on the What is next best action and next best offer in order to be at the right time for the right people. And we are getting their data, we land fast a lot. It's a fun journey. It's also a journey of growth, but it's also a journey then to the one who thought that some big players could really take me Out of business, yes, it could have been, I don't know because it didn't materialize so far. And on the other hand, we are joining this battle by moving ourselves into this field of the digital competition because it's another competition, fine, but we deliver this competition. And this is what counts. We are Resisting, I'm not opposing, I'm not rejecting to the opposite. It's a lot of fun to get there and bring all our customer base and our into this new rules of the game of the future, fine. And obviously in doing so, you can see, We tried to build even a competitive advantage while moving into it. And because just to be as good as is not good enough, we have to do a few things better than and some others will do some few things better than us. Okay. And but we have to be in the right place. And Building competitive advantage means for us systematic web and EDI transaction. Full digital content for customer and super It looks trivial, but it's so rich, so complex, so difficult to get everything at the high quality. We are there, we are getting there. Seamless multi channel customer experience, every customer at Rexel has a sales rep, a branch attached to, but also a login, EDI, somebody on the phone who is recognized by his login when he calls, this is he, Mr. XYZ, knowing immediately he is an industrial, he is a residential, he talked to a specialist, he is not somewhere on the phone with nobody knowing exactly who he is and what his These are the kinds of customer experience we're getting to. And we may join forces on some marketplaces. We are not Entitled to do everything by ourselves. We do the electrical installation and product. But if somebody medium term needs all the product that we are Entitled to make we will join forces with certain marketplaces to have complementary partnership and we are testing this, for example, right now in Belgium. And we are also like electrical vehicle partnership in Sweden, Austria, Switzerland, we are already participating to the evolution of this bubbling up markets. Now the way to re profile ourselves in all of this and They need the proximity. They don't need a big size. They need the number of outlets close enough in order to give them the peak and pack from a this standpoint or the advice, but they need also the digital proximity, getting to them through digital ways. This is getting the digital proximity as much as physical proximity in order to make sure that a customer stays in his environment. And And if I take right now, for example, one of the things which is a key highlight, I take a country rather conservative when moving to digital, because they had it, for example, in France and in Northern Europe, it's much faster than the South of Europe and is in the middle and the number of web transaction is rather low here in this country in our business, okay. But recently we got to 40,000 slightly above 40 1,000 installers being in our digital ecosystem, only a slightly one out of 4 place every day web order, But 33,000 are coming every week. They need a quotation. They need a product information. What they They come, they go in our digital environment and work with it. And to me, this is very fundamental because From physical to digital, this is first taking our customer base, our golden asset into our digital environment so that They look for a product, they look for chat, they look for advice, they can get through the web, through DDI, through the or direct contact if they need in any points of physical proximity. And this is why I'm saying digital proximity. The people who need project that we get dedicated services, dedicated logistics because you need to deliver On time in full during the night where the train is about because they give you 1 hour of the train to go to the 27th floor of a building in La Defense and with we will have a lot of this because nothing can be done during the day and kind of stuff. These are services to charge to be done, but to be with our customer. And the same customer may have a need for proximity, may have a need for project or may have a need, for example, for our best specialty business, specialty business in Lighting, specialty In Datacom Specialty Business, in Energy Solutions like we do have with Yes, in the U. S. Or Capital Light in Lighting or Soft Centre in France or more in different places and countries. This is I'm highlighting here the journey which fueled our growth of today, even more will Our growth of tomorrow in a market which is by itself bringing new avenues. Now if I go even further down, I mean, artificial intelligence, we invest right now in artificial intelligence development. We are spending I'll give you an example. I mean, in this business, we receive tons of emails every day in order to get this. And the whole thing is to get email to AI straight and nobody touched and nobody and it was done manually during years. And these are the kinds of things and changes that on a broad scale, it looks simple if you're alone, but on the scale of 2,000 to 100 branches around the world and a lot of different culture and adoption in order to come to common stand out and so on. And I'm very glad that we Embracing this and getting done, it looks invisible. This is how we transform the company at this stage in order to go to the next one, Leveraging artificial intelligence for predictive analytics and predictive analysis, the more we can predict, the better where we spend our money at the right place at right time. And I can tell you, we are very encouraged because we have identified 16 different usage and transformation of the profile the company the way we exist, of which 2 are being prioritized and being now developed and rolled out. We're beginning to do so. And there will be more because all of this will feed machine learning type of approach so that it's a never ending progress in this first And later on 16 avenues by which we changed our business model profile. And just to Salesforce Efficiency. We live from more customer, more SKU. It means qualified sales force, intensive If present, but selective because productivity is key there. And obviously, the sales force is being Highly helped in order to what I say, what is next best action, next best offer. And At the same time, we do not forget that we have a capital allocation policy that is needed in order to get shareholder value creation shareholder support on the long run and organic growth to fund the core business and also some of the evolution I just mentioned. Good dividend policy, predictable year on year. Therefore, we have committed to certain ratio and we will commit to continue to match them further deleveraging because without M and A, because active management portfolio is always Indeed in a company in order to not to be loaded too late with something that you should have looked into it differently and some selective acquisitions. Some of what I had mentioned before, whether it's digital or non digital require selective acquisition and we will focus on digital M and A. I mean, who is a digital contributor to the Building Intelligence Modeling, who is a solid contributor and could be Quiet for getting more in-depth into IoT and who else could be a good one to be acquired in order to be faster in Industry 4.0. And these are what we would be looking at, but obviously always by A very strict criteria. All of these to highlight on the future, you got what we have done, you got what the numbers are about where we are and we have done the year. And now I give you a sense for the future, which brings me to the last page, a last moment before the Q and A, the outlook. And the outlook, as you can see it, consistent with our medium term ambition and No material changes in the macroeconomic environment, we target for next year 20 19, at comparable scope of consolidation and exchange rates, the 2% to 4% Same day sales growth, excluding an estimated unfavorable impact of 1% from branch closure and Spain in order to be sure everybody has the same way to calculate. The 5% to 7% increase Just in adjusted EBITDA and a further improvement in our indebtedness ratio, which is defined by net debt to EBITDA. And in saying that, I thank you for your time, your attention, and And hopefully, we will be able to answer all your questions from now on. And I will not go through the appendix. And can I take the first question in the room and Just immediately after we may move to the question on the web, that question from the room? Yes. Thank you very much. It's Andreas Willi from JPMorgan. I got a question On the profit bridge for 2019, you gave us the details for 2018 around investments and Inflation and so on, maybe you could help us a bit with what we expect for 2019, both on The cost inflation side, which I guess will continue to put some pressure on labor inflation and so on, whether kind The 30 bps productivity a year is a normal level we should also see next year in 2019. And what you're going to do with investments? Are we going to keep going the same pace or is that slowing down? The absent an inflation in pricing, they would cover the So far, the equation is not there. I turn only on productivity gains in order to cover the inflation on cost. Not knowing what could come from outside, I will look internally in the company for productivity gains. This is the budget that each of my country has to deliver, one piece of the equation. Yes, we will continue to invest, but slightly differently. I was investing in Branches and branch opening with the Quebec profile that you have seen, I told you we invest now a little bit more in digital, which is less fixed assets, Less and more probably a viable cost in the future, but digital requires some investment, as I told as I just said before. And now the investment in digital sometime are more big than CapEx. This is different, because everything on the platform, on the cloud and everything is on OpEx. And therefore, I'm looking for even further Viti, in order to finance some of this. And we are going through the exercise also of selectivity within our on digital way between conventional ERPs of yesterday to move to more digital application and type of stuff. I mean, what I have said about the outlook is changing the profile of this. Now, yes, there is an inflation piece. And therefore, we are doing significant effort in accelerating, for example, the back office digitalization in accelerating because this is a way to get productivity gains as one of the route. My second question On North America, particularly the U. S, where you've had a strong turnaround in the last few years. When you started as CEO, there were many questions on the role of North Erica, within Rexel and whether you should look, for example, to consolidate the market with combining So I mean, your message is always very clear. The focus is to lift value and turn it around. Now you have achieved a lot of that. Are you more open to look at potential consolidation moves in the U. S. Or merging it with a peer or something like that? Or now that the business is doing It's kind of earned its place and it's a core of Rexel in the future. My first answer is things have to be done at the right time. I still have a self help to come in the Everything we have done is rather recent. I have about 15 months of improvement. Never forget that I will never forget that it was the day of Thanksgiving in 2017, which is November, when we went to regionalization. It's only last year same time we are finalizing regional budgets and adjustments too. Meaning we got all of this because we have done not just this, we have done many The stuff that we are getting there and we can capture more benefit of this in the sense that it's still going on and accelerating You know that Plata has been, for example, in digital portion that we are rolling out throughout the country and we have all these benefits still to come. The second thing about the question about consolidation, therefore, today I'm not looking at it to be clear because I'm looking at getting the results of everything we have done. I have also committed to the market to say when I open branches, it's an 18 months before you get The positive results into our EBITDA, some of them are not yet there and you know that the operating leverage have So to speak, so far, I mean, it was relatively modest to the investment day and you told me that all the time, collectively and individually, which which I fully understood and it was correct. The time will come where we will have all these investments and more of the Back on our EBITDA line. Now consolidation of the market, there are a few movement. 1 of my competitor You acquired somebody recently. Okay, fine. It's something we couldn't do because it's a Rockwell APR. If you are exclusive You have to eliminate something. It was in the Platt region. I'm not going to have to sacrifice Platt for something which is not better than Platt. That's to make it simple and short. Now there are other things in the market going around. We are looking at different things. Cycle is rather 10 years of growth in the U. S. And the second thing, and I'm not good enough to know if we are 1 2 years before the cycle slowing down or turning, this is an element of I'm very prudent, I always tell you, when I feel The cycle will turn, I will stop certain investment. At the earliest signal, I will not commit because I To get this in the result and not continue to be on an exposed mode and I'm continuing to watch carefully at The second thing is multiple would be very high today, very high multiple at maybe the high end of the cycle and At the same time, probably significant in size would put me back into corners where I'm sure I want to go because the digital way is the one I don't want to miss. Now if I find to be very if I find a very good Highly digitalized and that could bring skills, presence, market share at a reasonable price, why not? So far, I have not seen that. Thank you. Thank you. Pierre Jose from HSBC. Just a follow-up question on the U. S. If I look at the number of branch In 2018 compared to 2017, there have been a sharp drop, 6, Greg, in 2017, I think. But does it mean that you are more and more cautious Choo from getting the cycle in North America. And but there is some stage, like Texas, for instance, where you have lots of things to do. So what are your plan in terms of branch For next year. There's a little bit of a semantic issue with branch opening and because it's really new And we have done more than 100 refresh, meaning staying at the same place, rebuilding, reassortment, You see that in the working cap because you put inventory, we put salespeople and we have really We rebuilt from inside the strength of the model without always adding. And investment wise, it's a bit lower. Working capital wise, it's the same. And the effect is shorter, which is always for me vis a vis a potential slowing down or whatever, name it the way you want for the cycle to an end. It was a more prudent way of getting faster results. That's the balance. The other thing is opening a branch, It takes people before anything else to find good people right now in the U. S. Wow, It's not the easiest job. It's by far one of the toughest. And right now in our own company for the We have this year, I have to replace 1,000 people because of the bank, because pension, because 1,000, to find 1,000 different caliber than the past, it's ahead of the job. Therefore, yes, the branch What you see in the numbers is correct. It's a little bit hiding the fact that refresh is in the same building getting a very different Different presence, different service, different skills, maybe more people and much more working cap to get the Net Promoters Grow app because we have a long way to go to be yet at the level we would like to be in terms of services. Early 2018 and a couple of months put in place. So we wanted to be sure that the region are well in place Before going into further opening our branches, we have a certain number of sites and we are very cautious on our opening policy. Now your question about Texas and South and yes, there is that we have players, Identity Player locally, I mean in Texas, there is a family business with 300 branches around Texas. This is not my battle of tomorrow, because I will never be able to open 300 branches in Texas. And even buying a company of that kind, I would buy assets. I think I have enough of assets. And I need to gain market share, I need to get digital, I need to get new stream of revenues and margins without adding too much assets. Now it's not assets for 0, there might be something good and bad to be done, but highly selective. I understand I'm pressing you a little bit because there is a strong belief that I had to do a few things, then fine. And I tried to get the positive of what we have done. We show you and we give you as much as we can detail so that you can Judge for your modeling, but I'm entering into a different world too, because today my plan so far has not yet been Amazon as everybody As tried to make me that there are the Screwfix of the world, they are pure players, they are other people coming into our world, coming from outside and they play different roles. Therefore, I have to Move, like I told you, quite a fast without assets into a different battle and I'm there. I have a second question on digital sales. What was the percentage of revenue in 2018 coming from digital sales? I haven't seen that in the presentation, but maybe I missed it. 2 point €1,000,000,000 or our sales. You could take an average margin, however, there is EDI in Industry and Digital Transaction, it tends to be a lower margin erosion business and the rest for the simple thing that you don't negotiate with the machine. And if you take 18 months, 24 months, You are just surprised to the each of the customer because it's in New York pricing, but it seems to be that there is less what we call the override at the The overrides that people actually do me something to me that at the end of the day, we talk millions. And do you have targets In terms of percentage by region that you disclosed or No, we will not disclose yet because it's moving. There will be an asymptomatic moment, which we'll see, but I always have A few examples that contradict what I would tell you, but there are exceptions, 70% in the burn region in Switzerland, 70, seven-zero. But if you take Belgium and Netherlands, it's about 40%. To cross between 40 and 50% above 50%, it's time to be a little bit asymptomatic. That is already in terms of productivity gains, lower The cost and gain EBITDA increase go proportionally with this when you reach this level. Which is strange because more transparency in Italy doesn't come with higher margin. Now that we try now to have the first results as of Below 20, no effect. You keep your cost and you have because it's everybody doing a little bit of, but not enough of each. Above 40, you start having 2 players, roughly. This is what we see in Belgium, in Sweden, in Benelux in our first countries. In the middle between 20% 40%, well, It's more an acceleration to get to the 40s so that you get even more benefit from the cost side. Thanks. And we have already 5 countries above 30% of digital sales. Europe is at 24%, so it's already a very good performance in Europe and digital sales grew by almost 16% this year and the €2,000,000,000 represent around 16% of our total sales. Yes. It's Alfred Geisinger from ODDO BHF. Just on digital, Patrick, you mentioned before that, in fact, you invest a lot in digital also in the back office in order to improve productivity. What's your target in terms of productivity evolution for the whole group into the next few years? Could you explain If I give you productivity, you will take my OpEx line, you will apply to it on a generic mode and then you will come back and tell me, 2 years ago, you told me this and that. Probably, yes, and I recognize and it's fair and I know to whom do I talk, okay, free size as you are, I'm sure. Never forget, I mentioned productivity gains I need to make to offset the difference Between inflation in pricing and inflation in costing, costing going faster than pricing so far. And And I have also to finance some of the transformation to digital, meaning it's probably a productivity effort superior to the one we before. If I don't digitalize the back office, it's impossible. Therefore, the must is digital But digitization means something else. It means different processes. It's not order to cash, How many people does it take tomorrow, but you have to rethink the way you do it. Opening an account, it has to be a 1 minute opening. 5 years ago in our business, opening on the channel, it was 5 days. And this transformation will obviously have impact on the way we do things. Now there is a social dimension to everything, depending on the country. When we did the restructuring in Germany, 100 people left the HQ. We are almost too short, but I prefer to be too short now and not to have to do it again in 2 or 3 years' time higher digitalization. Just to give you a sense, through the restructuration, we also took care in where it was needed of already having made that back office quantum leap. Therefore, I don't give you a good number, I understand. But I give you a sense for how I look at it, which we never had done like this so far. It's 1st year we go for this, We'd give you a sense that the OpEx increased because as I said, digitization Increased OpEx per se compared to CapEx of yesterday. It's not the RP and not the AS400 we were acquiring 10 years ago. This is cloud based, this is licensed, not even it's a lot of developments that we can By the way, I put as CapEx and we need to get this. Therefore, sometimes it sucks some of Margin generated by additional growth, which I try to minimize to be so that it goes to the bottom line at the same time without compromising on the In 2018, how much of your CapEx was digital 60%. Related. 60%. Yes, because sometimes we have to touch on the RP2 in order to make it happen for the future, 60%. Couple of years ago, it would have been 70% logistic. And how much of your OpEx evolution Was due to the investment in digital? The IT and digital OpEx is roughly 8% of our OpEx. And you saw in the bridge, it's 2 thirds of the budget of investments in the 2018 bridge. Any other questions? Maybe we'll have Maybe some questions coming from the line? From the line, yes. We'll open questions to the line. Your first question comes from the line of Lucie Carrier from Morgan Stanley. Your line is now open. Hi, good morning, everyone. Thanks for taking my question. I was hoping you could Hi. Hi. I was hoping you could maybe come back To the building blocks of your guidance and specifically the top line, I was curious to know whether you are Factoring in there some potential to continue to outgrow the U. S. Market and whether you can comment on that because when I compare your number For the Q4 specifically to what we are seeing elsewhere in the U. S, it seems that there is some form of outperformance here. So just to understand maybe the building blocks of the top line guidance, please. That's the first question. No, no, no, Lucy, there is nothing the U. S. The top line guidance, the 1% is €140,000,000 This is the €140,000,000 we extracted from Germany in Spain. And if you take 1% of EUR 14,000,000,000, it's EUR 140,000,000. Therefore, to avoid miscalculation, we We need to clear here that this is without the we have to take care of the EUR 140,000,000 that will not repeat this year in Germany and Spain for having done the restructuration. It's just 1% of our top line. That's for the German and Spanish, 1%. And for the U. S, as we stated in the lower part of the guidance, we said assuming no material change in the macroeconomic environment. Today, we have a strong momentum in the U. S. With quite high level of backlog. So we are yes, the guidance is made on the assumption That we keep a good momentum on that way. Thanks for the explanation on Spain and Germany. There was not so much my question, but I'm trying to understand here how you think about the dynamics by geography To come up to the net 1% to 3% same day sales growth and whether within that you are assuming some outperformance in the U. S. Market because I think we cannot necessarily say that the U. S. Industrial demand or construction demand at the moment is growing 8% organically as you've done in the Q4. So this is why we're saying it seems that there is some outperformance from your side. And I'm just curious to understand how you see next year, I. E, 2019 from that standpoint? I would never take and we I know that this has been done at the end of 2017. I would never take a Q4 for a normal Sometime, customer need to finish a job before year end. Sometime, people need to make their bonuses and they rush to get it done. They are always slightly distortion. However, this year, I have to admit, it has been a growing Without having space for any artificial kind of thing happening in Q4, especially in the The U. S. Business, whether it's our customer or ourselves, is dimension by the number of man days available. It's not the demand which is high or low. By the way, today you queue 3, 4, 5, 6 months get a good electricians or contractor to do commercial building. And by the way, this is why there So much subcontracting and this is why there are so many places in the U. S. Where unionized make the whole thing much more Expensive because the unions, whether it's Miami, San Francisco or New York are controlling the electricians installation world and not just the electricians, most of what's going into the construction world. And now it's booming, let's put it this way, it's booming, Demand, it's probably fueled by the 15% of what taxes that was made available to the Americans. They had project, it took a bit of time to get the project out running and therefore we are on a solid trend and which we see in our backlog, we see in our demand. And at the same time, we have free up our resources People are gaining market share. Our people are gaining market share a little bit, but we come from so far, It has not been our case. It's good to recover and gain a little bit on others. Yes, we do. Yes, we do. And not, you should have noticed, not at all at the cost of margin. Some other people have done lower margin, higher volume. In the U. S, we have done higher volume, higher margin. That's where we are and we are continuing. Okay, very good. Thank you. My second question was around the inventory level. I just wanted to understand how much of the increase was due to the transition in the operational structure in the U. S. And How much is maybe due as well to the fact that you are increasing the number of SKUs as well across the firm? So just maybe to understand how much is Can be resolved fairly quickly and how much is maybe a little bit structural? The one thing which had to be done Without which no growth would have existed, it's not an organization design that makes something And it should facilitate, that's all. And what the first investment we did remember and everybody It was scary about the effect was working capital on inventory and we have done a lot on inventory because making product available was a probably come to a better use of inventory money put in inventories, but it was the first a mental break. Now it was not done at the same day everywhere around the states. We had to do it in the branches. And one of the way to get it done and not exploding out of control was also But regionalization is a way to put our hands around markets, which are no longer banner driven. Remember it was Jexpro, Rexel, Platt And all the banners across the states and now we put this multi banner presence within a region so that we And put the right resources in the right place. There is a second thing which we still had a negative effect last year. It was the GIS and GE business, which was going down, ABB has fixed the GIS in both terms has fixed the issues But even beginning of last year, we are going down. Now on comparable last year and this year, I still see That's as being favorable to us, which is not the case for the one less dependent on GE and GEIS. In terms of my competitors, we are less dependent upon, meaning we got structural things to do. The GE is curing, the GE customer base to be replaced by other customer because GE closed the activities and proof, we were their main supplier, disappeared, 100,000,000. And therefore, we had to capture new customers, dollars 100,000,000 each time, it's not small fish. And we are doing this and we have recovered from that. Now you need also And the way you manage your sales force, the way you manage these regions and the way and by the way, we cut a lot of layers In order to become very agile, to become short in terms of the decisions made and it goes to and Jed Baker and myself, we spent a lot of time making sure this is the way we get things done. My wife would tell you how many trips I have made. I would not Capability to embrace this market in its complexity, its supplier very Very different from Europe. Pricing, same story, very complex because you have visible pricing everywhere on the net. On the other end, you have a lot Specialty pricing and how does it fly and people going around and for every single tender, Everybody comes with, I have done this, I have done that, I have seen this, okay. At the same time, costing is high, manpower rare and Go and get it fast, basically. Therefore, yes, we have adapted to this. We have changed our structure, changed the way of doing. We are building on our Blocks, projects through the project houses, proximity, physical and digital using the plant extending to and Specialty because Rexel Energy Solution, Capital Light continue to be good providers, but take this Capital Light. Capitalite, it's a company who is a real turnkey project of lighting system for the malls. With the retail going to the web, the malls are not being first of all, no new mall and short term going down I'm not investing a lot. Within a year, we had to reestablish this company to a new market And they became the specialist of car dealership, because this is where to sell cars you need to add the lighting, the night And all the system very effective, they did it and they are looking for what is next, because this is the By which we will go in the U. S. Market, but at least it's there. It's now in the DNA. All right. Thank you. I'll get back in the queue. Thank you. Next question comes from the line of Andre Olin from Credit Suisse. Your line is open. Yes, good afternoon. Thanks so much for taking my questions. It's Andre from Credit Suisse. I'll try on the growth as well. I'm really interested to know what underlying end market The forecast you have for North America and Europe within your guidance, I. E, what you expect the markets to grow? Markets in Europe. The growth of the market in Europe are very contrasted by the way. I have to eliminate the UK. First of all, I don't know. And I don't expect Any nice news, therefore better be prepared for, let's say, rather that the market has slowed down significantly already in the UK. I mean, people think the Brexit will be the beginning of in our business. 1 third of the market was financed by project that EU was financing and nobody knew whether it would be coming or not. I have a long list of projects that we probably never materialized. And they are still open for 3 years, but they've never been started. By the way, Rexel was pretty good in this project business. And that's part of the We had to restructure and get to something much leaner and much lower because all the players were more proximity and we were more project. And this project has 2 effects. The one left over are low margins, forget it's not contributing to what it should be or they are so on And thirdly, I would like to be sure we are getting paid at the end. The carry on case is something that nobody should forget. It has happened once, it may happen a few more times. Therefore, we are highly selective and I'm looking for margins and not for volume. And I'm looking for results and not for market share. There is the choice to be made there. And by the way, should any recession happen in 1 or the other country or slowing down in Europe, This is the way we will tackle the slowing down. Go for margin and then keep your sales force And get the rest the leanest as you can. I take the chance to open this avenue because people ask me, What are you going to do if you have the answer? And we have deep plan prepared everywhere and should we see that needed Here or there or globally or locally, we do it. It's a way of life. It's known, it's shared. So what? And we are doing it right now in the UK. And now the rest of the business, If I take Sweden continues to grow, some people say the end of the cycle. I mean, I was recently Sweden is 3 towns. Sweden is Stockholm, Manfred and Gurdbar in our business, except a few industrial sites outside. It's 75 percent of the demand of the growth. And when I look at the 3, they are full of projects, full of stuff, full different nature, more innovation than brand new, But it's very good renovation is an electrical distributor. It's even better than some use. And is very different. It's fragmented over the place and it's a different totally different market. Now when it comes to Germany, we have done We need to go back to, let's say, normal market growth because after such a cut and everything, I'm going to normal market growth, which is probably something in the range 2% to 3% in the residential. And even if the latest news on Industry are a bit lower, it's still positive. And we have market share to gain in industry, good partnering, good partnership with Siemens and a few other vendors who In the field, I mean, there is no reason not to believe that what we have done is right. France, Well, my French colleague who could tell you more, but I know this market a little bit too. And It's still on a high demand volume. Is it going to high growth on top of a significant volume? Probably not. But we don't need a lot of growth here in this market because we are looking for the right mix. We are in the right mix. We have still pockets to grow. We are not our average market share everywhere. We are regional. There is demand in some places we can gain. We are going after. We are rebalancing the workforce. We are rebalancing the sales force to go on the projects where there is more to be done. It's very local now and when I say local or regional. And by the way, if there was a little bit of softening in December, there was no softening in January. Close brackets. And okay. Thank you very much for the detailed run through. Can I ask for a similar one across U? S. And Canada? Now I'm not sure I fully understand your questions. I was really just interested in what market growth assumptions you have behind your guidance, I. E, what you expect the underlying markets to grow And I think we now have a pretty decent idea on Europe and the segments there. So just interested in the other chunk in North America and the two components of that. In the North American market, I have to compound it by the region we are in And that would be very different. I still expect on the both coasts to be reasonably solid. Midwest, I don't know. On the other hand, Denver Valley and the South is booming, absolutely booming. It's the new California in commercial business and bringing a lot of people to come. But the more I look at the U. S, it's driven by local tax. You have market doubling in 5 years by people moving because the tax are much lower in a place. And if you follow the tax, you follow the demand. Now and it goes by state and no longer by my region. Within my region, I have certain state booming and others more flattish. And it goes fast. Now globally, similar to last year, it's probably something not too far from what I can judge. But please, I'm not a macroeconomic institute. I don't give you an indication. I don't give you a commitment, this one. Asia, after we have Our business to industry, we go with the automation in industry and there is still a lot of demand for internal demand In China, because we are not in any other Asian markets anymore. There is still good resilient demand in automation. And we are not in the automotive which could suffer. And we are in the Tier 2, Tier 3 Industrial segment. Great. Thanks very much. Thank you very much. Thank you very much. No, that's very helpful. Thank you. Next question comes from the line of William Will Mackie from Kepler Cheuvreux. A couple, please. Firstly, when we think about your future initiatives And investment into digital, which will no doubt transform your business in the midterm. How should we think or how do you think about which core capabilities you need to develop in house To support predictive service or improve customer relation or logistics management? And what do you think you can buy or continue to acquire cloud based or via CapEx investment From 3rd parties. So how should we look to you developing that skill set in digital? And perhaps to talk about the impact on the Physical assets you have over the next 2 or 3 years? And my second question, which you can just carry, is relating to How you run the leverage or how you see the capital structure of the business midterm? Clearly, the message Today is you will continue to reduce or delever the company, reduce debt. But what sort of level do you or the board think Is the appropriate level of leverage within the group over the midterm if you have a target? Thank you. We have targets, whether I will give you all my targets, it's a different story, but we have our internal targets and I will And but it's a commitment. The pace is more it could be more accelerated at The moment that the trend of this year, it's a good pace for the future. The trend of decrease for this year, it's a good pace for the Now it does not go forever like this. There is a moment probably where we say it's good enough and it's found. We are I remember when I took over the job, above 3, people say, oh, if you could be below would be good. Then 1 year later, EUR 2.5 billion was already or you should be below. And recently, it's below EUR 2 billion. And Where does it make sense once you reach something in that range? Further down, it really depends on other what will happened in the market on interest rates and other things. But and then face the market, which tells me while distribution, B2B, you need to transform, but deleverage also To be less sensitive to the cycle and kind of stuff, which I all understand, it's a balancing. Therefore, I'm telling you, deleveraging at the speed and the pace of what we have done this year is for 2 or 3 years is not a bad thing to envisage, okay? Everything being equal, that's the best answer I can give you as we speak. Regarding the transformation And indirectly you touch on when do I get a different physical footprint because I have more heavily digitalized. Until you are not at 40%, 45% of digital, difficult to really get something significant on your Meaning major building, 3000, 4000 square meter with so many things inside are No longer, absolutely no longer the right way by which we approach the market. Either it's a place where our bed size, which you're all like So my hub fully automatized or it's much smaller, but the presence I chose proximity model may require More, much higher, not a much, but a little bit higher number of outlets presence, but probably 1 third the size of what they are When it comes to OpEx, it has a significant impact. If I would have 1 third less square meter to be paid, even if they are in more numbers of outlets. The manning, manning is also different. Manning over the phone require to consummate skills on a few places because it's giving advice, it's taking somebody off the phone, it takes It's a different setup. And then at that moment, telephone lines, for example, and installation require This goes to big files, images, the telco business that is supporting us, we never talk about it. But this is one of the things which goes App every day because power and very soon it's 5 gs and 5 gs will require another set of equipment, which has a large Spent about 3 years. Therefore, we gain a lot on one hand, it rebalanced on the other hand. So the beginning of your question, which is The skills, it will be balanced between external and percent internal because it goes too fast. And to get the right skills and not to be on an obsolescence journey, We need to own some of it and we need to externalize and work with outside people. It's new because we have been used during decades to do everything by ourselves. And therefore, we need to select a few partners, Not so many. Sometimes we test and that's good enough or we cannot find a proper way and we have to change, but we have to work with a shoe partner In platforming, if do we host ourselves on an Azure platform of Microsoft or somebody else, but we need to choose once it's done, need to work and get it on right and who is helping you doing it. When it comes to predictive, you need to develop algorithm. We will never develop our our own algorithm, they are specialists and they are language and they are skills. On the other hand, we need to really understand And which data should be provided so that the algorithm can bring you the right output and the decision making. And recently, the people helping us were telling us of the total intensity, whether it Should be translated into cost or into timing. The algorithm is only 10%. The processes around and around the algorithm, the data to bring the data and the quality of is another 20% to time the algorithm. And in intensity, the onboarding, the usage 70%, meaning when you have 10% on the algorithm, consider and the cost of algorithm, we know roughly what it is to get it written down by people tested and running. This is a certain amount of money. You consider it's 10%. In the moment you put €2,000,000 or €3,000,000 in an algorithm, it means you will spend €25,000,000 in getting this ongoing used every day by the population of Rexha, just to give you a flavor of what it means. And it's a new world. It's not direct OPEC that you see on the P and L, it's people, it's usage, it's training, it's onboarding effort, but it's a shift in the way we run our operating model. Any other questions? Thank you. Next question comes from the line of Martin Wilkie from Citi. Your line is open. Yes. Thank you. It's Martin from Citi. Just a question on your global footprint. Obviously, you mentioned or you answered the question earlier on the U. S, But elsewhere in the world, you've obviously cut back your €650,000,000 or so of sales in Germany, Southeast Asia, China and so forth. When you look at your global geographical footprint now, are you happy with or has the world shifted again since set that target and are there other areas that you might consider or should we think that your footprint is now essentially where you'd like to have it? Thank you. I think we have done enough of the repair mode and now we will come to sorting out in the future, Where it's good to be or less good to be, but not so much and also to be balanced. And to be balanced means 3 things to me. We have to have balance in which part of the world Doing better than others and not to be too dependent on one market. And therefore, first of all, Europe and U. S. Is very important to us to be balanced Growing more in the U. S. To be more balanced with Europe and it's 55% Europe and 39% or something in U. S. Rebalancing little bit more would help. And China because and China and Pacific where we are today, it's good to be observed. And it's also very needed for the second criteria. I have a supplier relationship with Freequire that we work together in different markets. I cannot be with 1 and I have to be the star in 1 market And not to be in other major market otherwise, we don't have a stable relationship. And supplier relationship is not just a matter of volume and rebates and pricing. It's a matter of having access to R and D, having access to Access to partnership, what I call the co platforming of the future in IoT on digital platforms, having Access to certain developments, co marketing, co development and co platforming are key in the relationship with the supplier. I will not do it. I could open a chapter on the evolution between the suppliers and the distribution of the future in terms of value Again, having more end to end working ways, not duplicating certain things like inventories, but working much more on the visibility in each other, how We could gain in doing things like that. Therefore, if you don't have solid relationship with suppliers, they will never allow this to happen and however, it's highly needed to finance the future. Just if I look from a cash standpoint located in inventory that everybody should bring it down to have a higher score in serving the customer for lower inventory, global inventory, which only on end to end allow this to happen, which require file standardization, exchange of data on availability of product, which And it goes quite far into each other system. And I make it very concrete, but the third reason For me to stay or to keep this except the rebalancing between S. And Europe, which I would wish we could get as fast as we can, this is also for the skills. There are things developed in one continent that we can expand to the other one and vice versa. It's no longer the digital world, it's no longer everybody in this They are more advanced than anybody else, the Chinese themselves. And on the other end, When you are working for Google Campus in the Silicon Valley, you learn the building of the future before the BIM has even done it in Europe and things like that. Therefore, there is intelligence and richness in our business that you cannot get only by being present in 1. Okay. Thank you very much. Next question from the line of Ji Cheong from Citi. Your line is open. Hi, Ji from Citi. Thanks for taking my question. So just one, so you've invested in working capital, especially in North America. Is that more to support growth? Or is the model of opening branches and counters inherently more working So should we also think that the further branch openings in the U. S. Need similar investment in working capital? Thank you. Well, not at all. Unfortunately, maybe because no, no, the branch opening is we'll be very Opening the net branch and the requirement in working capital is far less than the investments we have made over the last 2 years. So we think that the level today is even with the trade war where we have a bit overstock is on the high side. Thank you. Any other question? No further questions. Thank you. Okay. No other question in the room? Well, I would like to thank I think it is lunchtime. Therefore, there is no question anymore. And thank you for having taken the time. Thank you for having joined whether by Skype phone or directly here in presence. And hopefully, in the coming days for the one we will see on the road, we can clarify further questions to come. Thank you.

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