First of all, good morning. Thank you for having joined us today. We are here in the headquarter of Rexel. On the line, we have many of our people following us around the world. Therefore, when it comes to Q&A, there will be the Q&A from the room and Q&A from, I should say, the cloud. Before anything else, 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 have you today because we will present to you the results of the previous year and the Q4. Laurent Delabarre, 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.
Also giving a precise answer to any question that you would like to raise. The one thing I would like to start with is really to tell you where we are right now and the solid results and strategic advances that we are making. If you go to slide three, let me say in a nutshell. I'm very pleased to tell you that, first of all, we have done the job. We are back on organic growth. This company was not an organic growth company. In the last 30 months, we have done EUR 1 billion organic growth sales. It's something that has never been in our group, where we grew by acquisition, M&A, integration. 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 about when do we see, is it ongoing, is it the macro and the operating leverage? You reinvest part of it. When does it come? Fair question. I listen to all of them. First of all, I would like to say here that it's a profitable growth with a lot to come and continuous effort because we grew more customers, more SKUs, more digital, and with some densification with branch opening here and there, 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 country, 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, yeah, you are dependent on France, should France becoming weaker, what's going to happen? Is it the cycle? In France, we are gaining market share. We are continuing to grow. We are continuing to work on the margin side, we continue to post very good, resilient, robust EBITDAs. It's exactly on our plan. Regarding the disposal program, where in February 17th, 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, is already at reach by the promise that we are delivering 25 basis points, EBITDA improvement as promised, we have reached EUR 650 million. The initial program is over. The evolution of our model.
At the time, you told us many times that there is threat coming from here, threat coming from there. How digital could take us out of the market. I'm very glad to tell you we have made significant, robust progress. More than EUR 2 billion sales is being traded digitally. One out of four EUR in Europe 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. 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 are, we are there. Okay?
I realize that some people could have some questions at the time, but it's good sometime to be very transparent where are we. Obviously, the slide four is really supporting that. We have consolidated the footprint, we have revamped the operating model, we strengthened the financial structure, which was another commitment. From a certain level of leverage above three, we went down below three, we are now at 2.67, we will continue to deleverage ongoing further down. On the page five, you have also the exiting geographies, which we just finished in Q4 with the exit of the non-industrial business in China. Therefore, I'm happy to tell you this initial program is over. We have done some acceleration in 2018 in term of turnaround.
I took a conscious decision of getting a little bit of more power into restructuration, which is reflected in the numbers in 2018, in order to be safer for the future in an earlier stage. Therefore, we have divested in Germany, the C&I business in the north of Germany, we are only focusing on the industrial footprint in Germany, plus C&I 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.
We are conducting some further downsizing in the U.K. in order to adapt to the situation, which we had to do once we had done the regrouping of the five banners into two. That was finished at the end of 2017, early 2018. 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 six, the one thing which is, revamp our operating model. We are continuing to do this every day, improving the business model per se, definitely. More customer satisfaction, more customer, more SKU will not stop. We have reached a certain level. This is proving the case. We continue, and we accelerate. There is no reason.
That's the only way to gain market share and to grow organically with the best result 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 have 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 sometimes cluster of, obviously, there are a lot of skills to be added and lots of managerial changes to be done. We even change the way we interface with our countries.
We are doing deep dives, which are sessions of one or two days where we go through all elements, of which transformation into more robust model. We look at the robustness. Obviously, we look at the financial moment, but we look at the transformational changes which need to be done in depth so that the future is better secured. And this is working, and it's well understood, and it works well. We have the increasing multi-channel interaction, which start to really be visible. There's always a ramp-up time, but I can say the last 12 months have been accelerating. We have invested in additional skills where we continue to do this and to do more and to accelerate. We are on the right place where we wanted to be. Obviously, I have always more ambitious target, but the results are highly visible.
We are reinforcing through all of this our supplier relationship. This is a business where you have to be good with your customer, but to really serve with the value added your suppliers. Otherwise, the robustness could not be very long-term stable. This is what slide six is describing to you which leads us to the slide seven, where we strengthen I say that for people being online, allow me to say the paging of the Because of this. We strengthen the financial performance, and this is very important because we will follow and continue to follow and continue to do, and we have done, deleveraging the balance sheet. As I told you, we come from 3.04, and we are down to 2.67, and we are continuing this effort downwards further down. Streamlining central cost.
We are taking out certain elements in the 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 toward the future in terms of skills and teams. 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. Also to help the financial performance, because this is the kind of cut that we take out in order to get more leverage out of this if we put them in the field. Rebalancing the OpEx. First, field coverage.
The one thing which is essential for us to reach the more customer, more SKU, is to 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 salespeople, which is the first priority, and the second is strengthening the digital program. I think I already give you a flavor of this. When it comes to the results, we got a successful execution reflected in the numbers. You know the numbers of growth, 3.5% of adjusted EBITDA, EUR 608.3 million EBITDA. Recurring net income continuously growing. The one thing which you see on this chart on page eight, 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 WACC. You know, we were below, but creating value for our shareholders on the long term means we have to be above. Therefore, we have returned to be above the WACC level. It was critical for me, therefore, I put it here as a benchmark by which now we enter into value creation above the WACC line. Obviously, the EBITDA margin and the 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 EUR 13.3 billion, EUR 13 billion, which is a +3.5% on same-day basis. EBITDA, EUR 608 million, EUR 608.3 million, which is another +6.1% comparable to the previous year, +6.1% year-on-year.
Recurring net income at +12.8%, compared to previous year. The gross margin, very interesting, the gross margin, because I keep this as a necessary line 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 three basis points here are not representative of a trend. The adjusted EBITDA margin, 4.6%, 10 basis points above. Indebtedness ratio, I already commented, which is 70 basis points improvement year-on-year. These are the picture. 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 Jean to come here. Okay.
For those on the call, I am on slide 10, which give us an overview of our strong Q4 performance. We just reflect the trend that Patrick commented, further demonstrating that our strategic plan is delivering results. Our transformation initiatives in several countries are making Rexel a stronger and more competitive company in its key markets. The slide 10 show the sales and profitability improvements in Q4. Our sales grew for the ninth consecutive quarter, reaching nearly EUR 3.5 billion. This represents the same-day growth of 1.9%, a satisfactory performance given the more challenging base effect we had this quarter, a 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 a margin 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 two key highlights of this quarter. First of all, thanks to our transformation efforts, our U.S. business is back to sustainable growth. Second, we have repositioned our business in Germany to focus on its more profitable segments. This lays the foundation for future profitable growth. At the same time, we continue to restructure U.K., in a difficult market environment. We also continue our disposal plan in Q4 with the sales of our retail and virtually 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 two unfavorable effects. First, the scope with -0.7%, resulting from the divestment in the Southeast Asia end of 2017, and currency for -2.5%, mainly due to the depreciation of the U.S., Canadian, and Australian dollar, and the Swedish krona, against the EUR. Concerning currency and assuming spot rates, we expect foreign exchange to have an impact of circa +1% on sales in the full year 2019. Concerning scope, and taking into account the previously announced disposal in China, the expected 2019 impact stands at -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 nine consecutive quarters on a constant and same-day basis. This achievement came in Q4 despite an increasing challenging comparable base over the year and a lower contribution from copper, which went into negative territory at -0.3% compared to +1.6% in Q4 2017. Let's now take a closer look at our top-line performance by geography in the coming slide. On slide 13, you can see that we post solid same-day sales growth in Q4 at group level at +1.9%, 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% in Q4 2017.
In North America, which accounts for 36% of our sales rose a strong 6.9%. Asia Pac, which accounts for the remaining 9%, sales were broadly flat at -0.1%. We are positive after taking into account, as you remember, the disposal of our automation business in Australia. We also have a slightly more challenging base effect in Q4. As shown on the slide, since December 2016, Rexel added almost EUR 900 million of sales on an organic basis, with all three of the geographies contributing. It's a big number, which is very close to the entire Nordic zones. Let's now look at each region, beginning on slide 14 with Europe. Sales in our biggest region stood at EUR 1.9 billion in the quarter, down 0.8% on a same-day basis or up 1.2% excluding Germany and Spain.
In our home market of France, which accounts for more than one-third of our European sales, our revenue was down -1.3% on a challenging base effect due to lower export projects and a 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 projects and grew by 6.9%. Benelux posted solid +13% growth, with good momentum in Belgium, where we acquired one branch in Kortrijk, and in the Netherlands as well. Sales in Scandinavia were up 5.2%, with robust growth in Sweden up 5.4%, thanks to public spending and large C&I business that more than offset negative trends in residential.
In Germany, with the closure of the 17 branches in C&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 U.K., sales dropped by 6.4%, mainly due to lower business with large C&I accounts and 33 branch closures. In a highly uncertain policy context, we will continue our efforts 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 three of them, slide 15. Germany first, we moved decisively to refocus our operations on more profitable market segments. With the closure of the 17 branches in C&I in the north at the end of September, our network reorganization is now completed.
We have also closed two of our five distribution centers and adapted the cost base at the HQ. The industrial business is now at around 42% of our sales in Germany, and we have market share between 20%-30% in the region in which we are still present. In Spain, we have adopted a more regional approach with a new organization around five regions, the closure and merger of 16 branches, and a new management team in place. We'll be progressively implementing four urban spokes in 2019 as we continue to optimize our logistics. The measures in Germany and Spain should lead in 2019 to around 10 basis points of EBITDA margin increase at group level, and a reduction in sales estimated to around EUR 140 million in 2019 compared to 2018.
In the U.K., where EU-funded projects have gone to a halt, we have closed 33 branches to adapt to challenging market conditions, and we are focusing on margin-driven businesses. On slide 16, 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. Sales grew in high single digits for the third consecutive quarter at +8.5%, confirming our regained 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 additional customers in the last 12 months, are seeing strong double-digit growth in electrical distribution in several key regions, notably Denver, California, Texas, and Florida. In addition, we have opened 48 new branches or counters since 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 objective. 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 for this chart on our U.S. transformation, which again is paying off with acceleration of our profitable growth. As you know, we have reorganized our business in eight regions, reversing 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 openings are branches, and the other half is counters into agencies. Those 48 openings are concentrated in our key priority regions, notably Florida, Texas, California, and the Northwest, where we have really a strong market presence already through Platt in the Northwest. Let me also highlight on slide 18, what we have performed in Canada, where we are a market leader with 23% market share operating through the largest network in the country with 190 branches in three banners, Westburne, Nedco, and Rexel Atlantic. In Canada, we can say that our business 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 the board.
From a segment perspective, we are seeing improvements in oil and gas and over and above our offshore and 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 in British Columbia. This has been reflected in our numbers with 2018 sales up 3.6% on a same-day basis. Overall, if we look at North America, what is important to note is our adjusted EBITDA in 2018 grew by a strong 18%. Moving on slide 19 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 the asset disposal, sales were down -1.8% on a more difficult base effect and lower commercial projects in public areas.
In Asia, sales were up by a strong 6.4%. In China, despite the challenging base effect, sales were up 9.3%. Reflecting good underlying demands in the industrial product and solution, more than offsetting the negative trend in our retail and commercial business, which we sold in Q4 2018. We also saw a 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 at 6.1% to EUR 608.3 million, and margins stood at 4.6%. Our 10 basis points improvement in the full year on a comparable basis is explained by a 50 basis point volume and price contribution resulting from our investments. In the quarter, sales price increased by 1.7% at group level, a higher number than in H1, showing good momentum in the pricing environment.
Our adjusted EBITDA also reflects investments for future growth of 33 basis points. Lastly, productivity gains partly offset the cost inflation, notably in our wages and price. 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 EUR 608.3 million in the full year, our adjusted EBITDA margins stood at 4.6%, a 10 basis points 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, U.K., and Spain.
A more competitive environment in Norway, which more than offset the very good performance in France and the Netherlands. In North America, adjusted EBITDA margin grew by 40 basis points to 4.2%, thanks to volume growth, positive pricing contribution, and supplier concentration, which 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 was 64 basis points to 2%, thanks to volume and supplier concentration, offsetting the disposal of the Rockwell Automation business in Australia. Our corporate costs stood at EUR 30.7 million, reflecting investment in digital and strict cost control at HQ. This number is in line with our objective. On slide 22, let's look at the bottom line part of our P&L. Let's start with our adjusted EBITDA of EUR 608.3 million, up 6.1%.
Reported EBITDA was lower at EUR 600.4 million, up 1.1% year-on-year, reflecting mostly the impact of the non-recurring swing in copper prices. Other income and expense amount to a negative EUR 174.9 million, including restructuring costs for EUR 82.5 million, mostly related to the reorganization in Germany and Spain, as well as goodwill impairments in Norway, Finland, and Spain for nearly EUR 62 million. Also the asset impairment relating to our Chinese retail and commercial businesses disposal for EUR 26 million. For 2019, we expect restructuring costs to be closer to our normative level of EUR 45 million-EUR 50 million every year. Our net financial expense improved to EUR 100.6 million. This is reflecting a reduction in average interest rate on our gross debt to 2.81% as a result of the active refill financing, especially the one done at the end of 2017.
We also saw a sharp increase in our net income tax to EUR 157 million. Note that in 2017, our income tax benefited from the one-off gain from the U.S. tax reform. In 2018, our tax rate stand 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, where deferred tax assets cannot be recognized yet. For 2019, we anticipate our normative tax rates to be between 32% and 33%, depending on the decision taken in France for the tax rate for 2019. Net income was EUR 152.3 million, up a solid 45.6%, and our recurring net income grew strongly to EUR 328.1 million, up 12.8%. On slide 23, we turn to our cash flow statement. Over the year, our free cash flow after interest and tax improved by EUR 11 million to EUR 191 million.
Before interest and tax, our free cash flow was EUR 357 million, EUR 27 million below last year. This result from several effects. Firstly, as mentioned earlier, an unfavorable year-over-year EUR 22 million impact of copper. Second, a EUR 32 million cash out related to the restructuring plan in Germany and Spain. Third, a higher outflow in working capital of EUR 43.3 million, partly 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 EUR 93.8 million from EUR 110.3 million in the same period last year.
This include the proceed from the disposal of our Rockwell Automation business in Australia, and our gross CapEx stood at EUR 122.1 million, 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 EUR 11 million at EUR 2.03 billion, also impacted by negative currency effect. On slide 24, let's take a closer look at the breakdown in maturities of our debt. The chart show that we have no short-term maturities on our bonds, with no significant repayment before June 2023, following the 2017 refinancing. Our average maturity is 3.8 years. Our debt can be split between securitization backed by our assets, bonds, and a senior credit agreement. Our net debt to EBITDA ratio stand at 2.67x at December 31st, 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 maintain strong financial flexibility with liquidity around EUR 1.3 billion at the end of December, including our undrawn senior credit facility. Our hedging policy protect us for the current volatile credit market condition. We expect our recurring financial results for 2019 to be close to the 2018 level. We also remain attentive to market opportunities to further enhance our financial structure. On slide 25, we present our proposed dividend for the 2018 financial year to be paid in 2019. Rexel will propose to shareholder a dividend of EUR 0.44 per share, EUR 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 23rd, 2019.
The dividend represent a payout ratio of 41%, in line with our policy of paying out at least 40% of recurring net income. It offers a 4.2% yield based on yesterday's share price. On slide 26, I'd like to highlight two 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, with quarterly sales released in Q1 and in Q3, rather than quarterly results. This is in line with French market practice and will improve our operational efficiencies. Second, 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 2019, providing comparable numbers for H1 2018.
Our first estimates lead to the following impacts: an expected increase in net debt of EUR 900 million, an increased EBITDA margin of 150 basis points, an increase in EBITDA margin of 30 basis points. Our leverage ratio, according to the senior credit agreement definition, will remain unchanged. Let me now hand back to Patrick for a look at our strategic roadmap going forward, and his concluding remarks.
Thank you, Laurent. I'm sure there will be question around this presentation later on, but for the time being, allow me to take you a little bit more. Thank you. The one thing on the road, it's not a new strategy. This is how we going further in our improvement and at the same time becoming even more robust and more competitive because the environment is changing. The one thing I want to highlight, very often we forget that this business, in itself, is right now generating the future growth. It's getting to be a major. We are in a good business. We're in a good business because there are now new avenues by which growth will come on top and above of the previous usage. IoT is not something totally neutral.
It brings a lot of IoT everywhere, this require, from the electrical installation, some evolution, some enrichment, new solutions, new approach, this is enriching. It's not just something that everybody can do. It's also something that electricians are now embarking and will get the installations made. New safety norms, very key. The more norm, the more safety, the more moment to measure, to stop, to allow this to happen or to prevent things to happen. It's all an electrical. You can't take it by any way. There are always electrical connectors, devices, and way to adapt. Quite importantly, something which very often we see it by the end user. For example, electric cars. Electric cars mean charging stations. So far, it's a device, it's a product.
When you look at the installation, it changes at the main board, at the main panel, at the connection, at the extension, at the relay, at the dispatch, and how to send the information to your home and kind of stuff. It's amazing how, in terms of non-visible electrical equipment installation, this is slowly but surely growing demand. One more important thing, whether we talk 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, but 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.
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. Therefore, very often we forget to look into it, 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. 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 years. The other thing which is very important is how do we tackle with the evolution.
The strategy that 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 growth and capture the growth, get money out of it, do the repair job that had to be done here and there or exit. This is all the point that you see on page 29. We go to pricing and margin, supplier improvement in the supplier relationship, the turnarounds, the focus we already mentioned. There will be more, probably more active portfolio management to be made over years in terms of where 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 be also activity. It could be even product line.
We are sorting out what is good to be in, what is needed to be in for the long term. At the same time, we need to get into it. There will be new activities, new services, new ways of making the performance happen. 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. It could be obviously done by changing our own business model. We have initiated some of the moves, but there is more to do. Probably in the coming quarters and year, 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 a 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 work, this is a multiple line, if I make it simple. We will be much more data-driven company. We will use all the huge, immense amount of data that we collect every day in order to make better decision, better assortment, better anticipation, where to put the resources, how to spend the money in order to get higher returns. This is what data-driven means, and there are a lot of programs going on right now and developments being made and hiring being made in order to be able to really get this done. It's being developed and embarked on as much as there will be improved services and adapted metrics to it.
The moment you measure data, you can get to new services. There is a whole range of potential 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-à-vis maintenance companies, it could be many other partnering. 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 the service we bring to them. The service being some logistic services, which we will continuously to improve, but much more individualized and customized services that data allow us to provide.
Sensitivity to price, sensitivity to marketing, sensitivity to innovation, sensitivity to different subjects. We are able now to capture and provide differently 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 invested in growing the customer base, and we are doing more customer, more SKU in an organic way because it's a phase by which we do organically. At the same time, we are moving now to value-added distributor. What does it mean concretely speaking? The more digital allow to have the both better assortment, predictive assortment, predictive churn in term of management of the customer base.
There's room for additional growth. How often do we lose a customer without it being known, and do we need to work out to replace 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. The future, which we are paving the road to, is really a future of customized individual value proposition through data driven. For example, we take care of every individualized customer experience in order to be able to propose and suggest individually. Very soon, if you go to our website, you will see there is a personalization capabilities, which is already envisaged, which is now even on the homepage.
Some information will be dedicated to the customer depending on his 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. Obviously, segmented services and collaborative supplier relationship end-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 at the supplier or already reaching in 20 minutes to door of our customers. This is the kind of new business we are entering into. It's a real service business in order to give with full view to the customer of their best need and the best service 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 one or two times already, and I'm really obsessed with all my people in order to get there, telling a customer and telling our sales force, telling everybody on the phone, on the web, on the traveling what is next best action and next best offer in order to be at the right time for the right people. We are getting there, data will emphasize a lot. It's a fun journey. It's also a journey, of course, and you know, 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.
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, we deliver this competition. This is what counts. We are not 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 team into this new rules of the game of the future. Fine. Obviously, in doing so, you can see, we try to build even a competitive advantage while moving into it. 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. Building competitive advantage means for us, systematic web and EDI transaction.
Full digital content for customer and supplier. 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, an EDI, somebody on the phone who is recognized by his login when he calls. This is he, Mr. XYZ, knowing immediately he's an industrial, he's a residential, he talk to a specialist. He's not somewhere on the phone with nobody knowing exactly who he is and what his needs are. These are the kind of customer experience we're getting to. We may join forces on some marketplaces. We are not entitled to do everything by ourselves. We do the electrical installation and product.
If somebody medium-term needs all the product that we are not entitled to make, we will join forces with certain marketplaces to have complementary partnership. We are testing this, for example, right now in Belgium. 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 reprofile ourselves in all of this, and continuing to do what we have done, but migrating to being a service company. What are the proximity services that people require from our 2,000 and so branches? They need the proximity. They don't need the big size. They need the number of outlets close enough in order to give them the pick and pack from a logistic standpoint or the advice. 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. If I take right now, for example, one of the thing 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 France is in the middle, and the number of web transaction is rather low here in this country, in our business. Okay? Recently we got 40,000, slightly above 40,000 installers being in our digital ecosystem. Only a slightly one out of four place every day a web order. 33,000 are coming every week. They need a quotation. They need a product information. What they need, they come, they go in our digital environment and work with it.
To me, this is very fundamental because the migration from physical to digital, this is first taking our customer base, our golden asset, into our digital environment so that they look for a price, they look for a product, they look for a chat, they look for advice they can get through the web, through DDI, through the phone or direct contact if they need in any point of physical proximity. This is why I'm saying digital proximity. The people who need project that will get dedicated services, dedicated logistics, because you need to deliver on time, in full, during the night where the crane is about because they give you one hour of the crane to go to the 27th floor of a building in La Défense.
With the Grand Paris, we will have a lot of this because nothing can be done during the day and kind of stuff. These are services to be charged, to be done, but to be with our customer. The same customer may have a need for proximity, he may have a need for project, or he may have a need, for example, for our best specialty business. Specialty business in lighting, specialty business in Datacom, specialty business in energy solution like we do have with RES in the U.S. or Capitol Light in lighting or Sofinther in France or more in different places and countries. This is, I'm highlighting here the journey which fuel our growth of today, even more will fuel our growth of tomorrow in a market which is by itself bringing new avenues. Now, if I go even further down, artificial intelligence.
We invest right now in artificial intelligence development. We are spending money internally, we are spending money externally in order to get faster artificial intelligence report to run our business. There is critical back office to be done, steps right now in the process of. I give you an example. In this business, we receive tons of emails every day in order to get this. The whole thing is to get email to AI straight, nobody touch. It was done manually during years. These are the kind of thing and changes that on a broad scale, it looks simple, if you're alone. But on a scale of 2,000 to 100 branches around the world and a lot of different culture and adoption in order to come and stand down and so on, I'm very glad that we are 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. The more we can predict, the better we will spend our money at the right place at the right time. I can tell you, we are very encouraged because we have identified 16 different usage and transformation of the profile of the company the way we exist, which two are being prioritized and being now developed and rolled out. We're beginning to do so. 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 two and later on 16 avenues by which we change our business model profile. Just the sales force efficiency. We live from more customer, more SKU.
It means qualified sales force, intensive presence, but selective because productivity is key there. Obviously, the sales force is being highly helped in order to what I say, what is next best action, next best offer. 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 and shareholder support on the long run, organic growth to fund the core business and also some of the evolution I just mentioned. The good dividend policy, predictable year-over-year, therefore, we have committed to a certain ratio and we will commit to continue to match them.
Further de-leveraging because without M&A, because active management portfolio is always needed 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 have mentioned before, whether it's digital or non-digital, require selective acquisition, we will focus on digital M&A. Who is a digital contributor to the building intelligence modeling? Who is a solid contributor and could be acquired for getting more in-depth into IoT? Who else could be a good one to be acquired in order to be faster in Industry 4.0? These are what we would be looking at, but obviously always by very strict criteria.
All of this to highlight on the future, you got what we have done, you got what the numbers are telling us about where we are and we have done the year. Now I give you a sense for the future, which bring me to the last page and last moment before the Q&A, the outlook. The outlook, as you can see it, consistent with our medium-term ambition and assuming no material changes in the macroeconomy and environment. We target for next year, 2019, at comparable scope of consolidation and exchange rates, a 2%-4% same-day sales growth, excluding an estimated unfavorable impact of 1% from branch closure in Germany and Spain, in order to be sure everybody has the same way to calculate.
A 5%-7% increase in adjusted EBITDA and a further improvement in our indebtedness ratio, which is defined by net debt to EBITDA. In saying that, I thank you for your time, your attention, and hopefully, we will be able to answer all your questions from now on. Well, I will not go through the appendix. Okay. Can I take the first question in the room? Just immediately after, we may move to the question on the web, but 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 to 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 of the 30 basis points productivity a year is a normal level we should also see next year in 2019. What you're going to do with investments. Are we going to keep going at the same pace or is that slowing down?
Absent an inflation in pricing that would cover the inflation in costing, which is still the case today. Even if we see a little bit of potentially a change in this, so far, the equation is not there. I count 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 a payback 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 variable cost in the future. Digital requires some investment, as I just said before.
The investment in digital sometimes are more CapEx than OpEx. This is different. Everything on the platform, on the cloud, and everything is on OpEx. Therefore, I'm looking for even further productivity in order to finance some of this. We are going through the exercise also of selectivity within our own digital way between conventional ERPs of yesterday to move to more digital application and type of stuff. What I have said about the outlook is changing the profile of this. Yet there is an inflation piece. 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 America within Rexel and whether you should look, for example, to consolidate the market with combining it with a U.S. competitor or so on, your message was always very clear. The focus is to lift value and turn it around. 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? Now that the business is doing well, it's kind of earned its place and is 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 U.S. Everything we have done is rather recent. I have about 15 months of improvement. 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 other stuff. 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 Platt 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, 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. You know that the operating leverage have suffered, so to speak, suffered. It was relatively modest to the investment made, you told me that all the time, collectively and individually, which I fully understood, it was correct. The time will come where we will have all these investments have more of the payback on our EBITDA line. Consolidation of the market, there are a few movement. One of my competitor has acquired somebody recently. Okay, fine.
It's something we couldn't do because it's a Rockwell Automation APR. If you are exclusive Rockwell Automation, you have to eliminate something. It was in the Platt region. I'm not going 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. The second thing, I'm not good enough to know if we are one year, two 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 would stop certain investment. At the earliest signal, I will not commit because I want to get this in the result and not continue to be on an exposed mode.
I'm continued to watch carefully at this. The second thing, multiple would be very high today, very high multiple. At maybe the high end of a cycle, 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. If I find a very good, highly digital, digitalized, 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 Boushra from HSBC. Just a follow-up question on the U.S. If I look at the number of branch opening in 2018 compared to 2017, there have been a sharp drop, six against 17, I think. I think that you are more and more cautious on getting the cycle in North America. There is still some stage, Texas, for instance, where you have a lot of things to do. What are your plan in term of branch opening for next year?
There's a bit of a semantic issue with branch opening because it's really new. We have done more than 100 refresh, meaning staying at the same place, rebuilding, reassortment. You see that in the working cap. You put inventory, we put sales people, and we are really rebuilt from inside the strength of the model without always adding. Investment-wise, it's a bit lower. Working capital-wise, it's the same. The effect is shorter, which is always for me, vis-à-vis a potential slowing down or whatever, name it the way you want for the cycle coming to an end. It was a more prudent way of getting faster results. That's the balance. The other thing you know, is opening a branch. It takes people before anything else. To find good people right now in the U.S., wow, that's not the easiest job.
It's by far one of the toughest. Right now, in our own company, for the parameter we have, this year, I have to replace 1,000 people because leaving, because pension, because 1,000. To find 1,000 different caliber than the past, it's a hell of a job. Yes, the branch, what you see in the numbers is correct. It's a bit hiding the fact that a refresh is industry building, getting a very different branch, different presence, different service, different skills, maybe more people, and much more working cap to get the Net Promoter Score up because we have a long way to go to be yet at the level we would like to be in term of services.
Probably the early 2018 and took couple of months to put in place. We wanted to be sure that the region were well in place before going into further opening of branches. We have a certain number of sites, and we are very cautious on our opening policy.
Your question about Texas and the South, yes, that we have players, high-density player locally. I mean, in Texas, there is a family business with 300 branches around Texas. This is not my battle of tomorrow. I will never be able to open 300 branches in Texas. Even buying a company of that kind, I would buy assets. I think I have enough of assets. I need to gain market share, I need to get digital, I need to get a new stream of revenues and margins without adding too much assets. It's not assets for zero. 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. 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 better judge for your modeling. I'm entering into a different world too, because today, my partner, so far, has not yet been Amazon, as everybody has tried to make me. They 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. I have to move, like I told you, but fast, without assets into a different battle. 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.
EUR 2.1 billion in sales. You could take an average margin. There is EDI in industry and digital transaction. It tends to be a lower margin erosion business than the rest, for the simple thing that you don't negotiate with a machine. If you take 18 months, 24 months, you adjust the price to each of the customer because it's individualized pricing. It tends to be that there is less what we call the override at the counter or the override that people, "You do me something, do me that." At the end of the day, we talk millions.
Do you have a target in term of percentage by region that you disclose or?
No, we will not disclose yet because it's moving. There will be an asymptotic moment which we'll see, but I always have a few examples that contradict what I will tell you, but they are exceptions. 70% in the Bern region in Switzerland. 70, 7-0. If you take Belgium and Netherlands, it's above 40%. To cross between 40 and 50 and above 50, it starts to be a little bit asymptotic. It's already, in terms of productivity gains, lowering the cost and gain. EBITDA increase go proportionally with this when you reach this level.
Which is strange because more transparency usually doesn't come with higher margins.
We try now to have the first results as of when. 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 pure players, roughly. This is what we see in Belgium, in Sweden, in Benelux, and in our first countries. In the middle between 20 % and 40%, well, it's more an acceleration to get to the 40 % so that you get even more benefit from the cost side OpEx. Excellent.
We have already five country above 30% of digital sales. Europe is at 24%, already a very good performance in Europe. Digital sales grow by almost 16% this year. The EUR 2 billion represent around 16% of our total sales.
Yeah.
It's Alfred Glaser 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 and into the next few years? Could you explain a bit this?
If I give you a 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, "Patrick, two years ago, you told me this and that.
Probably.
Yeah, probably, yeah. I recognize. It's fair, and I know to whom do I talk, okay? Precise 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. I have also to finance some of the transformation to digital, meaning it's probably a productivity effort superior to the one we ever did before. If I don't digitalize the back office, it's impossible. Therefore, the must is this digitalization. Digitalization 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 one-minute opening. Five years ago in our business, opening an account, it was five days.
This transformation will obviously have an 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 two or three years' time with 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, I give you a sense for how I look at it, which we never have done like this so far. It's first year we go for this.
Which give you a sense that the OpEx increased because, as I said, digitalization increased OpEx per se compared to CapEx of yesterday. It's not the ERP and not the AS400 we were acquiring 10 years ago. This is cloud-based, this is licensed, it's a lot of developments that we cannot, by the way, put as CapEx. We need to get there. Therefore, sometimes it sucks some of the margin generated by additional growth, which I try to minimize so that it goes to the bottom line, at the same time without compromising on the evolution.
In 2018, how much of your CapEx was digital related?
60%.
60%?
IT and digital.
Yeah, because sometimes we have to touch on the RP too, in order to make it happen for the future. 60%.
Okay.
A couple of years ago, it would have been 70% logistic.
How much of your OPEX evolution was due to the investment in digital?
The IT and digital OPEX is roughly 8% of our OPEX. You saw in the bridge, it's two-third of the bucket of investment in the 2018 bridge.
Any other question?
Maybe we'll have.
Maybe some question coming from.
Yeah
from the line?
From the line, yeah. We open question to the line.
Your first question comes from the line of Lucie Carrier from Morgan Stanley. Your line is now open.
Oh, hi. Good morning, everyone. Thanks for taking my question. Hi. I was hoping you could maybe come back to the building blocks of your guidance, 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. When I compare your number for the fourth quarter specifically to what we are seeing elsewhere in the U.S., it seems that there is some form of out-performance here. Just to understand maybe the building blocks of the top-line guidance, please. That's the first question.
No, Lucie, there is nothing of the U.S. The top-line guidance, the 1%, it's EUR 140 million. This is the EUR 140 million we extracted from Germany and Spain. If you take 1% of EUR 14 billion, it's EUR 140. To avoid miscalculation, we made it clear here that we have to take care of the EUR 140 million that will not repeat this year in Germany and Spain for having done the restoration. It's just 1% of our top-line.
That's for the German and Spanish 1%. For the U.S., as we stated in the raw part of the guidance, we said assuming no material change in the macroeconomic environment, today we have a stronger momentum in the U.S. with quite high level of backlog. 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. That was not so much my question. I'm trying to understand here how you think about the dynamics by geography to come up to the net 1%-3% same-day sales growth, and whether within that you are assuming some out-performance in the U.S. market. 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 fourth quarter. This is why I was saying it seems that there is some out-performance from your side, and I'm just curious to understand how you see next year, i.e., 2019 from that standpoint.
I know that this has been done at the end of 2017. I would never take a Q4 for a normal trend. 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 trend without having space for any artificial kind of thing happening in Q4, especially in the U.S. The U.S. business, whether it's our customer or ourself, is dimensioned by the number of man days available. It's not the demand which is high or low. By the way, today, you queue three, four, five, six months to get a good electrician or contractor to do a commercial building.
By the way, this is why there is 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. Now it's booming. Let's put it this way, it's booming. There is demand. It's probably fueled by the 15% of what taxes that was made available to the Americans. They had projects. It took a bit of time to get the projects out running, therefore, we are on a solid trend, which we see in our backlog, we see in our demand. At the same time, we have free up our resources and people are gaining market share.
Our people are gaining market share a little bit, 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. Not, if you have noticed, not at all at the cost of margin.
Okay.
Which 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, 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. Just maybe to understand how much 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 happen. It should facilitate. That's all. The first investment we did, remember, and everybody was scary about the effect, was working capital on inventory. We have done a lot on inventory because making product available was a condition to sell, and having the right assortment is a condition to sell. On the quality side of this, through digital, we will do better and probably come to a better use of inventory, money put in inventories, it was the first fundamental break. Now, it was not done at the same day everywhere around the States. We had to do it in the branches. One of the way to get it done and not exploding out of control was also helped by regionalization.
Regionalization is a way to put our hands around markets which are no longer banner-driven. Remember, it was Gexpro, Rexel, Platt, and other banners across the States. Now we put this multi-banner presence within a region so that we can 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 the GE business, which was going down. ABB has fixed the GIS, in broad terms, has fixed the issues. Even beginning of last year, we were going down. Now on comparable last year and this year, I still see that as being favorable to us, which is not the case for the one less dependent on GE and GIS.
In terms of my competitors, we are less dependent upon, meaning we got structural things to do, the GIS terrain, the GE customer base to be replaced by other customer because GE closed the activities and poof, we were their main supplier. Disappeared. EUR 100 million. Therefore we had to capture new customers, EUR 100 million each time. It's not small fish. We are doing this, and we have recovered from that. Now, you need also management. The way you manage your sales force, the way you manage these regions. 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 through. Jeff Baker and myself, we spend 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 will not comment on that. Believe me, this has been going down to us fixing the bricks one by one. Yes, there is a structural capability to embrace this market in its complexity. Its supplier is very complex, 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 of 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 is the speed. Yes, we have adapted to this. We have changed our structure, changed the way of doing.
We are building on our essential blocks, projects through the project houses, proximity, physical and digital, using the Platt, extending too, and specialty because Rexel Energy Solutions, Capitol Light continue to be good providers. Take this, Capitol Light. Capitol Light, 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 certain going down and 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. This is where to sell cars, you need to have the lighting, the nice, and all the system very effective.
They did it. They are looking for what is next. This is the agility by which we will go in the U.S. market. At least it's there. It's now in the DNA.
All right. Thank you. Get back in the queue.
Thank you.
Next question comes from the line of Andre Kukhnin from Credit Suisse. Your line is open.
Yes, good afternoon. Thanks so much for taking my questions. It is Andre from Credit Suisse. I will try on the growth as well. I am really interested to know what underlying end market 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 markets in Europe are very contrasted, by the way. I have to eliminate the U.K. First of all, I do not know.
Sure.
I do not expect any nice news. Therefore, better be prepared for, let's say, rather. The market has slowed down significantly already in the U.K. People think the Brexit will be the beginning of, in our business, 1/3 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 will probably never materialize. They are still open for three years, but they have never been started. By the way, Rexel was pretty good in this project business. That is part of the issue we had to restructure and get to something much leaner and much lower because other players were more proximity, and we were more project. This project has two effects. The one left over are low margins.
Forget, it is not contributing to what it should be, or they are so uncertain. Thirdly, I would like to be sure we are getting paid at the end. The Carillion 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 am looking for margins and not for volume. I am looking for results and not for market share. There is the choice to be made there. By the way, should any recession happen in one or the other country or slowing down in Europe, this is the way we will tackle the slowing down. Go for margin. 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. We have B-plan prepared everywhere, and should we see that needed here or there or globally or locally, we do it. It is a way of life. It is known, it is shared. So what? We are doing it right now in the U.K. Now the rest of the business, if I take Sweden, continues to grow. Some people say the end of the cycle. I was recently in. Sweden is three towns. Sweden is Stockholm, Malmo, and Goteborg in our business, except a few industrial sites outside. It is 75% of the demand, of the growth. When I look at the three, they are full of projects, full of stuff.
Different nature, more renovation than brand new, but it is very good renovation if you are an electrical distributor. It is even better than some news. Norway is very different. It is fragmented over the place, and it is a totally different market. When it comes to Germany, we have done restructuring. We need to go back to, let's say, normal market growth. After such a cut and everything, I am going to a normal market growth, which is probably something in the range 2-3 in the residential. Even if the latest news on industry are a bit lower, it is still positive. We have market share to gain in industry, good partnering, good partnership with Siemens and a few other vendors who need us in the field. There is no reason not to believe that what we have done is right. France.
Well, my French colleague 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 a high growth on top of a significant volume? Probably not. 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. When I say local or regional.
By the way, if there was a little bit of softening in December, there was no softening in January.
Thank-
Okay.
Thank you very much for the detailed run-through. Can I ask for a similar one across U.S. and Canada?
No. I'm not sure I fully understand your question.
I was really just interested in what market growth assumptions you have behind your guidance. i.e., what you expect underlying markets to grow at. I think we now have a pretty decent idea on Europe and the segments there. 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, that will 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. The more I look at the U.S., it's driven by local tax. You have a market doubling in five years by people moving because the tax are much lower in a place. If you follow the tax, you follow the demand. It goes by state and no longer by my region. Within my region, I have certain states booming and others more flattish. It goes fast.
Globally, similar to last year, it's probably something not too far from what I can judge. Please, I'm not a macroeconomic institute.
Sure.
I give you an indication. I don't give you a commitment. This one. Asia, after we have redimensioned our business to industry, we go with the automation in industry, there is still a lot of demand for internal demand in China because we are not in any other Asian market anymore. There is still good resilient demand in automation. We are not in the automotive, which could suffer. We are in the Tier 2, Tier 3 industrial segment.
Great. Thanks very much.
Thank you.
No, that's really helpful. Thank you.
Next question comes from the line of William Mackie from Kepler. Your line is open.
Yes. Good morning, everyone. 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? What do you think you can buy or continue to acquire cloud-based or via CapEx investment from third parties? 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 two or three years? 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. 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. We have our internal target, I will answer this last one first. Deleveraging further down may require certain choices at some moment in time, it's a commitment. The pace could be more accelerated at some moments, 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 future. It does not go forever like this. There is a moment probably where we say it's good enough and it's sound. I remember when I took over the job, above three, people say, "Oh, if you could be below, would be good." Then, one year later, 2.5 was already, "Oh, you should be below." Recently, it's below two.
Where does it make sense once you reach something in that range? Further down, it really depend on what will happen in the market, on interest rates, on other things. Then I face a market which tells me, well, distribution, B2B, you need to transform, deleverage also to be less sensitive to the cycle and kind of stuff, which I all understand. It's a balance thing. I'm telling you, deleveraging at the speed, at the pace of what we have done this year for two or three 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, indirectly and directly 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 physical footprint reduction. The other thing we can do, and we are really doing now, is rethinking what the physical presence means. Meaning, major building, 3,000-4,000 sq m 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 of that size, which are all like a semi hub, fully automatized, or it's much smaller. But the presence I chose, proximity model, may require more, a little bit higher number of outlets presence, but probably 1/3 the size of what they are today. When it comes to OpEx, it has a significant impact. If I would have 1/3 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 concentrate skills on a few places because it's giving advice, it's taking somebody off the phone. It takes three-quarter of an hour to make a quotation. You need to have all the digital to be done. People try to work like this today, it's a different setup. At that moment, telephone lines, for example, and installation require CapEx and OpEx to increase because we need to get the right power to go through. By the way, this business 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 up every day because power, and very soon it's 5G, and 5G will require another set of equipment, which has a lifespan of about three years.
We gain a lot on one hand, it rebalance on the other hand. To the beginning of your question, which is the skills. It will be balanced between external and internal. We will never be 100% internal because it goes too fast. 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 ourself. We need to select a few partners, not so many. Sometimes we test and not good enough or we cannot find a proper way and we have to change. But we have to work with a few partner in platforming. Do we host ourselves on an Azure platform of Microsoft or somebody else?
We need to choose once it's done, you 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 own algorithm. They are specialists, and they are language, and they are skills. On the other hand, we need to really understand which data should be provided so that the algorithm can bring you the right output and the decision making. 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. In intensity, the onboarding, the usage, 70%.
Meaning when you have 10% on the algorithm, consider and the cost of an 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 on 10%. In the moment you put EUR 2 million or EUR 3 million in an algorithm, it means you will spend EUR 25 million in getting this algorithm used every day by the population of Rexel. Just to give you a flavor what it means. It's a new world. It's not direct OpEx that you see on the P&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 question?
Thank you. Next question comes from the line of Martin Wilkie from Citi. Your line is open.
Yeah, 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. Elsewhere in the world, you've obviously cut back your EUR 650 million 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 it or has the world shifted again since you set that target? 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. To be balanced means three things to me. We have to have balance in which part of the world are doing better than others and not to be too dependent on one market. Therefore, first of all, Europe and U.S. is very important to us to be balanced and growing more in the U.S. to be more balanced with Europe. It's 55% Europe and 39% or something in U.S. Rebalancing a little bit more would help. 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 which require that we work together in different markets. I cannot be with one and I have to be the star in one market and not to be in other major market, otherwise we don't have a stable relationship. Supplier relationship is not just a matter of volume and rebates and pricing. It's a matter of having access to R&D, having 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 term of value chain, having more end-to-end working ways, not duplicating certain things like inventories, but working much more on the visibility in each other, how much we could gain in doing things like that. If you don't have solid relationship with supplier, they will never allow this to happen. However, it's highly needed to finance the future. Just if I look from a cash standpoint, locking in inventory, that everybody should bring it down to have a higher score in serving the customer for lower inventory, global inventory, which only an end-to-end allow this to happen, which require files standardization, exchange of data on availability of product, and it goes quite far into each other's system.
I make it very concrete, but the third reason for me to stay or to keep this, except the rebalancing between U.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 extend to the other one and vice versa. The digital world is no longer everybody in his corner by far now. We are learning things today in China, in industry automation. They are more advanced, except in Germany. They are more advanced than anybody else, the Chinese themselves. 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.
There is an intelligence and richness in our business that you cannot get only by being present in one.
Okay. Thank you very much.
Next question from the line of Ji Song from Citi. Your line is open.
Hi, Ji from Citi. Thanks for taking my question. Just one, 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 capital intense? 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. Fortunately, because no, the branch opening, we will be very cautious in opening the next branch, and the requirement in working capital is far less than the investment we have made over the last two years. We think that the level today is, even with the trade war where we have a bit overstock, is on the high side.
Great. 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 lunch time, therefore there is no question anymore. Thank you for having taken the time. Thank you for having joined, whether by Skype phone or directly here in presence. Hopefully, in the coming days, for the one we will see on the road, we can clarify further questions to come. Thank you.