Rexel today reported second quarter and half-year 2018 results:
- Sales growth for the 7th consecutive quarter, same-day sales up 5.1%
- Adjusted ebita up +10.2% in q2 18
- Full-year financial targets confirmed
SALES OF €3.374bn IN Q2, UP IN EVERY GEOGRAPHY
- On a constant and same-day basis, sales up 5.1%, of which:
- Europe: +4.0%, with a positive trend in our key countries, excluding the UK
- North America: +6.5%, supported by both the US and Canada
- Asia-Pacific: +6.3%, benefiting from strong sales growth across most Asian countries
- Organic actual-day growth of 5.7%, including +0.6% from calendar and +0.7% from copper
- Reported sales growth up 1.0%, including unfavorable currency (3.6%) and scope (0.9%) effects
ADJUSTED EBITA UP A STRONG 10.2% IN Q2 18 WITH MARGIN UP 20bps YEAR-ON-YEAR AT 4.8%
- Stable gross margin at 24.6%,
- Adj. EBITA margin up 20bps, mainly driven by North America
NET INCOME UP 19.6% IN Q2 18 INCLUDING RESTRUCTURING COSTS OF €52.7m, MAINLY IN GERMANY AND SPAIN
RECURRING NET INCOME UP 28% TO €91.5m IN Q2 18
POSITIVE FREE CASH FLOW BEFORE INTEREST AND TAX OF €17.8m IN H1 18
FULL-YEAR TARGETS CONFIRMED
Patrick BERARD, Chief Executive Officer, said:
“Our first half results are further proof that the key elements of the strategic plan announced in February 2017 are delivering improved results and are making us commercially stronger in major markets.
We are accelerating our digital transformation, both in our offer and our customer relationship. At the same time, we are addressing Rexel’s few remaining pockets of underperformance.
The first half gives us confidence in further improvement over the year, as well as in the medium-term. We confirm our financial targets for the full year, as announced in February 2018.”
FINANCIAL REVIEW FOR THE PERIOD ENDED JUNE 30, 2018
- Financial statements as of June 30, 2018 were authorized for issue by the Board of Directors on July 30, 2018. They have been subjected to a limited review by statutory auditors.
- Financial statements as of June 30, 2017 have been restated for changes in accounting policies, following the adoption of IFRS 9 “Financial instruments” and IFRS 15 “Revenue from contracts with customers”; this restatement represented a €0.1 million positive impact on operating income (H1 2017 operating income stood at €232.4 million as reported on July 31, 2017 and stands at €232.5 million after restatement).
- The following terms: Reported EBITA, Adjusted EBITA, EBITDA, Recurring net income, Free Cash Flow and Net Debt are defined in the Glossary section of this document.
- Unless otherwise stated, all comments are on a constant and adjusted basis and, for sales, at same number of working days.
SALES
In Q2, sales were up 1.0% year-on-year on a reported basis (restated for IFRS 9 & 15 impact) and up 5.1% on a constant and same-day basis, reflecting sales growth in all three geographies.
In the second quarter, Rexel posted sales of €3,373.6 million, up 1.0% on a reported basis, including:
- A negative currency effect of €118.7 million (i.e. -3.6% of Q2 2017 sales), mainly due to the depreciation of the US dollar, the Australian dollar, the Swiss Franc and the Canadian dollar against the euro,
- A negative net scope effect of €29.8 million (i.e. -0.9% of Q2 2017 sales), resulting from the divestments in South East Asia,
- A positive calendar effect of 0.6 percentage points.
On a constant and same-day basis, sales were up 5.1%, including an 0.7% positive effect due to the change in copper-based cable prices.
In H1, Rexel posted sales of €6,555.8 million, down 1.6% on a reported basis. On a constant and same day basis, sales were up 4.5%, including a positive impact of 0.8% from the change in copper-based cable prices.
The 1.6% decrease in sales on a reported basis included:
- A negative currency effect of €317.3 million (i.e. -4.8% of H1 2017 sales), mainly due to the depreciation of the US dollar, the Australian dollar, the Swiss Franc and the Canadian dollar against the euro,
- A negative net scope effect of €57.0 million (i.e. -0.9% of H1 2017 sales), mainly resulting from divestments in South East Asia,
- A negative calendar effect of 0.3 percentage points.
Europe (55% of Group sales): +4.0% in Q2 and +3.4% in H1 on a constant and same-day basis
In the second quarter, sales in Europe increased by 3.4% on a reported basis, including a negative currency effect of €21.8m (mainly due to the depreciation of the Swiss Franc and the Swedish Krona against the euro). On a constant and same-day basis, sales were up 4.0%, reflecting good momentum across most countries, excluding the UK.
- Sales in France (37% of the region’s sales) were up 3.7%, as the efficiency of the model allowed us to gain market share, notably in the residential and industrial segments, which were up in mid-single digits;
- Sales in Scandinavia (13% of the region’s sales) were up 6.8%, with positive momentum in all 3 countries: Finland up +10.1%, Sweden up +6.7% due to utility and large C&I business and Norway up 4.6%;
- In the UK (11% of the region’s sales) sales dropped by 4.2%, mainly due to lower business with 4 large C&I accounts (-1.8% impact) and the temporary effect of our sales force reorganization, which continued to affect us in a declining market;
- Sales in Germany (11% of the region’s sales) were up 1.3%, mainly fueled by the copper-based cable business. Our transformation plan is underway with the refocusing of the business on the more profitable industrial segment on a national basis and on C&I in the southern part of the country. We are adapting our network with the closure of 17 branches in C&I in the North;
- Benelux (10% of the region’s sales) posted solid growth, with good momentum in Belgium up +6.5% and in the Netherlands up 14.4%, notably thanks to photovoltaic sales (+3.1% and +6.8% contribution respectively);
- Sales in Switzerland (6% of the region’s sales) grew by 10.8%, with positive momentum in the project business (large contract awarded – 3.9% contribution) in an environment that remains competitive.
North America (36% of Group sales): +6.5% in Q2 and +5.1% in H1 on a constant and same-day basis
In the second quarter, sales in North America were down 0.4% on a reported basis, including a negative currency effect of €82.5m (mainly due to the depreciation of the US dollar and the Canadian dollar against the euro). On a constant and same-day basis, sales were up 6.5%, driven by Canada and the US.
- In the US (78% of the region’s sales), sales were up 7.3% on a same-day basis. The sales growth was mainly driven by commercial and industrial (up in mid- to high-single-digits):
- Initiatives are paying off with 8,000+ new customers and a 1.9% sales growth contribution from branch openings;
- Good commercial impact from our new regional organization, with market share gains in Gulf Central (up 22%), Northwest (up +12%) and Florida (up +12%) offsetting slower growth in Northeast.
- +0.5% contribution from demand in Oil & Gas, up 8% in the quarter;
Project business continues to be affected by lower wind and power projects (-1.3% contribution). - In Canada (22% of the region’s sales), sales were up 4.0% on a same-day basis, mainly driven by strong commercial sales. We confirm the ongoing recovery in our O&G business (up 21.7%, contributing for 1.4%).
Asia-Pacific (9% of Group sales): +6.3% in Q2 and 9.4% in H1 on a constant and same-day basis
In the second quarter, sales in Asia-Pacific were down 6.9% on a reported basis, including a negative scope effect of €29.8m following the disposal of our business in South East Asia and a negative currency effect of €14.3m, mainly due to the depreciation of the Australian dollar against the euro. On a constant and same-day basis, sales were up 6.3%.
- In the Pacific (51% of the region’s sales), sales were up 2.1% on a constant and same-day basis:
- In Australia (81% of Pacific), sales were up 4.6%, before the impact of the disposal of our Rockwell automation business in the country (-3.3% impact). The underlying performance is good in our residential and industrial markets, up in the high single digits;
- In New Zealand (19% of Pacific), sales were up 5.6% with a revitalization of the commercial approach.
- In Asia (49% of the region’s sales), sales were up 11.1%:
- In China (84% of Asia), sales grew by 3.4% on a more difficult base effect (+16,9% in Q2 2017), reflecting good performance in industrial automation products and solutions;
- Middle East and India (16% of Asia) posted a strong performance thanks to a large project in the Middle East (+€6.3m) and strong automation business in India.
PROFITABILITY
Adjusted EBITA margin at 4.8% in Q2, up 20bps
In the second quarter, gross margin was stable (up 2bps) year-on-year, at 24.6% of sales, and opex (including depreciation) amounted to 19.8% of sales, representing an 18bps improvement year-on-year, mainly due to positive volume contribution offsetting the carryover effect of investments in the US and digital as well as cost and wage inflation in some markets:
- In Europe, gross margin stood at 26.6% of sales, down 37bps year-on-year in Q2 18 due to a more competitive environment in Switzerland, the Nordics and Germany, notably in the cable business. In the quarter, distribution and administrative expenses (including depreciation) improved by 33bps at 20.9% of sales, mainly thanks to positive volume effect which more than offset cost inflation;
- In North America, gross margin stood at 23.1% of sales. This represented a 66bps improvement year-on-year, mainly thanks to pricing initiatives and supplier concentration, especially in our proximity business in the US. Opex (including depreciation) improved by 4bps (to 18.6% of sales) thanks to volume effect offsetting higher wages and freight costs as well as investments in people and branch openings;
- In Asia-Pacific, gross margin stood at 18.1% of sales, an improvement of 22bps year-on-year and opex (including depreciation) improved by 38bps. The positive volume contribution in the region and pricing in China offset the competitive environment in Australia (notably on project business) and the disposal of our Rockwell automation business;
- At corporate holding level, opex amounted to €6.3 million, compared to €3.6 million a year ago, mainly because of additional Group investment in IT and Digital as well as the non-recurring impact of long-term incentives.
As a result, adjusted EBITA stood at €161.0m, up 10.2% in Q2.
Adjusted EBITA margin was up by 20bps to 4.8% of sales, reflecting:
- a lower adjusted EBITA margin in Europe at 5.7% of sales, down 3bps;
- an improved adjusted EBITA margin in North America at 4.5% of sales, up 70bps and
- an improved adjusted EBITA margin in Asia-Pacific at 2.0% of sales, up 60bps.
In Q2 18, reported EBITA stood at €161.5 million (including a €0.5 million positive one-off copper effect), up 9.7% year-on-year.
In the first half, gross margin stood at 24.8% of sales, stable year-on-year, thanks to North America (up +50bps at 23.0%) which offset Europe (down 18bps at 27.1%) and Asia Pacific (down 24bps at 18.1%)
Opex (including depreciation) increased by 5 bps at 20.4% of sales.
As a result, adjusted Ebita stood at €288.2 million, up +3.1% at 4.4% of sales, globally stable (down 5bps year-on-year).
Reported EBITA stood at €287.0 million (including a €1.3m negative one-off copper effect), down 1.8% year-on-year.
NET INCOME
Net income of €100.8m in H1 2018 up 4.2%
Recurring net income up 13.0% at €157.7 million in H1
Operating income in the first half stood at €217.9 million, vs. €232.5 million in H1 2017.
- Amortization of intangibles resulting from purchase price allocation amounted to €8.3 million (vs. €9.7 million in H1 2017);
- Other income and expenses amounted to a net charge of €60.7 million (vs. a net charge of €49.9 million in H1 2017). They included €59.5 million of restructuring costs (vs. €13.9 million in 2017) mainly in Germany and in Spain.
Net financial expenses in the first half amounted to €50.2 million (vs. €63.1 million in H1 2017). Both periods included charges related to refinancing operations:
- H1 2018 included a net charge of €1.1 million, related to the renegotiation of our Senior Credit Agreement in January 2018;
- H1 2017 included a net charge of €6.3 million related to the early redemption of the USD330 million (c. €302 million) Senior notes issued in April 2013.
Restated for those net charges, net financial expenses decreased from €56.8 million in H1 2017 to €49.1 million in H1 2018. This largely reflected lower average debt year-on-year and lower average effective interest rate, thanks to the various refinancing operations in 2017. The average effective interest rate on gross debt decreased by 40bps year-on-year in H1 2018 to 2.85% (vs. 3.25% in H1 2017).
Income tax in the first half represented a charge of €66.9 million (vs. €72.8 million in H1 2017), a decrease of 8.1%, reflecting a lower tax rate (39.9% vs 43.0% in H1 2017) following the positive impact of the US tax reform.
Net income in the first half is up 4.2% to €100.8 million (vs. €96.7 million in H1 2017).
Recurring net income in the first half amounted to €157.7 million, up 13% compared to H1 2017 (see appendix 2).
FINANCIAL STRUCTURE
Positive free cash-flow before interest and tax of €17.8 million in the first half
Net debt reduced by 8% year-on-year at June 30, 2018
In the first half, free cash flow before interest and taxwas an inflow of €17.8 million (vs. an outflow of €76.7 million in H1 2017). This net inflow included:
- Lower capital expenditure, including disposal of assets in Australia (€32.1 million vs. €53.0 million in H1 2017). Gross capital expenditure stood at €50.4 million in H1 18;
- An outflow of €249.6 million from change in working capital on a reported basis (vs. an outflow of €320.6 million in H1 2017).
At June 30, 2018, net debt stood at €2,112.4 million, down 8.4% year-on-year (vs. €2,306.7 million at June 30, 2017).
It took into account:
- €41.8 million of net interest paid during the first half (vs €51.6 million paid in H1 2017),
- €24.0 million of income tax paid during the first half (vs €63.5 million paid in H1 2017). This lower income tax paid is due to France 2017 income tax overpayment for €22million and to the reimbursement of €8 million following the decision on the 3% dividend tax,
- €9.7 million of negative currency effect during the first half (vs a positive effect of €63.9 million in H1 2017).
UPDATE ON OUR DISPOSAL PROGRAM
Following detailed work in each country, we have updated our strategic portfolio review. As a result, we have revised the figure of sales to be disposed to €650 million from €800 million previously. Currently, we have disposed of €530 million in sales. We expect the remaining disposals or downsizings for €120 million of sales to be completed by mid-2019.
We confirm that the disposal plan will have a positive impact on adjusted Ebita margin of 25bps (compared to FY 2016), once completed.
OUTLOOK
Our first half is in line with our expectations and allows us to confirm our financial targets for the full year, as announced in February.
We target at comparable scope of consolidation and exchange rates:
- sales up in the low single digits (on a same-day basis);
- a mid- to high-single-digit increase in adjusted EBITA¹;
- a further improvement of the indebtedness ratio (net debt-to-EBITDA²).
¹ excluding (i) amortization of PPA and (ii) the non-recurring effect related to changes in copper-based cables price
² as calculated under the Senior Credit Agreement terms
NB: The estimated impacts per quarter of (i) calendar effects by geography, (ii) changes in the consolidation scope and (iii) currency fluctuations (based on assumptions of average rates over the rest of the year for the Group’s main currencies) are detailed in appendix 5.
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