Patrick Berard, Chief Executive Officer, said: “Rexel’s 2019 performance was fully in line with our guidance, making it the third consecutive year of solid results. These results demonstrate that the business model changes initiated in 2017, more focused on customers and organic development, have resulted in value creation through continued sales and earnings growth. Confronted with a more volatile environment in 2019, we took actions to protect our profitability without compromising continued investments in our digital transformation. Investment in digital is showing very promising results both in terms of digital sales and adoption of analytical tools. We are ready for a more challenging macro-environment in 2020 and will further capitalize on self-help measures, leverage strategic initiatives and continue investing in our digital transformation to further improve profitability.”
In Q4, sales were up 0.7% year-on-year on a reported basis and down 0.5% on a constant and same-day basis, reflecting lesser momentum in industrial countries such as the US and Germany.
In the fourth quarter, Rexel posted sales of €3,520.6 million (USD $564.80 million), up 0.7% on a reported basis, including:
- A positive currency effect of €44.6 million (USD $48.39 million) (i.e. +1.3% of Q4 2018 sales), mainly due to the appreciation of the US dollar against the euro;
- A negative netscope effect of €15.1 million (USD $16.38 million) (i.e. -0.4% of Q4 2018 sales), resulting from a divestment in China in Q4 2018;
- A positive calendar effect of 0.3 percentage points.
On a constant and same-day basis, sales were down 0.5%, including a negative effect from the change in copperbased cable prices (-0.3% in Q4 19 vs -0.3% in Q4 18).
In FY 2019, Rexel posted sales of €13,742.3 million (USD $14,909.02 million), up 2.8% on a reported basis. On a constant and same-day basis, sales were up 1.4%, including a negative impact of 0.3% from the change in copper-based cable prices.
The 2.8% increase in sales on a reported basis included:
- A positive currency effect of €237.3 million (USD $257.45 million) (i.e. +1.8% of FY 2018 sales), mainly due to the appreciation of the US dollar against the euro;
- A negative net scope effect of €48.8 million (USD $52.94 million) (i.e. -0.4% of FY 2018 sales), resulting from a 2018 divestment in China;
- A neutral calendar effect.
In 2019, digital transformation remained our priority. Our digital sales increased by 12.9% and now stand at c. €2.4bn (USD $2.60bn), representing c.18% of Group sales. In Europe our digital penetration reached 26% of sales.
Europe (54% of Group sales): +0.3% in Q4 and -0.2% in FY on a constant and same-day basis
In the fourth quarter, sales in Europe increased by 0.2% on a reported basis, including a limited positive currency effect of €3.1m (USD $3.36m) (up +0.2% mainly due to the appreciation of the British pound against the euro). On a constant and same-day basis, sales were up 0.3%.
- Sales in France (39% of the region’s sales) were up 4.6%. Q4 benefited from positive momentum, thanks to large recurring project wins, digital adoption and good HVAC sales, resulting in market share gains in Q4 and in 2019. We also benefited from:
- Increased efficiency resulting in higher customer satisfaction (Net Promoter Score improvement)
- Continued evolution towards a data-driven company: 18.8% digital sales in Q4 19 (from 14.5% in Q4 18), development of analytics and IoT (EnergeasyConnect: 10,000 units sold in 2019 – installed base of c. 25,000), first AI use cases.
- Sales in Scandinavia (13% of the region’s sales) were down 2.5%, with negative momentum in Norway, down 9.6% due to a difficult environment in the utility and industrial markets. Sweden was down 1.5% due to lower residential demand and Finland was up 4.2%
- Benelux (10% of the region’s sales) posted +3.0% growth, with good momentum in the Netherlands, up +9.2%, notably thanks to photovoltaic sales (+4.2% contribution), offsetting lower sales in Belux, down 1.1%
- In the UK (9% of the region’s sales), sales dropped by 7.4%, as a result of market deterioration, customer selectivity (-4.2%) and branch closures (-1.6%, reduction of 11 branches in Q4 2019)
- Sales in Germany (8% of the region’s sales) were down 7.0% mainly due to lower industrial demand. The new organization should help us benefit from better trends in the construction business in 2020
- Sales in Switzerland (7% of the region’s sales) were down 0.4%.
North America (37% of Group sales): -1.8% in Q4 and +3.9% in FY on a constant and same-day basis
In the fourth quarter, sales in North America were up 2.6% on a reported basis, including a positive currency effect of €41.6m (USD $45.13m) (or up +3.2% mainly due to the appreciation of the US dollar against the euro). On a constant and same-day basis, sales were down 1.8%.
- In the United States (78% of the region’s sales), sales were down 2.7% on lower industrial and commercial project growth, while residential and light commercial business benefited from our past initiatives, including 57 branch openings in 2017/2019 and investments in inventories and sales reps.
- Industrial business is down in mid-single digit, with O&G down 10%;
- Commercial projects activity is down in low-single digit;
- Residential is up in high-single digit, benefiting from our initiatives, including branch openings (Impact of 1.1% in Q4 19 and c. 1.2% in FY 2019, in line with objectives);
- By region, we had good momentum in the electrical distribution business in the Northwest and California and faced a slowdown in the Northeast, Florida and the Midwest, mainly due to lower industrial demand;
- On December 31 st, we announced the refocusing on our core Electrical distribution business in the US with the agreement signed with LKCM Headwater for the disposal of Gexpro Services (400 employees, c.260M USD of sales). The closing is expected in Q1 2020.
- In Canada (22% of the region’s sales), sales were up 1.8% on a same-day basis, driven by positive sales growth with large commercial contractors and industrial customers.
Asia-Pacific (9% of Group sales): +0.3% in Q4 and +1.2% in FY on a constant and same-day basis
In the fourth quarter, sales in Asia-Pacific were down 4.2% on a reported basis, including a negative scope effect of €15.1m (USD $16.38m) or -4.8% following the disposal of our non-industrial business in China and a non-material currency effect (-€0.1m) (USD $-0.11m). On a constant and same-day basis, sales were up 0.3% (or up 3.2% restated for a large project in the Middle East that boosted our Q4 2018 performance).
- In the Pacific (50% of the region’s sales), sales were up 3.3% on a constant and same-day basis.
- In Australia (83% of Pacific’s sales), sales were up 5.9% with outperformance in the residential market, which remains under pressure, and good momentum in industrial EPC;
- In New-Zealand (17% of Pacific’s sales), sales were down 7.6% on difficult industrial and commercial end-markets (agriculture notably).
- In Asia (50% of the region’s sales), sales were down 2.5%, but up 3.2% restated for a large project in the Middle East that boosted our Q4 18 sales:
- In China (82% of Asia), sales grew by 1.2%, despite slightly lower business than last year from a large project (-1.0% contribution to China) and a more challenging environment
- India is up in double digits, driven by strong automation activity, offsetting the negative contribution from a large project in the Middle East that contributed to Q4 2018 (-5.7% contribution to Asia growth).
Adjusted EBITA margin at 5.0% in FY 2019, up 18bps compared to FY 2018
In FY 2019, gross margin was up 36bps year-on-year, at 25.0% of sales, and opex (including depreciation) amounted to 20.0% of sales, representing an evolution (-18 bps year-on-year) mainly due to our growth investment (-25bps), mainly in digital transformation, as well as cost inflation.
- In Europe, gross margin stood at 27.3% of sales, up 57bps year-on-year. Gross margin improvement resulted from lower share of sales in lower margin countries (Germany & Spain), business selectivity in UK and positive country mix (France). Opex (including depreciation) stood at 21.2% of sales with the evolution (-32bps yoy) largely driven by our investment in digital transformation as well as transportation costs, to a lesser extent;
- In North America, gross margin stood at 23.3% of sales. This represented a 26bps improvement year-on year, mainly thanks to better pricing management in the US. Opex (including depreciation), stood at 18.9% of sales with the evolution (-26bps, year-on-year) largely explained by digital investments as well as negative channel mix in Canada, cost inflation (wages & transportation) and higher average number of FTE in the US (headcount reduction was initiated mid-year);
- In Asia-Pacific, adjusted EBITA margin was down 6bps mainly due to digital investments, negative volume impact in New Zealand and investment in China to enter tier-two & tier-three cities;
- At corporate level, opex amounted to €22.3 million (USD $24.19 million), compared to €30.9 million* (USD $33.52 million)a year ago with higher reallocation to operations of corporate hosted expenses and lower corporate overheads compared to 2018.
As a result, adjusted EBITA stood at €685.1m (USD $743.26m), up 5.1% in full-year 2019
Adjusted EBITA margin was up 18bps at 5.0% of sales, reflecting:
- an improved adjusted EBITA margin in Europe at 6.1% of sales, up 25bps;
- a stable adjusted EBITA margin in North America at 4.4% of sales, and
- a lower adjusted EBITA margin in Asia-Pacific at 2.3% of sales, down 6bps.
In the full year, reported EBITA stood at €677.5 million (USD $735.02 million) (including a negative one-off copper effect of €7.6 million (USD $8.25 million)), up 7.1% year-on-year.
Net income of €203.8m (USD $221.10m) in FY 2019, up 50.3%
Recurring net income up 7.5% to €341.2 million (USD $370.17 million) in FY 2019
Operating income in the full year stood at €486.4 million (USD $527.70 million) vs. €435.8 million* (USD $472.80 million) in FY 2018.
- Amortization of intangible assets resulting from purchase price allocation amounted to €14.3 million (USD $15.51 million) (vs. €15.7 million (USD $17.03 million) in FY 2018);
- Other income and expenses amounted to a net charge of €176.8 million (USD $191.81 million) (vs. a net charge of €181.2 million* (USD $196.58 million) in FY 2018). They included €32.6 million (USD $35.37 million) of restructuring costs (vs. €76.5 million* (USD $82.99 million) in FY 2018) mainly in Germany, Spain, UK and US. They also include a charge of €118.1 million (USD $128.13 million) from goodwill impairment and distribution network in Norway €58.9m (USD $63.9m), New Zealand €22m (USD $23.87m), UK €21.3m (USD $23.11m), Finland €9.3m (USD $10.09m) and Middle East €6.6m (USD $7.16m), as well as asset depreciation for €17.2 million (USD $18.66 million) related to the agreements signed for the disposal of our Gexpro Services business and Spanish export activity (both classified in assets held for sale in the balance sheet).
Net financial expenses in the full year amounted to €165.3 million (USD $179.33 million) (vs. €144.9 million* (USD $157.20 million) in FY 2018) with effective interest rate down 18bps versus the previous year at 2.62% in FY 2019. Restated for the following items, net financial expenses stood at €96.6m (USD $104.80m) in 2019 (vs €97.7m* (USD $105.99m) in 2018):
- a €20.8m (USD $22.57m) expense (of which a €16.9 million (USD $18.33 million) redemption premium) was recognized in the first half of 2019 related to the cost of the early repayment of the €650 million (USD $705.18 million) senior notes due 2023;
- a €45.5m (USD $49.36m) impact of interest expense on lease liabilities under IFRS16 in FY 2019 (€45.3m* (USD $49.15m) in 2018)
- a €2.3m (USD $2.50m) expense from forex and interest rate mark to market impacts (€2.6m* (USD $2.82m) in 2018)
Income tax in the full year represented a charge of €117.3 million (USD $127.26 million) (vs. €155.3 million* (USD $168.48 million) in FY 2018), reflecting a decrease in the tax rate (36.5% vs 53.4%* in FY 2018), mainly thanks to the release of a tax exposure provision of €29.5m (USD $32m).
Net income in the full year is up 50.3% to €203.8 million (USD $221.10 million) (vs. €135.6 million* (USD $147.11 million) in FY 2018).
Recurring net income in the full year amounted to €341.2 million (USD $370.17 million), up 7.5% compared to 2018.
Positive free cash-flow before interest and tax of €461.6 million (USD $500.79 million) in full-year 2019
Indebtedness ratio of 2.47x at December 31, 2019
In the full year, free cash flow before interest and tax was an inflow of €461.6 million (USD $500.79 million) (vs. an inflow of €351.3 million* (USD $381.13 million) in FY 2018). The implied Free cash flow conversion (FCF before Interest and Tax/EBITDAaL) improved to 62.5% vs 51.2% in 2018. The improved net inflow included:
- Lower cash expense from restructuring (€51.9m (USD $56.31m) vs. €67.3m (USD $73.01m) in FY 2018, mainly due to Germany and Spain);
- Lower cash outflow from change in working capital of €70.0 million (USD $75.94 million) (vs. an outflow of €159.9 million* (USD $173.48 million) in FY 2018). Trade working capital stood at 12.6% of sales in 2019 vs. 13% in 2018, thanks to better receivables and stable inventories;
- Higher capital expenditure (€116.5 million (USD $126.39 million) vs. €90.6 million* (USD $98.29 million) in FY 2018), as FY 2018 benefited from the disposal of our Rockwell automation business in Australia. Gross capital expenditure stood at €125.5 million (USD $136.15 million) in FY 2019 compared to €118.8 million* (USD $128.89 million) in FY 2018.
At December 31, 2019, net financial debt (excluding €1,010 million euros (USD $1,095.75 million) of leases liabilities vs €944.5 million euros (USD $1,024.69 million)) stood at €1,945.9 million (USD $2,111.11 million), improving by €68.8m (USD $74.64) year-on-year (vs. €2,014.7 million* (USD $2,185.75 million) at December 31, 2018). It took into account:
- €82.3 million (USD $89.29 million) of net interest paid in full-year 2019 (vs €84.3 million* (USD $91.46 million) paid in 2018);
- €118.2 million (USD $128.24 million) of income tax paid in full year compared to €80.7 million (USD $87.55 million) paid in 2018, which benefited from a refund of 2017 income tax overpayment in France (€22 million) (USD $23.87 million) and of the 3% tax on dividends (€8m) (USD $8.68m);
- €26.4 million (USD $28.64 million) of negative currency effects during the year 2019 (vs a negative effect of €22.4 million (USD $24.30 million) in 2018);
- €20.8m (USD $22,57m) of costs related to the early redemption of the €650m (USD $705.18m) bond maturing in 2023.
At December 31, 2019, the indebtedness ratio (Net financial debt/EBITDAaL), as calculated under the Senior Credit Agreement terms, stood at 2.47x vs. 2.67x at December 31, 2018. The closing of the Gexpro Services transaction should take place in Q1 2020 and contribute to the acceleration in the reduction of the indebtedness ratio.
The benefits from our initial digital investments strengthen our conviction that Rexel’s evolution towards a datadriven company will reinforce Rexel’s positioning and contribute to market share gains and margin improvement.
Our priority will be to improve our adjusted EBITA margin and free cash flow generation notwithstanding the challenging environment, while continuing to invest in digital transformation.
In an environment of low sales growth and with a more challenging base effect in H1, we target for 2020, at comparable scope of consolidation and exchange rates:
- Adjusted EBITA1 growth of between 2% and 5%
- FCF conversion of c. 65%
- Further improvement of the indebtedness ratio2 (Net Debt/EBITDAaL)
The revamped business model of the company and expected results of our digital transformation will be presented during our next Capital Market Day in 2020.Tagged with financial, Rexel