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North America improves further; CEO to share new growth strategy shortly

  • 28 Aug 16

Rexel reported Q2 FY16 results ahead of our estimates. All the sales growth numbers are at CER and same day basis unless specified otherwise. The total revenue remained under pressure with a decline of 2.3% (vs Q1 16: -1.4%, Q4 15: -2.9%), largely due to the ongoing slump in cable prices (-1.3% impact yoy) and sluggishness in the North America’s industrial sector (Q2 16: -21% yoy, Q1 16: -36%). The region clocked a revenue slump of 4.2% during the quarter (our estimate: -2.8%; accounts for c.34% of group revenue). Despite an improved performance in Scandinavia (Q2 16: +3.5%, Q1 16: -0.1%; our estimate: +0.5%) and flat growth in France (36% of region’s sales), Europe slipped back into the red zone (Q2 16: -0.9% vs Q1 16: +0.3% and our estimate: +0.2%; accounts for 56% of group revenue), largely on the back of a dismal performance in the UK (-6.4% yoy; reflecting an 80% drop in photovoltaic equipment sales after the change in tariff regulations; contributes 14% of region’s sales) and Germany (-2% yoy; contributes 11% of the region’s sales). Furthermore, the challenging macro-economic conditions in China kept Asian growth in negative territory (Q2 16: -7.2%, Q1 16: -1.6%, Q4 15: -1.0%; accounts for c.5% of group revenue) while the Pacific region clocked a revenue growth of +1.4% (vs Q1 16: +2.3%, Q4 15: +1.0%; c.5% of the group revenue). However, a positive calendar and scope effect (2.4% and 0.5% respectively) more than offset the FX headwinds (-2.8%; depreciation of USD and GBP vs EUR), leading to a reported revenue decline of 2.2% (vs Q1 16: -1.9%, Q4 15: 3.2%; our estimate: -2.5%). However, the reported EBITA margin came in at +4.5% (+30bp vs our estimate), on the back of an improved gross margin in Europe (+17bp yoy), Asia-Pacific (+92bp yoy) and continuous opex reduction activity in North America (-15bp yoy as a percentage of sales; reflecting ongoing branch network optimisation programme). Furthermore, the company realised lower financial expenses due to early bond redemption (Q2 16: €43.7m vs €69.8m in Q2 15; worth €650m maturing June 2020) and refinanced at lower interest rate (-160bp vs earlier issue), resulting in a +184% increase in the net income from continuing operations. While management remains cautious about the Brexit impact and industrial activity levels in H2 16 (North America and China), it remains bullish on an improvement in the French construction activity. The company also reconfirmed the FY16 guidance (organic growth: -3% to +1%; EBITA margin: +4.1% to +4.5%).

North America set for a turnaround; uncertainty to continue in Europe

  • 04 Jul 16

Rexel reported Q1 FY16 results broadly in line with our estimates. Revenue decreased by 1.4% at CER (vs Q4 15: -2.9%, Q3 15: -3.3% and our estimate: -1.4%), dragged down once again by the negative impact of copper-cable prices (-1.2% impact on organic growth; USD copper prices dropped by 20% in the quarter) and weak industrial activity in North America (36% revenue drop in the Oil & Gas sector). All the sales growth numbers are at CER unless specified otherwise. Despite good construction activity in the US, revenue growth in the region slumped by 4.4% (vs Q4 15: -6.5%, Q3 15: -7.2%, our estimate: -3%). However, Europe jumped back to positive territory with growth of +0.3% (vs Q4 15: -0.8%, Q3 15: -0.9% and our estimate: -0.4%), largely driven by France (+2.5%), Sweden (+3.6%) and the Netherlands (+7.1%). Similarly, Asia-Pacific clocked +0.2% revenue growth (vs Q4 15: -0.1%, Q3 15: -0.8% and our estimate: -1%) on the back of positive momentum in Australia (+1.3%; positive growth for the first time since Q3 11), despite a dismal performance in Asia (-1.6% yoy; reflecting growth challenges in China). Despite a positive scope effect of €38.1m, the reported revenue was down 1.9% (vs Q4 15: -3.2%, Q3 15: +3.7% and our estimate: -2.6%), pinned down by FX headwinds (largely due to the depreciation of the Canadian dollar and sterling vs the euro) and a negative calendar impact (-0.6%). The adjusted EBITA margin decreased to 3.9% (-20bp yoy), reflecting higher distribution and administrative expenses in Asia-Pacific (+40bp yoy) and Europe (+20bp yoy), partially offset by better ‘opex’ control in the US. The debt refinancing activity completed in FY15 led to lower financial expense (lower effective interest rate in Q1 16: 3.8%, -70bp yoy) and, consequently, higher recurring net income (+13.5% yoy). Management expects a recovery in the French construction activity in the second half of FY16 and has reconfirmed earlier guidance (FY16 lfl revenue growth: -3% to 1% and EBITA margin: 4.1% to 4.5%). Rexel witnessed a major change in the governance structure at the end of June 2016. Rudy Provoost was asked to step down as Chairman and CEO (due to a divergence of views with the Board about the change in governance and his approach to implementing the group’s strategy). Patrick Berard, presently in charge of Rexel’s European operations is appointed as the new CEO, effective on 1 July 2016, and François Henrot (currently Deputy-Chairman and Senior Independent Director) has stepped in as interim Chairman. Ian Meakins (current CEO of Wolseley Plc; due to retire on 31 August 2016) will take-over as non-executive Chairman of the board from 1 October 2016.

A challenging year ahead

  • 25 Feb 16

Rexel announced FY15 results in line with our expectations and the guidance provided in October last year. Annual revenue was down 2.1% at CER, pulled down by lower copper prices ($5,800 per tonne in Q1 vs c.$4,700 in Q4 15), weaker industrial activity in North America (28% drop in the O&G segment), challenging construction activity in France and weaker macro-economic conditions in China. Both the biggest markets, North America (-5.2%) and France (-2.3%), registered a decline. However, the FX benefit of €916.7m, primarily due to stronger USD, resulted in the total revenue growth of 3.5% to €13.5bn. The adjusted EBITA margin tanked 60bp to 4.4% for the full year, in line with our expectation, primarily due to lower gross margin (24.0%, -20bp) and higher distribution and administrative expenses (19.6%, +50bp). Asia Pacific clocked the biggest decline in profitability (EBITA: -247bp yoy), attributable to lower supplier rebates in Australia and a 100bp increase in distribution & admin expenses (bad debt in China and business developments in Asia). In Q4, revenue dipped 2.9% yoy at CER to €3.5bn and the EBITA margin stood at 4.7% (+30bp vs annual EBITA of 4.4%), sequentially better but down 57bp yoy. The company has slashed the dividend pay-out to €0.40 per share (c.45% of net recurring income vs c.70% in 2014), to be paid in cash as opposed to the share dividend option available in previous years. In terms of FY16 outlook, management expects growth of -3% to +1% at CER (including a 1.1% negative impact from the copper price) and an adjusted EBITA margin of 4.1-4.5%. Rexel also announced its 2020 roadmap wherein it is looking to achieve a CER growth target of 1-2% and EBITA growth of at least twice the pace of organic sales growth.

Margin guidance challenged; North American top-line weathers headwinds from O&G exposure

  • 12 Aug 15

Rexel released a disappointing H1 15 with O&G headwinds to its North American (NA) and Pacific business coming in much higher than our estimates and management's expectations. The stronger dollar helped the 7.8% growth (Q1: 7.1%, Q2: 8.4%) in reported revenue; Q2 top-line of €3.4bn was broadly in line with the consensus estimate. However, on a constant and same day basis it was -1% for H1 15 vs. our full-year estimate of -1.6% (NA:-3.3% vs. our estimate of 0.2% for the full year). Margins were under pressure in Q2, resulting in the H1 gross margin being 30bp lower yoy to 24.3% (Q1: 24.7%; Q2: 23.8%) and an even higher contraction (70bp yoy) at the EBITA margin which came in at 4.2% (Q1: 4%; Q2: 4.4%; all at a constant basis). - Europe's H1 15 EBITA margin was down 45bp to 5.6% due to the unfavourable mix tilted towards lower-margin cables (which management reassured was a one-off phenomenon), though partially mitigated by reductions in opex; -NA's EBITA margin ended up 90bp lower at 3.6% as the gross margin expansion due to better pricing in Canada was offset by the impact of lower activity in the O&G segment in NA and higher transport costs (related to the US transformation programme). As a result, management revised its expectations of the decline in the O&G business (4-5% of group revenue) from a 10-15% decline to a 20-30% decline. Also, full-year guidance was revised down to the lower end of the earlier one (organic revenue growth: +2% to -2%; adj. EBITA: 4.8% to 5.2%).