REXEL : FIRST QUARTER 2017 RESULTS (unaudited)

FIRST-QUARTER 2017 RESULTS (unaudited)

GROWTH IN SALES AND IMPROVED PROFITABILITY

RETURN TO ORGANIC SALES GROWTH IN THE US

FULL-YEAR FINANCIAL TARGETS CONFIRMED

  SALES OF €3,323m, UP 5.1% ON A REPORTED BASIS

• Organic growth of 4.8%, including a strong positive calendar effect of 4.1% and a favorable copper effect of 1.2%
• On a constant and same-day basis, sales were up 0.6%, of which:
  • Europe: +1.2%
  • North America: +1.2%, supported by a return to growth in the US (+2.1%)
  • Asia-Pacific: -4.8%, due to a sharp 33.6% drop in SE Asia, while China was up 2.0% and Australia up 0.8%

ADJUSTED EBITA OF €135m, UP 9.3%

• Stable gross margin at 24.8% of sales
• Improved adjusted EBITA margin at 4.1% of sales (vs. 3.9% in Q1 2016)
  • Stable in Europe at 5.7% of sales
  • Improvement in North America at 2.9% of sales (vs. 2.6% in Q1 2016)

STRONG INCREASE IN REPORTED EBITA, UP 27% AND NET INCOME, UP 62%

FULL-YEAR FINANCIAL TARGETS CONFIRMED

¹ See definition in the Glossary section of this document

Patrick BERARD, Chief Executive Officer, declared:

"Rexel's first-quarter performance was in line with our expectations.

Two elements are to be noted in our past quarter's performance: For the first time in several quarters, we posted organic sales growth on a constant and same-day basis with a simultaneous improvement in profitability. In addition, our sales in the United States returned to growth after seven consecutive quarters of organic decline on a constant and same-day basis.

These results confirm that the measures we are taking to revitalize organic growth and improve profitability are starting to show results.

We confirm our financial targets for the full year, as announced on February 13."

FINANCIAL REVIEW FOR THE PERIOD ENDED MARCH 31, 2017

• Financial statements as of March 31, 2017 were authorized for issue by the Board of Directors on April 27, 2017. They were not audited by statutory auditors.
• 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 Q1, sales were up 5.1% year-on-year on a reported basis ; they increased by 4.8% on a constant and actual-day basis, including a strong positive calendar effect of 4.1% and a return to organic growth in the US (+2.1%)

In the first quarter, Rexel posted sales of €3,323.1 million, up 5.1% on a reported basis and 0.6% on a constant and same-day basis.

The 5.1% increase in reported sales included:

• A positive net currency effect of €37.2m (+1.2% of last year's sales), mainly due to the appreciation of the US and Canadian dollars against the euro for €46.8m, partly offset by the depreciation of the British pound for €(27.1)m;
• A negative net scope effect of €(26.0)m (-0.8% of last year's sales), mainly due to last year's divestment of our activities in Poland, Slovakia and the Baltics;
• A strong positive calendar effect of 4.1%;
• A positive copper effect of 1.2% of sales.

Europe (55% of Group sales): +1.2% in Q1 on a constant and same-day basis

In the first quarter , sales in Europe increased by 1.8% on a reported basis, including a positive calendar effect of 3.6%, a negative net scope effect of 1.6% (for €29.3m) and a negative currency effect of 1.2% (for €22.1m, mainly due to the depreciation of the British pound against the euro). On a constant and same-day basis, sales were up 1.2%.

Sales in most of our markets were in positive territory:

• Sales in France (37% of the region's sales) were up 0.6%, despite a very challenging base effect (2.5% in Q1 2016). Residential and non-residential end-markets posted slight growth, while sales to industry were slightly negative. Over the quarter, January was in negative territory and trends improved in February and March;
• Sales in Scandinavia (13% of the region's sales) were up 5.2%, driven by strong 13.8% growth in Sweden ;
• Sales in Germany (11% of the region's sales) were up 3.4%, reflecting continued sales momentum;
• Benelux (9% of the region's sales) posted solid growth in both countries: sales in Belgium were up 10.7% and sales in The Netherlands up 8.3%;
• Two other countries were in positive or stable territory: Austria (4% of the region's sales), where sales were up 0.2%, and Italy (2% of the region's sales), where sales were stable.

However, sales dropped in three markets:

• In the UK (13% of the region's sales), sales were down 3.2%, which nevertheless represented a significant sequential improvement over the last three quarters of 2016. Sales continued to reflect adverse market conditions since the Brexit vote and an impact from lower sales of photovoltaic equipment, albeit more limited than in previous quarters: the drop in sales of photovoltaic equipment represented 1.3 percentage points out of the total 3.2% drop in sales;
• In Switzerland (6% of the region's sales) sales were down 3.8%, impacted by continued unfavorable market conditions;
• Spain (3% of the region's sales) posted sales drop of 16.1%, of which c. one quarter is attributable to reduced export activity and the remainder is attributable to sales force reorganization underway.

North America (36% of Group sales): +1.2% in Q1 on a constant and same-day basis

In the first quarter , sales in North America were up 11.8% on a reported basis, including a positive calendar effect of 5.6%, a positive currency effect of 4,3% (for €46.0m, due to the simultaneous appreciation of the American and Canadian dollars against the euro).

This is the first quarter of growth on a constant and same-day basis for the region since Q4 2014, driven by encouraging signs of sales recovery in the US.

• USA (79% of the region's sales) posted significant sequential improvement, with sales up 2.1% on a constant and same-day basis and 8.9% on an actual-day basis:
  • Part of this sequential improvement was due to the end of the negative impact from sales to the O&G industry. In Q1 2017, sales to the O&G industry were up 10.5%, contributing to about one quarter of the total 2.1% sales growth on a constant and same-day basis;
  • However, most of the sequential improvement was due to the first benefits from the measures implemented in the past few months in order to accelerate organic sales growth, notably in our branch networks. Sales at Platt were up 3.0% in the quarter and Rexel C&I posted strong double-digit growth of 11.1%;
  • Gexpro activities, conversely, were impacted by continued slowdown in the OEM segment.
• Canada (21% of the region's sales) was down 2.1% on a constant and same-day basis and 0.5% on an actual-day basis:
  • Contrary to the US, Canada continued to be impacted by lower sales to the O&G industry. In Q1 2017, sales to the O&G industry were down 25.7%, contributing to 2.3 percentage points of the total 2.1% sales drop on a constant and same-day basis;
  • Sales to the non-residential end-market grew by 3.1%, supported by the data/communication segment.

Asia-Pacific (9% of Group sales): -4.8% in Q1 on a constant and same-day basis

In the first quarter , sales in Asia-Pacific were up 1.3% on a reported basis, including a positive calendar effect of 1.8% and a positive currency effect of 4.4% (for €13.3m, mainly due to the appreciation of the Australian and New Zealand dollars against the euro). On a constant and same-day basis, sales were down 4.8%, reflecting contrasting situations:

• In Asia (48% of the region's sales) sales were down 8.8% on a constant and same-day basis, strongly impacted by South-East Asia, while China returned to sales growth.
  • In South-East Asia (19% of Asia) sales were down 33.6% on a constant and same-day basis, largely attributable to a drop in sales to the O&G industry;
  • China (72% of Asia) returned to growth with sales up 2.0% on a constant and same-day basis, reflecting increased sales of industrial automation products and solutions;
  • Sales in the rest of Asia (9% of Asia) were down 14.6% on a constant and same-day basis, with India up 18.6% and the Middle East down 42.2%, due to a sharp 64.1% drop in sales to the O&G industry.
• In the Pacific (52% of the region's sales), sales were slightly down (-0.7%) on a constant and same-day basis.
  • In Australia (82% of Pacific) sales were up 0.8% on a constant and same-day basis, reflecting strong sales to the residential end-market, partly offset by lower project sales;
  • In New Zealand (18% of Pacific) sales were down 6.7% on a constant and same-day basis, in the face of very challenging comparables (+6.6% in Q1 2016).

PROFITABILITY

Solid gross margin at 24.8% of sales

Adjusted EBITA margin improved at 4.1% of sales vs. 3.9% of sales in Q1 2016

Reported EBITA up 27.0% year-on-year

  In the first quarter, gross margin was stable year-on-year at 24.8% of sales, with sequential improvement vs. Q4 2016 in all three geographies.

• In Europe , gross margin stood at 27.3% of sales. It represented an 80 basis-point sequential improvement but it was down 32 basis points year-on-year. About 20 basis points of this year-on-year drop were attributable to strong pressure on cables and another 10 basis points were attributable to margin pressure in the UK.
• In North America , gross margin stood at 22.4% of sales. It represented a 40 basis-point sequential improvement and a 29 basis-point improvement year-on-year. The year-on-year improvement was driven by solid performance in the US that more than offset the impact of competitive pressure in Canada.
• In Asia-Pacific , gross margin stood at 18.6% of sales. It represented an 80 basis-point sequential improvement and a 24 basis-point improvement year-on-year. The year-on-year improvement was driven by solid performance in Pacific that more than offset the drop recorded in Asia.

In the first quarter, distribution and administrative expenses (including depreciation) stood at 20.7% of sales vs. 20.9% of sales in Q1 2016. This year-on-year improvement was driven by improved performance in Europe, which posted a 29 basis-point improvement at 21.6% of sales, and North America, which posted a 2 basis-point improvement at 19.5% of sales, reflecting the net result of a slight improvement in the US while Canada was broadly stable. Conversely, in Asia-Pacific, distribution and administrative expenses (including depreciation) rose by 6.0% and represented 19.1% of sales vs. 17.4% of sales in Q1 2016. They increased by 3.3 million euros year-on-year, including a significant increase in bad debt in Asia (from €1.0 million in Q1 2016 to €2.4 million in Q1 2017) and the impact of recent investment in sales force in Australia.

As a result, adjusted EBITA margin in the first quarter stood at 4.1% of sales vs. 3.9% in Q1 2016. This net improvement reflected:

• Stable adjusted EBITA margin in Europe, at 5.7% of sales;
• Improved adjusted EBITA margin in North America at 2.9% of sales vs. 2.6% in Q1 2016, driven by the US performance;
• Lower adjusted EBITA margin in Asia-Pacific, where adjusted EBITA recorded a loss of 1.5 million euros in the quarter vs. a profit of 2.8 million euros in Q1 2016.

In the first quarter, reported EBITA stood at €144.5 million, up 27.0% year-on-year.

NET INCOME

Strong 62% increase in net income

Operating income in the quarter stood at €129.8 million, up 39.6% year-on-year.

• Amortization of intangibles resulting from purchase price allocation amounted to €4.9 million (vs. €3.9 million in Q1 2016);
• Other income and expenses amounted to a net charge of €9.8 million (vs. a net charge of €16.9 million in Q1 2016). They included €7.6 million of restructuring costs (vs. €13.6 million in Q1 2016).

Net financial expenses in the quarter amounted to €33.7 million (vs. €33.2 million in Q1 2016). Q1 2017 included a one-off charge related to refinancing operations of €(6.7)million. Excluding that impact, net financial expenses stood at €27.0 million vs. €33.2 million in Q1 2016. This decrease largely reflected a lower average effective interest rate on gross debt of 3.23% (vs. 3.81% in Q1 2016).

Income tax in the quarter represented a charge of €33.3 million (vs. €20.9 million in Q1 2016). The increase is mainly due to higher profit before tax. The effective tax rate stood at 34.7% (vs. 35.0% in Q1 2016).

Reported net income in the quarter was up 61.6%, at €62.8 million (vs. €38.8 million in Q1 2016).

Recurring net income in the quarter amounted to €67.7 million, up 19.3% from €56.7 million in Q1 2016 (see appendix 2).

FINANCIAL STRUCTURE

Free cash-flow generation impacted by traditional seasonality

Slight decrease in net debt year-on-year

In the first quarter, free cash-flow before interest and tax was an outflow of €206.6 million, reflecting the traditional seasonality of the business (vs. an outflow of €194.9 million in Q1 2016). This net outflow included:

• Gross capital expenditure of €21.0 million (vs. €26.6 million in Q1 2016);
• An outflow of €328.7 million from change in working capital (vs. an outflow of €287.1 million in Q1 2016).

At March 31, 2017, net debt stood at €2,433.4 million (vs. €2,495.6 million at March 31, 2016). Net debt was reduced by €62.1 million. It took into account:

• €25.8 million of net interest paid during the quarter (vs. €31.6 million in Q1 2016);
• €24.2 million of income tax paid during the quarter (vs. €20.3 million in Q1 2016);
• €1.9 million of net financial investments during the quarter (vs. €89.4 million in Q1 2016);
• €3.9 million of positive currency effect (vs. €41.1 million in Q1 2016).

2017 OUTLOOK

The first-quarter performance was in line with our expectations and allows us to confirm our annual financial targets, as announced on February 13:

• Rexel targets resuming organic growth, with sales up in the low single digits (on a constant and same-day basis) after two years of decline;  
• In addition, Rexel targets a mid to high single-digit increase in adjusted EBITA ;  
• Lastly, Rexel targets an indebtedness ratio (net-debt-to-EBITDA, as calculated under the Senior Credit Agreement terms) of below 3 times at December 31, 2017 .

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.

CALENDAR

May 23, 2017                                     Annual shareholders' meeting

July 31, 2017                                     Second-quarter and half-year results

October 27, 2017                            Third-quarter and nine-month results

FINANCIAL INFORMATION

The financial report for the period ended March 31, 2017 is available on the Group's website ( www.rexel.com ), in the "Regulated information" section, and has been filed with the French Autorité des Marchés Financiers .

A slideshow of the first-quarter 2017 results is also available on the Group's website.

ABOUT REXEL GROUP

 Rexel, a leader in the professional distribution of products and services for the energy world, addresses three main markets - residential, commercial and industrial. The Group supports its customers to be at their best in running their business, by providing a broad range of sustainable and innovative products, services and solutions in the field of technical supply, automation and energy management. Rexel operates through a network of some 2,000 branches in 32 countries, with more than 27,000 employees. The Group's sales were €13.2 billion in 2016.

Rexel is listed on the Eurolist market of Euronext Paris (compartment A, ticker RXL, ISIN code FR0010451203). It is included in the following indices: SBF 120, CAC Mid 100, CAC AllTrade, CAC AllShares, FTSE EuroMid, STOXX600. Rexel is also part of the following SRI indices: FTSE4Good, STOXX® (STOXX® Global ESG Impact, STOXX® Low Carbon indices Global, Europe et EURO), Ethibel Sustainability Index Excellence Europe and Dow Jones Sustainability Index Europe, in recognition of its performance in corporate social responsibility (CSR). For more information, visit Rexel's web site at www.rexel.com

CONTACTS

FINANCIAL ANALYSTS / INVESTORS

PRESS

APPENDICES

For appendices, please open the PDF file by clicking on the link at the end of the press release.

GLOSSARY

REPORTED EBITA (Earnings Before Interest, Taxes and Amortization) is defined as operating income before amortization of intangible assets recognized upon purchase price allocation and before other income and other expenses.

ADJUSTED EBITA is defined as EBITA excluding the estimated non-recurring net impact from changes in copper-based cable prices.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is defined as operating income before depreciation and amortization and before other income and other expenses. 

RECURRING NET INCOME is defined as net income adjusted for non-recurring copper effect, other expenses and income, non-recurring financial expenses, net of tax effect associated with the above items.

FREE CASH FLOW is defined as cash from operating activities minus net capital expenditure.

NET DEBT is defined as financial debt less cash and cash equivalents. Net debt includes debt hedge derivatives.

Attachments:

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