Rexel Up Globally but Down in US

Being global can have its ups and down. As a company you become susceptible to currency issues as well as differing economic challenges. It appears that Rexel is benefiting in areas of the globe but suffering here in North America given that its North American counterparts (WESCO, Anixter, Grainger) have all reported increases.  Coupled with some high profile management defections in the past six months, it appears Rexel is going through “change”, and perhaps realizing that the Platt model isn’t exportable to all parts of the country.

Rexel’s 2019 Q4 and Annual Report, from their earnings call and slides

Some organizational highlights and a focus on North America and the US

Global Performance

• 3^rd year of successive “solid” performance
• Achieved “guidance” with results of 1.4% based upon same day and 2.8% with currency and other changes
• Global gross margin of 25%
• Attributed margin decrease and industrial decreases in US, Germany and France to the trade ware as well as issues with Brexit
• Have increased “organic growth” since December 2016 by $1 billion euro
• Had improvement, globally, on same-day sales growth, EBITDA margin and recurring net income with a decline in debt ratio.
• Emphasized the need for more efficient processes to:
  • Reduce product returns
  • Reduce claims with customers
  • Reduce inventory obsolescence
  • Reduce overrides by having a better pricing systems

Seeking to automate processes to reallocate resources.

• Overall adjusted EBITDA was 5.1%

North America

• Q4 in North America down 1.8% due “mainly” to industrial markets
  • North America is 37% of Rexel sales with US 78% of this
  • Sales were $1.314 million euros
  • North America gross margin was 23.1% with EBITDA of 4.4%
  • North America head count of 8,547, down 58 (but, from what we’ve heard, US was down significantly more, indicating Canada may have had an increase due to growth or Rexel grew in California and Platt territories … the only regions they grew.)
  • 11 new branches in the US in 2019
• US sales down 2.7% with single digit decreases in industrial and commercial construction markets. 
  • Oil and gas markets down 10%
  • Light commercial and residential markets up high single digits
  • Rexel has opened 57 branches in the US since 2017. These branches contributed 1.1% for the quarter, 1.2% for the year.  “In line with targets” (but highlights that these are essentially small branches.)
  • US business up in Northwest and California (Platt areas). No other areas mentioned. All other areas had slowdowns
  • Web sales up 22% in North America
  • US has 393 branches
• Canada was up 1.8%
• North America’s EBITDA is 4.4%
• Had lower FTE’s in US at end of year than beginning of the year. Saved $15 million in “people adaptation” (personnel reductions)
• Sold Gexpro Services, which had sales of $260 million
• Reportedly have had “cost adaptation to offset industry slowdown in the USA, which is an additional reactivity capabilities where we had to gain service and benefits productivity to cope with second part of ‘19” (reinforces observations heard regarding layoffs and other operational cost reductions.)
• Reportedly receive a digital order every 30 seconds – in Europe it is 1 order / second (however, “digital” can be email to EDI, online, eProcurement, etc but, the key is digitalizing processes to gain throughput and productivity.)

2020 Outlook

• Feel company is done with performance / productivity improvements and can now “execute” to drive growth and feel that they can get organic growth (tough to define if they believe this is globally or in US or both.)
• Feel that today they are a “customer-focused company” that is data-driven and digital with multiplying customer interfaces.
• Deploying technology to provide order tracking via mobility, using “AI” for price management and more … although deploying country-specific. (Technology development and deployment is an area where larger companies have an advantage over independents in the sense of ability / willingness to invest. Small to mid-sized independents will need to be either judicious in their investments or consider unique, shared services and SaaS models.)
• Platt is on Salesforce.com, and Rexel plans on deploying this nationwide (will be interesting the adoption rate and effectiveness nationally)
• Edgar Aponte announced as new CEO of Rexel UK with a plan to bring the Platt model to the UK.
• Seeking digital M&A opportunities and services, less focused on acquisitions for the sake of growing revenues.
• Expect a low-growth environment but expect EBITDA growth of 2-5%

Analyst questions

• Heavy emphasis on Rexel’s digital emphasis to improve productivity and profitability. Also highlighted digital interactions with Rockwell, Siemens and Schneider Electric.
• Also discussed digital in the construction space and utilization by contractors of BIM (both the digital advancements in the contractor and industrial space are reasons why ETIM global standards are integral to success in working with global suppliers and customers.)
• Rexel is making significant investments in its master data management processes.

While Rexel continues to make digital investments worldwide and is focusing on productivity and profitability metrics it appears that they are still trying to determine an effective US model. The effort to export the Platt model throughout the country, while having some success, is limited, and it seems like senior management perceives that success in the Northwest is indicative of what the entire US should be. As most other national executives will say … not true.

It is interesting to read in their transcript about their commitment to digitalization of the business. While they espouse productivity goals, at the same time they talk about personnel reallocation of resources (removing people from the business) as well as becoming more customer centric (and using the Net Promoter Score as their metric.) The digitalization efforts are something others should consider … not so much from a Rexel execution viewpoint but could the idea have value (and be something to adopt for themselves.)

In the end, Rexel still has a ways to go here in the US.