Rexel – steady Q4, positioned for growth

February brings earnings month and Rexel is one of three electrical distributors that shares some information (the others being WESCO and Graybar). WESCO reported earlier with “eh” performance from its electrical group if the Anixter acquisition is excluded which was expected given the company is focused on large projects and the industrial market.

Now let’s take a look at Rexel’s Q4 and 2021 outlook.

From its analyst call, with a focus on US / North American performance and some takeaways from its initiatives: (and here is a link to their page with their quarterly report, annual report and strategic presentation.)

• Globally, digital sales penetration in 2020 was above 20% (which should suggest what the US focus is / will be. The question becomes “what is “digital sales penetration” as it is beyond online ordering and how will sales bring this to customers and are Rexel’s customers seeking to interact this way. If so, it can help the company build digital moats around customers.)
• Globally
  • the company reduced operating expenses, structurally, by 6% to adjust for COVID.
  •  reduced inventory levels in 2020.
  • sales were -6.5%. The global EBITA was 4.2% (down but better than expected)
  • Q4 was essentially flat at -0.7% (a better electrical performance than WESCO).
• US sales down 7.7% in Q4, improved from -12.9% in Q3. Canada was -8.2% in Q4, up from -12.3% in Q3.
  • Strongest US regions were Northwest, Mountain Plains and Florida.
  • North America EBITDA was 3.7%
• 2021 Outlook
  • Same day sales growth of 5-7% globally (note, slightly higher than WESCO’s 3-6% across the board and low single digits for electrical. The difference is business focus.)
  • EBITDA of 5%

Strategic Outlook

• Strategic Update … looking towards the next 3 years:
  • Initiatives
    • Digitalization
    • Customer Segmentation
    • Information capture and monitoring
    • New Products
    • Service … offering services and providing service
  • Products
    • Green Energy & Energy Efficiency, Building Automation, Smart Home
    • Connectivity Solutions because of everything going “smart” with connected devices.
    • Information capture and monitoring
    • HVAC mentioned (Rexel must be in HVAC in other parts of the world. Could it enter here in the US? There is a tie to building automation.)
  • Public Policy is focused around energy generation, consumption and efficiency so industry future is bright.
    • Electrical consumption expected to double, globally, by 2050.
  • Globally the electrical distribution market is 180 billion euros ($219 billion USD … essentially the US is almost 50% of the market!)
  • Developing customer specific and segment specific online experiences … personalization in showing an offering as well as customer “choice.” Driven by machine learning.
    • Currently doing 2.6 billion euros with a target of 4 billion
      • Note – US is “at the beginning of the race”
    • Utilizing email to EDI to drive digitalization in 8 countries
  • Using algorithms to manage inventory in France. Has seen 2% sales lift at the counter and strong customer satisfaction. Also used to project customer churn with advance notice to sales for potential intervention. (presume someday coming to US, possibly starting in a region as a pilot?)
  • Wants to increase software and services sales
• 2023 Goals
  • Outperform market by 50 -100 basis points
  • EBITDA of 6%
• US Potential as presented by Jeff Baker
  • Currently 8 regional CEOs. All make decisions locally on how to run their regions with common infrastructure. Intent is to be intentional and tailored to opportunities in that market.
  • 2020 overall sales was down 12.6^ with commercial margin up 50bps
  • 2020 headcount was -9%
  • US growth drivers
    • US stimulus spending
    • Green energy production and conservation
    • Industrial recovery
    • Residential and small commercial demand
  • Goal is 30% of sales to come through digital platform.
• Acquisitions
  • Acquired WESCO’s Canadian utility business. Doubled Rexel’s share in this space to 20% and has recurring revenues since 2/3rds of business is long-term contracts.
  • Plan to resume acquisitions via bolt-ons.
    • Want to increase market share in US
    • Want adjacencies. May consider multi-energy, security, and datacom as well as software, solutions and possibly industrial integration (not all of these may be for the US.)

Questions from analysts

• US potential is bigger than Europe (which means, Rexel needs to “get it right in the US” to achieve future goals.)
• The company, annually and historically, has 7-8% people turnover.
• Digital is adding to increased productivity, reducing error rates and reducing inventory obsolescence.
• Rexel is put much of its digitalization efforts under IP to protect its knowledge base.
• US acquisitions will be more “mid-sized”. (Which makes sense if they are to be bolt-ons within regions. Could be larger if supports adjacency initiative.) Overall, Rexel is seeking to spend 700-800 million euros on acquisitions.
• Rexel’s formula is “more customers, more SKUs.” (which translates to more SKUs/customer!)
• The tool for anticipating customer churn will be rolled out to 9-10 more countries soon – currently in 8 countries. Should eventually cover 80% of customers. Alerts are sent to salespeople for action via CRM system. It is 400 out of 2000 branches. Powered by machine learning.

The call spent much time on their future outlook with much of it focused on the role that data and digitalization will play in the company. While not all of the digital efforts, for customers and suppliers, may be present in the US today, those manufacturers who interact with Rexel globally should expect the tools to be available in the US, especially the complete features of the supplier portal.

Rexel looks at digital, and digitalization of its business, as an imperative and a differentiator. It’s decentralized US approach with a common infrastructure gives it a platform to more effectively compete in the US, enabling the company to take advantage of regional differences / opportunities. While the company has underperformed historically for a myriad of reasons, it appears to be on a better track than ever before. The proof, however, will be when more than 3 regions are performing well from Rexel’s perspective.