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Edited Transcript of RXL.PA earnings conference call or presentation 28-Apr-17 8:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Rexel SA Earnings Call

Paris May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Rexel SA earnings conference call or presentation Friday, April 28, 2017 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Grégoire Bertrand

Rexel S.A. - Interim Group CFO and CFO of Europe

* Patrick Berard

Rexel S.A. - CEO and Europe General Manager

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Conference Call Participants

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* Alfred Glaser

Oddo Securities, Research Division - Equity Analyst

* Andreas P. Willi

JP Morgan Chase & Co, Research Division - Head of the European Capital Goods

* Christophe Quarante

Societe Generale Cross Asset Research - Equity Analyst

* James Edward Stettler

Barclays PLC, Research Division - MD

* Lucie Anne Lise Carrier

Morgan Stanley, Research Division - VP

* Pierre Bosset

HSBC, Research Division - Head of French Equity Research

* William Mackie

Kepler Cheuvreux, Research Division - Head of Capital Goods Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Rexel's First Quarter 2017 Results Call. (Operator Instructions) I must advise you that this conference is being recorded today, on Friday, the 28th of April 2017. I would now like to hand the conference over to your first speaker today, Patrick Berard. Please go ahead.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [2]

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Yes. Good morning, ladies and gentlemen, and welcome to our presentation of our Q1 performance. Today, I am with Grégoire Bertrand, our European Group CFO, until Laurent Delabarre will join us mid-May as Group CFO. And many of you know Laurent. He has been a Director of Financial Control with us, then Vice President for Finance, and he will soon be back, and welcome to Laurent.

Now let's start the content of the presentation.

If you go to Slide 3 and about our sales and our profitability in Q1 both improved. Our sales in the quarter reached a little over EUR 3.3 billion, which is a 5.1% rise on a reported basis.

Organic growth of 4.8% was boosted by a strong calendar effect of 4.1%, which means, on a constant and same-day basis, sales were up 0.6%.

Now let me highlight that the U.S. positive organic growth of 2.1% is the first time we record quarterly growth since the second quarter of '15. And I will comment shortly on growth by geography.

We also saw improved profitability with adjusted EBITA of EUR 135 million, up 9.3%, which translates into an adjusted EBITA margin of 4.1% of sales, up 17 basis point year-on-year.

Our gross margin in the quarter stood at 24.8% of sales, stable year-on-year. And our reported EBITA rose sharply by 27% to nearly EUR 145 million.

Now let's go by the review by geography. And I will start with Europe, then North America and Asia Pac.

On Page 5, Europe.

We got a constant and same-day sales growth of 1.2% in Q1. It stood at EUR 1.8 billion, 1.8% on a reported basis and 1.2% on a constant and same-day basis. This is a second consecutive quarter of sales growth on a constant and same-day basis. And if we do -- if we dig into the main markets, most of them where our growth is significant, we were in positive territory.

Let's start with France, where sales were up 0.6%. This is a good performance given the very challenging base effect in Q1 '16 when sales have become -- were up 2.5%. Residential and nonresidential end markets posted slight growth, and all these sales to the industry were slightly negative.

In Scandinavia, sales were up 5.2%, driven by a strong 13.8% in Sweden.

In Germany, sales grew by 3.4%, reflecting continued sales momentum.

In Belgium and in the Netherlands, our sales were up, respectively, 10.7% and 8.3%.

However, sales dropped in some markets. In the U.K., sales were down 3.2%. Nevertheless, this represented significant and sequential improvement over the last 3 quarters of '16. And sales continued to reflect adverse market conditions since the Brexit vote, and also, an impact from lower PV sales, albeit more limited than in previous quarters.

In Switzerland, sales dropped by 3.8%, impacted by continued unfavorable market conditions.

Now on Slide 6, look at our overall profitability in Europe.

With organic sales up 4.8% on an actual-day basis, our gross margin stood at 27.3% of sales. It was up 80 basis points sequentially versus the 26.5% posted in Q4 '16, but it was down 32 basis points year-on-year. This year-on-year decrease is mostly attributable to strong pressure on cables for the 20 basis points out of the total 32 basis point drop and another 10 basis point impacted attributable to margin pressure in the U.K., where the strong price increases have not been fully passed on to customers.

As regards OpEx and depreciation, they improved by 29 basis points as a percentage of sales, as they rose by 3.5%, while sales grew by 4.8%. As a result, adjusted EBITA margin was stable at 5.7% of sales.

Now let's move to the North American continent, Slide 7.

Our sales in North America represent 36% of group sales. Our Q1 sales stood at slightly below EUR 1.2 billion at 11.8% on a reported basis, which includes 2 positive effects: one of 4.3% from currency, then one for 5.6% from calendar effect. They were up 1.2% on a constant and same-day basis. And it is the first quarter of growth on a constant and same-day basis for the region since the last quarter of 2014.

This good performance in North America is driven by encouraging signs of recovery in the U.S., where sales grew by 2.1% on a constant and same-day basis and 8.9% on an actual-day basis.

A part of the sequential improvement in the U.S. was due to the end of the negative impact from sales of the Oil & Gas industry. In the quarter, sales to the Oil & Gas industry were up 10.5%, contributing to about 1/4 of the total 2.1% sales growth on a constant and same-day basis.

But 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% in the quarter, and Rexel C&I posted a strong double-digit growth of 11.1%. Conversely, Gexpro's activity were impacted by continued slowdown on the OEM segment.

In Canada, representing 21% of the North America, sales were down 2.1% on a constant and same-day basis. Contrary to the U.S., Canada continued to be impacted by lower sales to the Oil & Gas industry. In the quarter, sales to the Oil & Gas industry were down 25%, contributing to 2.3 percentage points out of the total 2.1% sales drop on a constant and same-day basis.

Sales to the non-resi end market grew by 3.1%, supported by data communications segment.

How does it translate into profitability? Which is on Page 8. While sales -- with sales up 6.9% on an actual-day basis, gross margin was up 40 basis points versus the 22% posted in Q4 '16 and up 29 basis points year-on-year, driven by the U.S., which more than offset competitive pressure in Canada. We also strictly controlled OpEx and depreciation, which rose by 6.8%, slightly below sales growth. As a percentage of sales, they were broadly stable at 19.5%. As a result, adjusted EBITA in the region was up 19.4% at EUR 34.4 million, representing 2.9% of sales. This represents a significant 30 basis point improvement over the margin recorded last year.

Now let's move to the third region, Asia-Pacific, representing 9% of group sales.

Our Q1 sales stood at slightly above EUR 300 million. They were up 1.3% on a reported basis, including the positive currency effect of 4.4% and the negative -- and a positive calendar effect of 1.8%. On a constant and same-day basis, sales in the region were down 4.8%, reflecting contracting situations.

In Asia, sales were down 8.8% on a constant and same-day basis, strongly impacted by Southeast Asia, while China returned to sales growth. The 33.6% drop in sales in Southeast Asia was largely attributable to the drop in sales to the Oil & Gas industry. China returned to growth, with sales up 2% on a constant and same-day basis, reflecting increases of industrial automation products and solutions.

In the Pacific region, sales were slightly down by 0.7% on a constant and same-day basis. Australia, which represent more than 80% of the Pacific region, sales was up 0.8% on a constant and same-day basis, which reflected an increase in sales to the residential end market, partly offset by lower project sales. In New Zealand, sales were down 6.7% on a constant and same-day basis, in the face of very challenging comparables at circa 6.6% in the first quarter of 2016.

How does it translate into profitability? With sales down 3% on an actual-day basis, gross margin dropped by a limited 1.8%. At 18.6% of sales, it was up 80 basis points versus the 17.8% posted in Q4 '16, and they're also up 24 basis points year-on-year. And this is -- this was driven by a solid improvement in Pacific that more than offset the drop in Asia.

OpEx and depreciation rose by 6% or EUR 3.3 million, reflecting an increase in bad debt in Asia, from EUR 1 million in Q1 2016 to EUR 2.4 million in Q1 2017, and the impact of recent investment in sales force in Australia. As a result, adjusted EBITA was a loss of EUR 1.5 million in the quarter versus a profit of EUR 2.8 million in the first quarter of '16. These are for the 3 main regions and profitability trends.

Now I will hand over to Grégoire Bertrand for the financial review, and I will come back later.

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Grégoire Bertrand, Rexel S.A. - Interim Group CFO and CFO of Europe [3]

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Good morning.

Let me start on Slide 12 with the flowchart detailing the year-on-year evolution of group sale.

Sales in the first quarter of 2016 amounted to EUR 3,161,000,000. Restated for a positive net currency effect of EUR 37 million, representing 1.2% of the last year's sales and a negative net scope effect of EUR 26 million, representing 0.8% of last year's sales, the comparative of sales to the first quarter of 2016 amounted to EUR 3,172,000,000.

Organic growth in the first quarter of 2017 amounted to EUR 151 million, representing 4.8% of last year's comparable sales, of which 2 positive effects from calendar and copper of, respectively, 4.1 and 1.2 percentage points. As a result, sales in the first quarter of this year stood at EUR 3,323,000,000, up 5.1% year-on-year on a reported basis.

The table on Slide 13, details of profitability in the quarter by region and by P&L aggregate.

If we look at the P&L aggregate, gross profit was up 4.7%, in line with sales growth, and gross margin was stable year-on-year at 24.8%. This reflected an improvement in North America and Asia Pacific that offset a drop in Europe, mostly attributable to cables, as already mentioned by Patrick.

OpEx, including depreciation, were at 3.8%, below sales growth, thanks to strict cost control. They improved by 19 basis point as a percentage of sales, thanks to Europe and North America.

Adjusted EBITA was up 9.3%, well above sales growth, and adjusted EBITA margin rose 17 basis points to 4.1%.

As we look by geography, in Europe, adjusted EBITA increased by EUR 4.2 million or 4.2%, and adjusted EBITA margin was stable at 5.7%. In North America, adjusted EBITA increased by EUR 5.6 million or 19.4%, and adjusted EBITA margin rose by 30 basis points to 2.9%. In Asia-Pacific, adjusted EBITA decreased by EUR 4.3 million and adjusted EBITA with a loss of EUR 1.5 million, led to the profit of EUR 2.8 million in the first quarter of 2016.

Lastly, a reduction in corporate holdings cost from EUR 8.1 million in the first quarter of last year to EUR 2.1 million in the first quarter of this year also contributed to the overall growth in adjusted EBITA. This improvement was mainly driven by a one-off adjustment in [free] shares, as well as ongoing effects from cost savings on overheads.

Let's move now to Slide 14 with our P&L statement for the quarter.

Let's start from our reported EBITA of EUR 144.5 million, up 27% year-on-year. Our PT amortization stood at EUR 4.9 million, that's EUR 3.9 million in Q1 last year. Other income and expense was strongly reduced from EUR 16.9 million last year to EUR 9.8 million in the first quarter of this year. This reduction was mainly attributable to lower restructuring costs of EUR 7.6 million versus EUR 13.6 million last year. Operating income stood at slightly below EUR 113 million versus EUR 93 million in 2016, up nearly 40%.

If we look at financial expenses, they amounted to EUR 33.7 million in the quarter versus EUR 33.2 million in the first quarter last year. The EUR 33.7 million net charge in this quarter included a one-off expense of EUR 6.7 million related to the early repayment of the $330 million bond line issued in April 2013 and maturing in June 2020 at a coupon of 5.25%. A new bond line of EUR 300 million was issued in March 2017 at a coupon of 2.625% and maturing in June 2024. Excluding that one-off, net financial expenses stood at EUR 27 million in Q1 this year versus EUR 33.2 million in Q1 last year. This decrease largely reflected a reduction in the average effective interest rate on gross debt from 3.8% in Q1 last year to 3.23% in Q1 this year.

Income tax amounted to EUR 33.3 million in the quarter versus almost EUR 21 million in the quarter last year. The rise in income tax mainly reflected the rise in profit before tax, while the effective tax rate remained broadly stable at 35%. As a result, net income stood at EUR 62.8 million versus EUR 38.8 million in Q1 last year, a sharp rise of 62%.

Slide 15, details our free cash flow before interest and tax for the quarter, which, as you know, is traditionally marked by strong seasonality. Free cash flow before interest and tax in the quarter was an outflow of almost 270 -- EUR 207 million, close to the EUR 195 million outflow in Q1 2016. Change in working capital requirements in the quarter increased by EUR 41.6 million versus the one recorded in Q1 last year, reflecting sales momentum in major geographies.

Trade working capital requirements slightly increased from 13.8% of sales in Q1 last year to 14.1% of sales in Q1 this year. This reflected an increase in inventory to support sales momentum in major geographies and also increase in receivables, reflecting higher sales, but broadly stable as days of sales. Both increases were partly offset by higher payables.

As regards net capital expenditure, it was slightly down from EUR 31 million in Q1 '16 to EUR 25.5 million in Q1 '17.

If we move on to Slide 16, that represents the usual bridge of our net debt over the quarter.

What do we see? We see that our free cash flow before interest and tax was an outflow of EUR 207 million. We paid a net interest charge of EUR 25.8 million and an income tax charge of EUR 24.2 million. And net financial investment was almost 0 in the quarter.

Before currency effects, our net debt rose by EUR 264.8 million in the quarter. After positive currency effect of almost EUR 4 million, which rose by EUR 260.9 million in the quarter and stood at slightly above EUR 2.4 billion at the end of March. Net debt at the end of March was down EUR 62 million year-on-year.

Slide 17 details our net debt at the end of March.

As you know, our gross debt is mainly financed through bonds and securitization lines. At the end of March, we were financed through 4 bonds, representing about 60% of our gross debt. The oldest of these 4 lines, the one issued in 2013 and maturing in June 2020 at a coupon of 5.25%, will be fully redeemed in June, thanks to the successful issuance last March of a 7-year EUR 300 million senior note due June 2024 at a coupon of 2.625%. The net present value of this refinancing operation is estimated at about EUR 8 million. Our securitization lines represented another 1/3 of our gross debt.

Our senior credit facility is undrawn and constitutes a reserve of EUR 1 billion, which we can tap if necessary.

We have registered -- interest rate on gross debt decreased by circa 58 basis points year-on-year from 3.81% in Q1 last year to 3.23% in Q1 this year. We boasted sound financial structure, with average maturity of around 4 years and no repayments before June 2022 once the redemption of the 2020 bond is completed.

Let me now hand back to Patrick for his concluding remarks.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [4]

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Thank you, Grégoire.

And let me be short for this conclusion. Our first quarter performance was in line with our expectations, and it allows us to confirm our annual financial target, as announced on February 13. And those 3 points are: we target resuming organic growth with sales up in the low single digits; we target a mid- to high single-digit increase in adjusted EBITA; and lastly, we target our indebtedness ratio of below 3x at year-end. This is how I would like to conclude this first quarter results.

Thank you for your attention, and we are now ready to answer all your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Andreas Willi.

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Andreas P. Willi, JP Morgan Chase & Co, Research Division - Head of the European Capital Goods [2]

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I have 3 short questions. The first one on the April trends. Maybe you could comment a bit what you have seen since the quarter-end. WESCO yesterday reported a weaker or a slowdown to negative in the U.S. in April. I was just wondering whether you see something similar. And what do you see in Europe as it continues to improve? Second question is on the additional work week in the U.S. and the 2 days more in Europe. Did that, if at all, benefit adjusted EBITA margins this quarter? And the final question is, you mentioned some benefit in the corporate line. What is the underlying quarterly run rate for corporate expense?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [3]

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On the trend, existing trend, due to our work as it goes, we just plan and we just see the same trend continuing. When it comes to the days, obviously, depending on the region and the number of days and the impact, that we would answer that trend-wise just, as it was in the industry.

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Grégoire Bertrand, Rexel S.A. - Interim Group CFO and CFO of Europe [4]

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On the corporate volume cost question, what I could say is that, as mentioned in Q1 this year, we benefited from a one-off cost of pre-share consolidation, and also some (inaudible) effects from our professional fees. So these are the main 2 points to highlight.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [5]

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And the number of days effect, could you repeat what you said on the number of days effect, if I'm allowed to ask?

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Andreas P. Willi, JP Morgan Chase & Co, Research Division - Head of the European Capital Goods [6]

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Yes. Basically, when you have an additional workweek in the quarter, like you had in the U.S. this quarter, I assume you just allocate all expenses also to an additional workweek and there shouldn't be a big margin improvement. Or if there are a margin improvement, we have to be taking into account from the additional workweek in the U.S. Because when you have that the last time around in 2012, we had seen a big improvement in profitability in the U.S. based on that. And if you could just clarify what you said on the corporate expense. What's the quarterly number we should have prior to any one-offs for that? I didn't fully understand your answer before.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [7]

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On the date, the quarterly effect of, let's say, the number of days. When it is in the U.S., the effect is different in Europe because some of our people are paid by the hour or by days of work, meaning it's a different impact. Meaning, when you have more days in the U.S., it does not translate in more revenue for constant fixed cost because some of them goes along with the number of days in both directions, more days and less days. But in Europe, obviously, where most is done on monthly, obviously, the more days benefit to the bottom line and the less days less. I make it clear because, therefore, the (inaudible) effect that we experienced, the calendar effect for (inaudible) in the U.S. we experienced in the Q1, is not exactly, I mean, translating to an EBITA improvement, but still having the more cost of the salary than benefits. When it comes to the -- and I cannot give you the exact detail. We will go too far into the explanation, but it's not irrelevant by format. To your points of the headquarter, yes, we have one-offs, but we have savings that are recurring. I cannot -- here again, we don't disclose the detail of it. The one-off being the supplier portion than a recurring one, but they are recurring one, and I'm sorry not to be able to give you more. And by the way, we continue to squeeze costs. We continue to work carefully. It's a continuous process. And what has been said during the February 13 was not a onetime issue. It's a work in progress continuously.

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Operator [8]

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And your next question comes from the line of James Stettler.

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James Edward Stettler, Barclays PLC, Research Division - MD [9]

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Can you talk a bit about pricing trends, how you're seeing those between the categories? You called out U.K. where it was more difficult to pass these on. But if you can maybe highlight what the trends are outside of cables. In terms of industrial, we've been seeing some very strong short cycle numbers from some of your suppliers. I mean, why isn't that really coming through in your numbers? Is there a time lag there? And then, finally, what kind of visibility do you have on Europe, in particular in France, looking at the leading indicators which are all showing a very positive trend?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [10]

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The pricing, very different. If you take the U.K., there has been something quite unique, that the currency effect and the drop of the pound versus most of the currency last year was, first, the raw material increase experienced by the supplier in most of the categories was putting something unique for the last year -- or I should say, decade in the U.K. Price increase is very significant and a lot of resistance from the market. And therefore, all the efforts for distribution was to pass the price increases, which we did for the majority, but not fully, as you can see in our comments. But we don't give up, and it's a daily battle in order to catch up and pass all the price increases through. It's valid for everybody, by the way. Price increase is so significant, sometimes depending on the product. Double digit in the U.K. is a [serious] exercise going on. Raw material increases that a supplier experienced made them pass in almost every product line with a few exceptions where, eventually, some overcapacity and some technology changes like the LED in the lightings. But for most of them, we see price increases on the table, whether they are already through or they will still come during the balance of the year. This is probably a year of a main element, which is going on and ahead of us. When it comes to the industry, I'm not sure it's a time lag. Some industry people are more dependent on new projects, some other on maintenance. The new projects benefit to some. We are more in the maintenance. Therefore, when there is slightly a deferral, it could be slightly down for us. At the same time, yes, it's slightly down, but it's not so significant and we don't see it as a worrying factor for the balance of the year. At the same time, the sales components, you are telling me about -- you are asking me about France. Without trying to avoid to answer the question, I would like to be 2 weeks older because all the indicators, I can tell you residential market, yes, it's up, but the rest is put on hold and wait for what will come in the macro. Elections time was not great for the business and it's always like that the 3 months before. Therefore, it's a balance. It's a mix. Yes, there is a residential effect that we see and we participate and we get our fair share of it. At the same time, some other spending are being put on hold.

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Operator [11]

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And your next question comes from the line of Lucie Carrier.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - VP [12]

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I have a couple of questions. First one is actually a follow-up on France. This is for you. You tend always to have like a bit of a stop period before the election. But aside that, I was -- I kind of wanted to get your view on the evolution of the business because you mentioned a sequential improvement in the French business throughout the quarters, and also to get a sense of where the margin dynamics are still now in France versus the past. So that's question number one.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [13]

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Again, residential market was up and there is a -- they is still slightly different from U.K. But for example, cable margin in France with price increases were difficult to get and it's a continuous evolution. We got some, we even got it full and we expect to go ahead. That's done by midyear, and it's still going on. And we face other price increases, same story, resistance from the market. We continue to do our job since we like to get it done fully. Volume wise, it's contracted. There are some markets with lots of potential. If you look at the coming quarters and years, whether it will materialize and how fast, as I told you, it depends from other elements than I would (inaudible). And -- but it's not a real downside ahead of us from what I can see today. We have a good presence in most of the segments, in most of the customers. We have a good quotation entry demand. We expect a higher transformation. Hopefully, it could materialize.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - VP [14]

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The second question I had was around the U.S., and generally, to come back to the industrial business. Is there -- I mean, I was wondering, how was your inventory levels at the moment? Just maybe thinking whether you have kind of forwarded some expected stronger demand on the industrial side, how does that translate potentially into your inventory at the moment?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [15]

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Our inventory, it is up, depending on the part of the world. In some region of the world, due to the fact that we are opening branches and we are preparing for active growth, California, Florida, some of the U.S. states, it's a normal pattern at that time of the year and nothing worrying. It's just to be sure we deliver and we increase our service level. And then the rotation, the number of rotation pattern will do the automatic corrections. We are used to it. It's well managed. It's under control. But it's one of a conscious decision in order to get the proper service level. When it comes to -- and then we never -- I mean, if you go back to our February 13, when I was saying more customer, more SKU. In order to get some growth, the more SKU, the first thing that we have to do in order to materialize this year is to have the product on shelf, whether in the branch or in the logistics centers. Therefore, in some territories, the more SKU we got in one product line, I want to say product line, it's one set of products with many SKU put on shelf. This is what is going right now. Therefore, yes, the inventory is up. It's definitely an industry-related issue. It's more global or residential, non-resi and so on, because the industry, half of it we serve from existing inventory, half we source depending on the nature of the demand. But it's more the contractor business and the extension of SKUs numbers, which is part of our strategy in order to serve the market and grow.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - VP [16]

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And the last question actually was related to the progress you've seen all in the U.S. in your initiatives. I was wondering if you can maybe shed some light on that in terms of the potential acceleration you expect during the year. How far are you at the moment in terms of your initiative of optimizing your network and notably in the U.S.? But also, I think you're talking about increased sales force in Australia. So I just wanted to have a sense of how much acceleration are you expecting from that? How far are you done in the process?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [17]

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We got the first effect of the more SKU strategy in the existing footprint. We start having the first extensions done of the network. But by the time we say the time we get the people, the time we find the place, we get this set up, we are just (inaudible) the first elements of it. For example, in U.S., we opened -- just opened now 2 new branches, knowing that depending on the regions, California or Florida, to give you an example, we have much more in view in sight. And in the Gexpro counter opening also, as I had mentioned on Feb 13, it's all on time. It's all on plan. It's all coming. An acceleration cannot be done. I think we have put the maximum speed and target so far. Accelerating would be taking the shortcuts and maybe not doing it right. As I said always, we are in the people business, we are in a product business. We are in do it right in pricing, right pricing at the right time, with the right product for the right customer with the right people. And until you know that, all these 4 elements put together, accelerating would not be the positive result. However, we look at every opportunity. The fastest we could get the growth, the better we would feel. Therefore, yes, I'm on the same page as you. We'd like to see it faster, but so far, we keep our pace.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - VP [18]

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Patrick, sorry, what I meant by accelerating was not an acceleration of your initiatives, but if you expect to see, on your numbers, a higher impact of -- from those initiatives that what we've seen so far in the first quarter.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [19]

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Well, probably, with time, later, there could be, yes, a benefit, because only limited has been done. But I would not predict when we see it. It should be normal that after 3 or 4 quarters, capitalizing on more SKU being recognized by the market, more customer would see it, more customer would take it, and there would be that, but I don't bet on it for the time being.

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Operator [20]

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The next question comes from the line of William Mackie.

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William Mackie, Kepler Cheuvreux, Research Division - Head of Capital Goods Research [21]

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It's William Mackie from Kepler Cheuvreux. A couple of questions, please. Firstly, can you update us on the progress with the e-commerce or web-based sales, which, in the past, have been broken out in terms of what level of growth and what proportion of revenue they represent? Then coming to North America, and particularly U.S.A., it seems you had a lot of success, initial success, with your selling. I think, if I recall, you called out that C&I grew 11% and Platt grew 3%, which suggests the rest of the business contracted about 1% or 1.5%. So can you talk a little bit about how you see development in the North American market across the industry versus non-resi channels, and particularly through the project versus proximity business? So if there are any notable growth patterns which you see differing between those segments. And what we should expect with regard to Gexpro? You talk about additional branches. I mean, counters being added, but it seems you've still seen a contraction this quarter despite the double-digit growth in Oil & Gas. That's the main questions.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [22]

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About the e-commerce progress, first of all, there are 2 elements on the e-commerce. The e-commerce, I would say the digital sales, okay? And they all grow double digits in the main countries. They grow double digit in France. They grow double digit in Western Europe. They grow very fast in Northern Europe where we have our system installed last year and the previous year. And they grow. And in full commerce, it's done. When I say double digit, it's minimum double digit up, okay? And where we rolled out last year our common platform, it's happening nicely. We still have different countries to do the rollout this year, and they will join these clubs, I should say. Therefore, it is a priority. It's an extension. It's a matter of how fast we can get it done because we see the good benefit of the growth, and we enrich it in product, in offering, in services. And we continue to have -- and I will remind you that we have a EUR 1 billion sales in digital out of our EUR 13 billion in total in the world, and this portion will continue to grow faster than the rest. In terms of North America, the 3% mentioned for Platt. Platt suffered. The region where Platt is, Montana, Oregon up to North California and the interior states of that region, suffered really the worst winter condition, rain and snow at the beginning and the mid of this quarter. And there were many days of disruption, which I never use it as a way to explain, but Platt is not slowing down in its development. But they're relatively modest compared to Rexel, Inc. is due to that. The 11% of Rexel, Inc., there is always a catch-up effect. There is a catch-up effect of having been late, having the benefit of the Platt experience, having the beginning of the reenergizing and (inaudible) sector, especially in places where there was not this bad weather effect the Platt suffered from. When it comes to the same effect on Gexpro, we just opened the first counter and we have 14 to open. We just opened the first counter 2 weeks ago, meaning the Gexpro trend was still the one of the past and the return to a more aggressive growth pattern was in the preparation stage and the development stage and the implementation stage. But when it is only 2 weeks ago, by the time we decided and the time (inaudible), there is a time lag, and now there is more to come and we have 14 to do in the balance of the year. If you count the number of weeks left and 14, it's almost 1 every second week. And if you eliminate the bad weeks for vacation, and this is going on. Capitol Light is doing fine. Rexel Energy Solution is doing up. Rexel Automation was really tough in the early part of the quarter, catch-up in the second part of the quarter. Automation trend that we have in the U.S. is 2 things. We have the Rockwell Automation, and they are doing fine, and we will probably grow in the coming months yet, continue to. The order book is good. And we had the non-Rockwell in the rest of the U.S., which suffered, and it's mainly Gexpro, which suffered a little bit from the GE offering. And as of now, they're working together and the order book for Q2 looks better than Q1.

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William Mackie, Kepler Cheuvreux, Research Division - Head of Capital Goods Research [23]

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One follow-up on pricing, please. It seems we're at a point in the cycle where you are incurring price increases from your suppliers on the input side of the distribution equation. But in a number of markets, it's not so easy to push those prices through to the market due to competition or various factors. Could you at least express what you see or feel about the respective countries or end segments where you have a better chance of translating those supplier inflationary pressures through into the market and some of the countries or markets where you're finding that more difficult?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [24]

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I will be brutally correct in telling you that when you are distributing B2B, and this is with all my team what I have shared, there is no escape to get the price increases through. How fast we can get it from the customer? That's the only issue. We have to get it through. The price increases is due to raw material effect, due to technology sophistication, due to many different factors. At the end of the day, we have to get it through because we cannot get -- we cannot absorb the squeezing margin, therefore, yes, it's not our fault. Sometimes, it could slow a little bit some growth because you have to make some tradeoffs between taking an opportunity or getting the prices through. But it's local. It's technical. It's not long term. It's what the sales management has to do every day. And yes, it's not as if it has been in the U.K. because 2 effects, much bigger, sometimes double digit in a market which has not seen inflation for probably many years in a row. There are markets with better acceptance, so to speak, and there are markets with resistance. Surprisingly, for example, the Swiss market, we have more difficulty to get it through because you can get imports from Germany, imports from other countries, and the high-priced Swiss market is probably affected to many people. Therefore, price increases take longer to get through. But all in all, it's more a matter of speed than a matter of not getting it done. When it comes to different segments, you ask the most delicate one is the cable. It's the cable because cable is a triangle. You have the direct business from the manufacturer, you have the distributed business and you have the capability by large contractors to choose from a lot of different, let's say, routes to have access to cable. Therefore, cable is -- takes longer. Cable is the most (inaudible) right now. For most of the other products, we got it. Meaning, for most of the -- if I have to -- if I would have to share for you, if I have to evaluate right now for you, 80%, is a cable issue in margin, the rest is virtually done.

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Operator [25]

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Your next question comes from the line of Alfred Glaser.

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Alfred Glaser, Oddo Securities, Research Division - Equity Analyst [26]

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Alfred Glaser from Oddo Securities. I just wondered if you could update us on the Oil & Gas business evolution, what you see in terms of trend evolution compared to Q4 and how to view the next quarters in this business. And second, could you comment a bit on the improvements in China and from the industrial markets in China that you do serve?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [27]

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The Oil & Gas business, I would say 3 components. The Oil & Gas business in Canada continue to be down, less than it was last year, but still present. And I don't expect a fast recovery. The gap is less than it was, but it's still negative. The Oil & Gas participants industry are in heavy reconfiguration. There is some companies regrouping themselves. I mean, this restructuration of the Canadian Oil & Gas industry is in the process of, therefore, investments are behind. Even if there is a slight recovery in demand, it's more in the end product and not yet in the investment and -- which will materialize in any growth from us. In the U.S., there is less of a restructuring. There was players eliminated. We start from a lower level, but the one was here was -- they go back to some maintenance and so far. Therefore, we saw some recovery in the U.S., which we don't see and I don't expect to see in the next quarter and maybe quarters in Canada. When it comes to Southeast Asia, I prefer to forget that part because it has almost disappeared. It's very low, and what's left over is done at conditions which are non-interesting to say nonprofitable. And for Southeast Asia, for example, coming from very high numbers, it's more than 50% negative and it's more than shrinking. It's really something in total disarray. Therefore, now let's move to China, your question on China. Yes, we got a plus 2% in China. It's much slower than it was. There is a little bit of a plus, but I guess also to say beyond the volume trend, the price pressure is huge. The suppliers fight (inaudible) to capture this little bit of a recovery in growth rates. Therefore, it does not translate automatically into improvement in EBITA immediately. We have adverse price pressure to little bit of growth, which is up. That's all I can say, as we speak.

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Operator [28]

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The next question comes from the line of Christophe Quarante.

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Christophe Quarante, Societe Generale Cross Asset Research - Equity Analyst [29]

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Two questions, if I may. First one is regarding the German markets. Could you just give us an update on what you have put in place, if I'm right, 1.5 years ago about the reorganization of the supply chain, so on and so forth? Is there any catch-up effect from Germany into the sales that were up this quarter? Or is it still a good momentum coming from the underlying markets? Second point, just to come back also to the profitability and the leverage on that. How do you see this profitability on this leverage evolving along the year? And then, do you mean -- is there any, sorry, restructuring charges for further months in '17? And if yes, globally speaking for the whole year, what is the amount? And combined to that, just on a strategic point of view. And then it's a third question. Could you give us your review of the businesses, both by country or both by business? Did you evolve in the way you want to reshape the group? Or just give us an update on this part of your strategy potentially going ahead.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [30]

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On the German market, the German market, we fixed the issues we were facing in the past, and we have now 3 months in a row of having a service level out of our logistics system, which allow to think that we are now in the good market -- amongst the good in the German market. And then, yes, we fixed our service level account and we are there. And the reorganization, we have a new top manager, who -- which is -- who is now 3 months old, very encouraging in the way he approached. But we have to give him the time to get his view on, and we are close to him, obviously, but about how he would like to run the business, with whom, and obviously, some reorganization could happen, but nothing major (inaudible), just a normal daily operation adaptation. Now in Germany, 2 or 3 things are encouraging. The net customer gain is now -- we are now at 7 months in a row of having between the customer loss and the customer gain. The net-net is increasing month-after-month. Another thing, as I told you, we deliver on time in full as the markets stand out. And now it's more than 3 months in a row. And we got a good -- we got, what do we call, the (inaudible) . We got once a year an annual show where we receive our customers and we go our vendors, which was a good momentum, and we got the support. We think we should be able to capture some of the growth in industry for a portion of our customer base, but also in the main cities of residential where we are. And you will remember that we are more in the South and some are cities like Berlin, that we are not at full coverage of the German market. (inaudible) and I will let Grégoire answer on the restructuring charges that you have asked for.

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Grégoire Bertrand, Rexel S.A. - Interim Group CFO and CFO of Europe [31]

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Yes. Regarding the Europe, the full year 2017 expected restructuring charge, we are talking about EUR 50, 5-0, million versus EUR 59 million incurred there last year.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [32]

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When it comes to the strategic dimension of your question, the proportion, let me phrase it very simply. When we have put on Feb 13 is a heavy program. There are more customers, more SKU, by territory, by geography, develop the proximity business, get the pricing right, get the inventory right, get the healthy inventory to serve the customer, also develop the project business (inaudible) here or the component there and C&I in front so on and so on. These are heavy programs. I mean, there will be no distraction. We will follow them. And we do think the headquarter costs, putting more feet in the street, going after growth, where it's sound, going by region in the U.S. instead of across the board. These elements will not change. We will focus and focus and focus. Therefore, absolutely no change. You can take this presentation and consider it will be done by the book. No more, no less. And so far, we are not behind in timing, not ahead in timing. We are not behind in the scope, not ahead in the scope. It's really a global teamwork. And with my team, we get everybody around to it. And I -- there would be no change. I mean, yes, there are market conditions, sometimes particularly more difficult. I have mentioned before to someone, I'm showing the question about pricing and margin, it was not foreseeable like that. That it will take a bit longer. It's not a reason to change the fundamental strategy. We have to do our work on this, and we have to keep the portfolio of activities that we have chosen. Believe me, no change.

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Operator [33]

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Your next question comes from the line of Pierre Bosset. Apologies for that, and the line has disconnected. If you bear with me a moment.

Whilst I get that line back up, your next question comes from the line of Andreas Willi.

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Andreas P. Willi, JP Morgan Chase & Co, Research Division - Head of the European Capital Goods [34]

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I just had a follow-up question on China. Where you returned to growth, but given that we hear from some of the automation companies, that they're growing double digit in China, there still seems to be maybe a structural issue in terms of capturing the growth in China. What are you doing there in terms of positioning the business and participating better in the growth that's in the market?

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [35]

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In China, given what has been put together in terms of acquisition of the past and so on, we are purely following the industrial growth of the main vendors of the world. Participating to the retail, participating to other part of the markets would require us to develop a model which has not been done in the past and for which it would require more means, more attention, more people and more different things which we have not decided to do now. Therefore, we are restricting ourselves to what we have, and we are not developing into the adjacent possibility. And the numbers you referred to are global numbers, okay? There is commercial sector, public sector, investments, infrastructure and other elements of our competitors were financial, and we are not participating and we're not allocating resources to get into. Therefore, in full comment, transparently, yes, the growth in China is more modest than some others. That's the choice we have made.

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Operator [36]

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(Operator Instructions) And he is now back on the line.

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Pierre Bosset, HSBC, Research Division - Head of French Equity Research [37]

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I have one follow-up question on the U.S., if I may. The number of branches have stopped falling. We are at 973. If you take into account, not the Gexpro counters, I assume, but the Platt branches, what will be the number of branches by the end of the year that you are aiming at? That's my first question. And my second question is on M&A. Your competitor, Sonepar, is buying in the month one of the leading players in Italy called Sacchi. I just wonder if you have looked at this acquisition or whether you have to deleverage the company further before being able to consider any acquisition.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [38]

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On Italy or on competitor, first of all, I always look at what everybody does. It's always interesting. But I would tell you, I never comment on their strategy either. It will not make me change my way of reading. And as I said, yes, they did a significant move in Italy. But for the time being, we focus on what we said. And yes, deleveraging is one of the commitments made where we deleverage, and obviously, with the consequences also on selective or deferred M&A strategy. When it comes to the U.S., the number of branches by the end of the year, I have probably...

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Grégoire Bertrand, Rexel S.A. - Interim Group CFO and CFO of Europe [39]

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Around 15.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [40]

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15 more than today. Well, plus minus 1 or 2, because it always depends on how fast you get the place and you have to find the right place to get it done. But let's consider that this year we will have 15 of them. And we will have them in 2 -- we have them in 2 places, West Coast, Southeast Coast.

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Operator [41]

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And your next question comes from the line of Lucie Carrier.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - VP [42]

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Just actually a follow-up on your comments around M&A. I was just wondering, you had announced, I believe, at your Investor Day a divestment in the magnitude of about EUR 800 million of sales. I was just wondering whether there was any progress there and whether we could expect this divestment to be made for this year or whether you think this might be a slightly longer process.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [43]

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Look, the commitment made, the numbers given, the dimensioning and the preparation work is in progress. Obviously, you understand I cannot comment on where and when because we have to protect the -- our chance of doing it at the best conditions. But I confirm the commitment made, and where we will announce in due time once completed.

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Operator [44]

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There's currently no further questions.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [45]

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Any more questions?

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Operator [46]

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There's no further questions.

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Patrick Berard, Rexel S.A. - CEO and Europe General Manager [47]

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Well, in the name of everybody working hard and being with me at Rexel, I thank you for the interest you have in our company, for all your good questions, hopefully good answers. And I would be always delighted to meet you during our road shows. And the next one, the next moment we will be all together on the line will be July 31 for the Q2, okay? Thank you very much. Bye-bye. Thank you.

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Operator [48]

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That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.