Rexel SA

PAR:RXL

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's first quarter sales publication conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Laurent Delabarre. Please go ahead.

[Laurent Delabarre, Group Chief Financial Officer]

Good morning, ladies and gentlemen, and welcome to our first quarter 2019 sales call. I am with Ludovic Debailleux, our Head of Investor Relations. As you know, we decided that last year in line with French market practice to switch to quarter results in Q1 and Q3 and half yearly and full year results. So this presentation will focus on our sales performance of that which we will provide some greater color.We start by focusing on some key highlights, then take you through our geographical performance. Before the outlook and the Q&A session, I'll also come back to some achievements in the quarter, including the refinancing operation and the progress we made in sustainable development.Let's start now with this presentation. So let me begin on Slide 3 with the key highlight of our Q1 sales. Rexel posted another strong quarter with sales growing for the tenth consecutive period to reach EUR 3.3 billion supported by North America, key European countries and China. This represents same-day growth of 3.1% or 5.1% if we exclude the effect of the asset disposals and turnaround measures. Indeed the transformation measures we took in Germany and Spain to refocus our business are the 1.7% unfavorable impact on our sales, while the disposal of the Rockwell Automation business in Australia add an additional 0.3% negative impact. This strong performance comes despite an unfavorable copper contribution in the quarter of minus 0.5%, while copper had a positive impact of 0.8% on -- in the comparable period last year. So our underlying business trend is really solid. Our strong Q1 performance reflects the continued successful implementation of our strategic plan, which as you know contains 2 simultaneous effects, perform and transform.On Slide 4, I will focus on the perform task, which is delivering satisfactory results in all of its 3 pillars. We are gaining more customers in more geographies and providing more SKUs. This has allowed us to post market share gains in major geographies, including France, the U.S., Canada and the Nordics, all the while improving our service level and customer satisfaction. We are now implementing net promoter score, or NPS, in 8 European countries to closely track customer satisfaction.Second, we are enhancing our industrial value proposition in 2 ways. First, by adding new sales and technical competencies in the segment but also by strengthening our industrial business offering in all 3 geographies as illustrated by the recent refocus of operations in Germany and China as well as in the U.S.And finally, we are also getting an increasing contribution from the self-help measure, we have implemented to drive growth. We are seeing positive momentum in Germany and Spain as a result of their reposition business and a good ramp up in sales in the U.S. for the 52 branches that has been opened since 2017. The refresh of the existing networks as well as recovery underway at Gexpro.The second effect of our strategic plan is our transform strategy to enhance customer experience and productivity. On which I will now focus on Slide 5. In Q1, digital revenue increased by 13.8% and now represents 17.2% of total sales. This percentage is even higher in Europe where digital represents nearly 25% of our total sales. We are putting in place selected generation of sophisticated digital tools to improve our business operations.Track-and-trace is now fully operational in 3 different countries, representing 45% of our sale in the region. And our ambition is to increase this to 8 countries, representing 70% of European sales by year-end. These improvements comes with improved IT know-how in order to be able to interact with outsourced delivered services to ensure and enhance consumer experience.Also our Email to EDI functionality is ramping up and is already used for 80 large customers in France. The senate with EDI success contributed to the 130 bps improvement in EDI sales in the quarter in France.I talked about digital transformation, we are also rolling out predictive analytics tools in France, Belgium, the Netherlands and Austria with deployment of a newly-launched Cloud CRM base in France.On Slide 7, we take a closer look at our Q1 sales performance, which as you see on the graph on the top right-hand side on the slide represents our tenth consecutive quarter of same-day growth. At EUR 3.3 billion, our sales are up 4.2% on a reported basis and up 3.1% on a same-day basis. We benefited in the quarter from a positive currency effect of 2.4%. Thanks to the euro's appreciation versus the U.S. dollar, while still seeing an unfavorable scope effect of 0.4% and a negative calendar impact of 1%. Please note that the calendar impact will remain negative in Q2 at minus 0.5% and will reverse in H2 2019. This calendar effect will impact negatively our H1 adjusted EBITDA growth by circa 2%, which will be reversed at group level in H2.Concerning currency and assuming spot rates will remain unchanged, we expect foreign exchange to have an impact of plus 1.6% on sales in full year 2019. Concerning scope and taking into account previously announced disposals, the expected 2019 impact stands at minus 0.4%. As mentioned earlier, copper contribution was unfavorable 0.5%, the second consecutive quarter with a negative copper effect. With the recent copper price increase to close to USD 6,400 per ton, we expect similar negative impact in Q2 and a favorable impact in H2 assuming no further fluctuation in copper price.Turning to Slide 8, you see that we posted sales growth in 2 of our 3 geographies. In North America, which accounts for 37% of our sales, same-day sales were up by a very strong 8.5%. In Europe, which represent 55% of our sales, same-day growth was 0.4% or 3.4% restated for the branch closure effect in Germany and Spain. And in Asia-Pacific, accounting for the remaining 8% of our revenue, sales dropped 1.9%, but we're up 1.9% restating for the disposal of our Rockwell Automation business in Australia and sales were also up stronger in China as you will see shortly.Let's now look at our sales by geography starting on Slide 9 with Europe. With sales of EUR 1.8 billion, Europe is up by 0.4% on a constant and same-day basis in Q1. However, if you exclude the impact of branch closure in Germany and Spain, growth was 3.4%, demonstrating good momentum in key countries and the positive effect of the turnaround measures we had implemented.In our home market of France, which accounts for more than 1/3 of our European sales, sales rose 2.7% with good momentum in our project and specialty business. We continue to gain market share in France. In Germany, sales were up by 3.6%, restated from the closure of the 17 branches in Q3 of last year as part of our plan to focus our operation on the industrial segment. The U.K. continues to be a difficult market and sales were down 7.5%, reflecting our decision to be more selective to protect our margin and the effect of 30 branch closures, including 13 in the quarter. Elsewhere in Europe, we saw very good trends, notably in the Benelux countries with double-digit growth at 13.3%, but also in the Nordics up 6.8% and Switzerland up 4.2%.North America on Slide 10. We continue to see strong growth reflecting both the positive effect of our transformation in U.S. with a more regional customer-centric approach but also robust activity in Canada. Overall in the region, sales were up 8.5% on a constant and same-day basis, reaching EUR 1.2 billion. In the U.S., representing 80% of our North American activity, sales were up in high single digits for the third consecutive quarter at plus 9.8%. Our new business approach and various business initiatives continued to drive market outperformance. By end markets, industrial is up in double digits and residential and commercial are also strongly up.Our investments in sales reps, inventory, branch opening and branch refresh are clearly paying off, and we are adding 1.1% in sales from the 52 branch openings since 2017 as well as 2,700 new customers in the last 12 months.In Canada, we also saw good growth of 3.4%, driven by the commercial and the industrial end markets, notably mining potash. We have a solid backlog, notably from the transportation and commercial infrastructure projects.On Slide 11, we take a closer look at how our regional [ driven approach ] in the U.S. now divided in 8 regions is paying out in terms of growth and market share gains. Our electrical distribution business is growing in double digits in key regions, such as California, Texas, Florida and the Denver area, while facing lower growth in the Midwest and the eastern part of the country.We round up our geographical overview on Slide 12 with Asia-Pacific where sales were down 1.9% on a constant and same-day basis, but we're actually up 1.9% excluding the Rockwell Automation business in Australia that we disposed of at the end of April 2018. Also restated from that disposal, sales in Australia were up 2.7% driven by industry. Overall in Pacific, sales were down 4.8% on a reported basis, but up 2.3% restating for the Australian disposal.In Asia, sales were up 1.5% and up by a strong 8.2% in China despite the challenging base effects. We have focused our business on promising markets and are seeing good results in that country. Asia was also impacted by the non-repeat of a large contract in Middle East that brought EUR 7 million in Q1 of last year.On Slide 13, we wanted to share more with you on our product mix and performance by key product category in Q1. As you can see, our 2 key categories, building automation and industrial automation, performed well in the quarter, both in terms of pricing and volume. After years of declining prices, lighting saw both the stable pricing and volume in the quarter. As for cable, pricing was down as a result of the close correlation with copper price. That's why it's more than offset by the positive volume effect. As you know, beyond our product offering at start of the evolution of the business model, Rexel is increasingly moving towards the provider of solution and services. For example, data allows us to track the performance of our supplier in selected product categories and thus adapt our product offering.In the industrial segment, we offer end-to-end solution for smaller customer, we don't have yet access to supplier. In addition, in the lighting space, we provide synergy efficiency solutions.On Slide 14, we take a look at our breakdown of our debt maturity after the recent refinancing operation that occurred in late February. We successfully refinanced our 2023 bonds with a EUR 600 million issue at 2.75% maturing in June 2026. We have no debt repayment before June 2024 and our average maturity has been extended by around 0.5 year to about 4 years. This refinancing has optimized our financing cost and mitigates the slight increase in short-term interest rates. We expect our recurring 2019 financial results to be slightly below EUR 100 million, assuming no major volatility in currency or interest rates.Sustainability is a key priority for Rexel and on Slide 15, we detail a few highlights. Rexel is included in a number of fledging sustainability indexes. And in 2018, we gained 2 ranks in the DJSI, the Doe Jones Stainability Index. The group's efforts also impacting climate change were recognized by the CDP, the Carbon Disclosure Project, with which the Rexel A grade in 2018 after the B in 2017. Rexel is included in the list of 147 companies that are the most engaged in the fight against climate change globally. And Rexel was rated good by EcoVadis with a grade of 71 out of 100. This puts Rexel among the top 5% of companies evaluated by EcoVadis and among the top 1% in its industry.On Slide 16, we wanted to update you on a few changes in our management team. In a continued effort to ensure that our management team is a very operational one, our CEO Patrick Berard recently announced a senior appointment to our Executive Committee. Roger Little, the CEO of Rexel Canada has joined the Executive Committee to provide greater North America weight, alongside Jeff Baker, the CEO of the U.S. Pierre Benoît also joined the committee and added responsibility for the U.K. to his previous function In-Charge of Benelux, Belgium and the Netherlands. And Nathalie Wright, who is In-Charge of Group IT and Digital Transformation has added opportunity of the Nordics countries to her responsibilities. They joined Sébastien Thierry, Company Secretary; Frank Waldman, Director of Human Resources; Eric Gauthier, CEO of Asia-Pacific; and myself as members of our 8-person Executive Committee reporting to Patrick.Let me now conclude on Slide 17 with our outlook. Nothing in the current environment leads us to change the guidance we provided in February. Consistent with our medium-term ambition and assuming no material changes in the macroeconomic environment, we target for 2019 at comparable scope of consolidation and exchange rate, a 2% to 4% same-day sales growth, excluding an estimated unfavorable impact of 1% on 2019 from branch closures in Germany and Spain; a 5% to 7% increase in adjusted EBITA; a further improvement of the net debt to EBITA ratio.That ends my presentation. Thank you very much for your attention. I'm now happy to take your questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Ben [indiscernible].

[Unknown Analyst]

You mentioned that you've outperformed the market in the U.S. and that you've continued to take market share in France. And I was wondering how you see the kind of underlying end-market developing in these 2 regions? And more broadly, whether you've seen any changes in your expectations in terms of growth in different geographies versus when you first issued your 2019 guidance? That was my first question.

[Laurent Delabarre, Group Chief Financial Officer]

Thank you for question. I mean first on France, we are really happy by the performance of France in Q1. We can see that the residential market is slightly still up despite all the macro uncertainty you can read, but our growth was mostly driven by the nonresidential market fueled by our large national customer and also by our industrial sales. So we are quite happy. And I mean so far so good for 2019. We don't see any negative signal so far. And midterm, we will be helped also by all large infrastructure projects such as [indiscernible] and Olympic Games that are going to support the construction market in France, probably more in 2020. This [ is a short quotation yet ], but this will fuel into our figure in this year.With respect to the U.S. and you've seen over the weekend the release of the GDP of the first quarter and the market is really very strong and we are grasping market share in that environment through all the various initiatives we have taken for more than 2 years now. And clearly, our backlog at a very high level and we are very confident for 2019.

[Unknown Analyst]

And my second question is around your digital revenue. So they have been clearly growing quite well. They now represent a quarter of your sales in Europe. And I was wondering whether you could update us on how you see that side of -- digital side of the business growing in current quarters? And whether you see that growth coming from any geography specifically? And if you could perhaps pass on some of the digital investments you've made and perhaps any productivity gains to, kind of, offset that as you have mentioned in previous calls? That would much appreciated.

[Laurent Delabarre, Group Chief Financial Officer]

Well, I mean, the growth is mostly driven by European countries and countries such as France, which were compared to the average of Europe. This beyond despite very good system, it was more a question of adoption. But really for example, France had a growth of 40% of digital sale in the quarter. All of Europe is above the group. And so we are ramping up in our key countries in Europe. And then North America was starting from a slightly lower base because digital seg is around 10% in those countries, but they are growing also significantly. So altogether, it's well appropriated around our countries. So we are quite happy that it's -- and it's a top priority for us and it's escalated on all the level of the organization so that we can push as much as we can to grow this figure.

[Unknown Analyst]

And just a very quick follow-up. How do you see the level of investments that goes into this digital side of your business progressing?

[Laurent Delabarre, Group Chief Financial Officer]

Well, in earnings, what we said in our key priority on the CapEx side, roughly 1% of our sales, IT and digital represent roughly two-third, and we will continue on that. And on the OpEx side, which is still a large part of the investments. You've seen that we had a bridge on the EBITA in 2018 and we will continue also on the OpEx side to make sure we can fund the join.

[Operator]

And your next question comes from the line of Andreas Willi.

[Andreas P. Willi, Head of the European Capital Goods]

I just wanted to follow up on your comments earlier on the U.S., which are clearly the outstanding growth this quarter. Maybe you could help us understand it a bit better in terms of what was the contribution of price, particularly also some kind of pass through of tariffs, raw materials, and what was the volume growth in the U.S.? And you said earlier very confident the good backlog, but you're also facing now tougher comps as of Q2. Would you expect growth to moderate? Or if the momentum is basically strong enough to maintain this kind of high single-digit organic growth in the U.S.?

[Laurent Delabarre, Group Chief Financial Officer]

Yes, First, the pricing environment is good now. We've had a bit more inflation than in Q4, and it's been integral around the 3% price impact in North America in Q1. The trade war has not -- growth that seems -- they are not [ -- increase in March did not happen ] and has had so far, a very limited impact on our business. So pricing environment depends on the initiatives around the branch, the additional branch. So we opened 4 branches in Q1 2019, but we have the benefit of the 48 we had opened up to the end of last year. That is bringing 1.1% in Q1, and it will continue all over the year to contribute positively. Then we did what we call the refresh, which is a repositioning of the [ offer ] plan and the inventory in the branches. We refreshed around 25% of the branches there. And with additional SKU inventory, we see a good traction on the sale side. Then we had some headwinds. In the past, GEIS headwinds is behind us. It's not at full development capability, but it is improving logistic. Especially, it's not fully operational, but really improving. And GEIS will be a self-help for 2019. And also, GEIS, it's a supplier on the customer side. The GE impact, we were really at quite low basis last year. And in 2019, we have better momentum, so we are growing with GE as a customer, especially on the [ wings ].So we have a lot of positive signal, and the economy is facing a lack of manpower. So having this kind of peak has not -- has never been reached, and we see that there are still a lot of business, and it should probably continue for the most part of 2019. So [indiscernible] -- yes, very optimistic at this moment.

[Andreas P. Willi, Head of the European Capital Goods]

And my follow-up would be in terms of the branch openings given the better demand, should we expect to see a pick up again in branch openings in the U.S. over the next 12 months?

[Laurent Delabarre, Group Chief Financial Officer]

It will -- well, the existing network will contribute around this 1%. On the other side, we are quite vigilant into the opening of branches and with the success of the refresh, which are carrying fast 1-year payback, the 100 openings, we had intermittently and for which we are at 52 today. Probably, we will not go up to that figure. So we are practical. It's a case-by-case review. Patrick is spending still a lot of his time in U.S., making sure that with the local management, they take the right decision.

[Operator]

And next question comes from the line of Lucie Carrier.

[Lucie Anne Lise Carrier, Executive Director]

I have 3 questions; I will go one at a time. The first one is -- it's a bit of a follow up on the visibility you have. So I think you've already commented extensively around the strength of the business you've seen in the U.S. I was hoping if you could give us, maybe, a bit more indication in terms of the current trading and visibility you have in Europe and in Asia Pacific? Also because some of the macro data we are seeing, of course, around Europe is not necessarily positive. So I just wanted to have your feedback on that? That's my first question.

[Laurent Delabarre, Group Chief Financial Officer]

Thank you, Lucie. Well, there's not much we can say. Again, in April, North America, again, we are quite positive. We have also, compared to Europe, some backlog, which give us some visibility, and our backlog at still very high level, even historical level in Canada. In Europe, so far, I commented France. Germany, probably, when you look at the macro indicator [indiscernible] that was all the restructuring we have done and the restructuring into a C&I and the -- sales part of the business and also on industry. And we are not -- we are an impact player. Now we see that we have some traction. The rest of Europe, the visibility we have is okay so far in April. You can question then U.K. I mean the market is sluggish. And as already commented by Patrick in Feb, we want to be very cautious in that environment, so we have some -- we have reduced our footprint, we have closed some branches, and we wanted to be a smaller but more profitable. And we had a huge approach to be very selective on the customer base. And that is why, the top line is so shy because we have increased price, and we have been more -- really more selective on -- with our customer base. So overall, based on the view on net sale, we continue to be quite optimistic for the rest of the year. So that was your first question?

[Lucie Anne Lise Carrier, Executive Director]

Yes, the second one -- thank you for providing the sales mix slide, which I think is a new slide. I was just wondering now that you can provide that, can you comment maybe in terms of whether that mix could be positive for earnings momentum? How should we think about that? Because you just provide kind of the mix and the weight, but we don't really have any indication in terms of what it represents for the year. And considering it's a new slide, we don't have a really have a track record on this.

[Laurent Delabarre, Group Chief Financial Officer]

Yes, yes. Well, the breakdown of the product mix is something that was communicated in the annual report. We added the visibility on price volume and targets, as you know, wanting to move into a data- and service-driven company. So the link between product and services is important to understand. Really what is important is the price environment. We were coming from -- out of a very low inflation and even some [ strong ] inflation in product group like lighting. It's important to sound right in fact that we are close to reach a floor, and now the decrease in price are less and less. This building installation is our biggest group of products. Here, it's important to see that the pricing environment is up after a year of flattish price effect. So we start to see some inflation coming from the supplier that we are passing through. Industrial automation. We discussed that it is a strategic pillar for us. We want to continue to reinforce our expertise in that. With the backbone of a strong country and in North America, which is a sole distributor of Rockwell products. Germany and China being very strong with cement. Cement is -- we are the sole distributor of cement in China, and you see that on those line of products with all the new activity around service and solution. We are focusing, pricing is positive and volume as well. And then we wanted to bring in the slide the fact that there are services associated with those products, some of them already embedded in the price of the product, but that -- it is why the customer is willing to go through us because it's not only a product, but it's for the electrical system. And other that are billed to the customer in some line of businesses. For example, as an illustration, service and solution are already representing 10% of the automation business in Canada. So it's a small in the global Rexel galaxy. But it shows that we are trending into billing more and more services. So that was your second...

[Lucie Anne Lise Carrier, Executive Director]

Just the last question is more for the model. Thanks for the slide on the refinancing operation. I was just wondering, if we should kind of add an exceptional costs related to these refinancing? Because it had been the case in the past, and whether you could give us the quantification of any potential exceptional cost here?

[Laurent Delabarre, Group Chief Financial Officer]

Yes, yes. there is EUR 21 million one-off, first-time financial charges with, of course, that cash impact this year. That's really good, yes. So that was good. I mean the rates we get was very welcomed in that. And the net present value of the operation is north of EUR 20 million. So it was a very good refinancing operation.

[Operator]

And the next question comes from the line of Martin Wilkie.

[Martin Wilkie, Director]

It's Martin from Citi. So the first question was just coming back to the U.K., and I appreciate you've got to be nimble if the market changes. But just on your current plan, are the branch closures that you announced in Q1, are there additional branch closures already targeted during Q2? Or should we see it that what you've closed up until the end of March is sort of your new base line in terms of just thinking about growth in the U.K. going forward? So that was the first question.

[Laurent Delabarre, Group Chief Financial Officer]

Thank you. Well, on that scale, we -- to update, we -- compared to a year ago we closed 30 branches, there is no huge process to close a lot of branches in the U.K., but we have small branches. So technically, at the end of 30s, if we have a good opportunity with a short payback to close a branch, we may have some adjustments. But no big organization projects foreseen so far. Really, the gain is the selectivity of the customer base and also with the help -- I mean, Pierre Benoit, you have seen -- and Pierre Benoit is a very hands-on guy. I think about the same kind of profile than Patrick of turning around businesses and has been very successful in Belgium and then in the Netherlands, and he's putting his feet on the ground in U.K. We're watching the product offering all the customer that are and making sure that we can rebound in U.K. So maybe slight adjustment of the footprint but no big-closure process.

[Martin Wilkie, Director]

Okay. And perhaps just second question just coming back to GEIS, you mentioned it's improving, and it'll also be a self-help for 2019. And obviously, we know from ABB, the new owner, that they see as a self-help from their side. But just to clarify, is there self-help from your side as well? I mean do you need to do things to [ eject ] [indiscernible] to the distribution route for GEIS? Or when you're talking about self-help, what do you mean in terms of the products and what ABB is doing?

[Laurent Delabarre, Group Chief Financial Officer]

Well, we are one of their core distributor in the U.S. So it's a matter of adding the right product offering. We are switching GEIS product and fueling them with these ABB products. So it was a matter last year of products availability with a bit of a supply-chain disruption, especially in one plant in Monterrey, Mexico. That is improving yet, not at fuller efficiency, what we would like to add, but improving to last year. And I mean, for us, GEIS is very important supplier, and we have to make sure that we are giving a bit of momentum probably into the time, but we are confident.

[Operator]

Next question comes from the line of Alfred Glaser.

[Alfred Glaser, Analyst]

I wanted to ask you about pricing, excluding cable, and could you comment a bit more in detail by region how the prices have evolved? And then I would like to know if you could give some more color on France? The Q1 numbers have been quite good, better than the market, actually. How long do you expect you can go on outgrowing the market in France? Do you have any projects in your backlog to do so? Could you give us some color on these items, please?

[Laurent Delabarre, Group Chief Financial Officer]

Okay. So on the pricing effect, in Q1, in Europe, we are close to 1%, so a bit lower than in Q4. In North America, we are higher than Q4, close to 3%. And in the APAC, we are at 1%. So the mix of that, as a group, at 1.6%. I'm talking inflation, excluding labor, of course. Okay, in terms of evolution in France, I mean, we have a very healthy top line. I'll remind you that in Q4, there was a big impact with the Next Step contract, and that's why the top line was a bit shy, and then there was some disruption. This was a [indiscernible] on the kick off of the Christmas vacation. And -- so this Q4 was a bit low. I mean, Q1 in France is very good. The market is there, but we gain market share, so it means that the team has done some very, very good job. So we are quite pushy. We have some great evolution I pointed out on the digital sales evolution that are now at 16% of total sales. So the other churn in the adoption is paying, and we have great results with some large and national customer, which help us in the nonresidential markets. With many nonresi and industry, resi is growing but at a lower pace. But overall, we are very satisfied with the performance in France.

[Operator]

And our next question comes from the line of William Mackie.

[William Mackie, Head of Capital Goods Research]

A couple of questions, if I could. First of all with regards to the restructuring this year, when we think of branch closures in the U.K. and then some ongoing transition and transformation costs across Europe, can you just give us an idea of -- if there's any change or at least what you're thinking with regards to the nonrecurring cost in the current year for the transformation of the underlying business? Secondly, on digital, great to see the acceleration, just a couple of questions. Firstly, have you observed any changes? Or what sort of changes do you observe as your customers transition onto the digital platform with their buying behavior? Is it in different product groups? Are there different volumes or quantities which might explain some of the market share gain? And also with regard to digital, how simply do you explain such a big difference between the penetration in Europe, if we exclude Switzerland, and North America? So why is there such a big difference? And perhaps, how can you catch up with that digital difference -- penetration difference between the 2 regions? And then lastly, on mix with regard to profitability, I know, this is a sales call. But last year, we had the prophet mix. Last year’s figures incorporated obviously the drag relating to the branches in Germany and Spain and also, perhaps, some drag from limited price effects. So when we look at this, the revenue mix in your Q1, is it right to interpret that this is favorable for gross margin and margin mix year-on-year because of the elimination of costs but also because of a move -- positive move in pricing and mix?

[Laurent Delabarre, Group Chief Financial Officer]

Okay, thank you for your question. I will take it one by one. The first one on the restructuring. We're not in that capture. We're at EUR 19 million restructuring cost because of the big restructuring in Germany and Spain. What we guided in February call is that this year we will come back to a more normal restructuring on a lot of circa EUR 50 million. So there are no big -- I would say big country in [indiscernible] in term of big downsizing so far factored in our projections. With respect to digital, what you see that it's improving the loyalty and the fidelity of the customer. When we reach, and this not in all our countries but in some of them, because shopping with Rexel is easy and this easiness is driving some kind of stability of the customer, and then we can see that as in a lot of businesses [indiscernible] of a connected customer is higher than a nonconnected one. So of course, the growth of digital sales is part of cannibalization on the existing outside sales. But in sales that are easier to grab and then easier to operate in our system, less manual interfaces. So again, they are driving good profitability. The penetration rate between Europe and North America is very much linked to the mix of the business. Whereby in North America, there are a lot of industrial sales that require a [ first let ] of digital web shop solutions, so that's why there is such a gap. But clearly, we can still improve. I mean in North America, altogether, is around 10%. And probably, we can still double this figure. And in Europe, we are at 25% digital sales. And probably, we can add still at least 10% on top of this -- on this 24% in the midterm. That is a soft milestone we have. And as pointed out, it's a really a key priority. So we are improving our tools. We have a common web shop on the SAP hybris platform that we are all in over our countries. We are developing tools around the web shop to improve the efficiency of the business. I commented on [ truck and trade ], something very observed when you are in the B2C. In the B2B, it's not everywhere. So we are improving that field. I commented also on [indiscernible], which allow us to do the business in a more smoother way with our customer. So that's very important. The third question -- [indiscernible] -- the move to profitability in Germany...

[Ludovic Debailleux, Investors Relations Director]

William can please repeat question, your last question, please?

[William Mackie, Head of Capital Goods Research]

Of course, sorry.

[Laurent Delabarre, Group Chief Financial Officer]

Yes, sorry. Yes. Stop that, sorry. I've got it, sorry. You're right. So we've done some Germany and Spain as the long-term impact has been made end of Q3 last year. We get rid of loss-making net. So yes, it has a positive impact this year. We guided in February and explained that those 2 countries will bring an additional 10 basis points at book level in terms EBITDA margin, and this is ramping up over the 2019 with the contribution that will be growing over the quarter. This H2 contribution is a bit higher than the H1.

[Operator]

And the last question comes from the line of Pierre Bosset.

[Pierre Bosset, Head of French Equity Research]

Two questions, if I may. I just would like to know if you have an update on IFRS 16. In the annual report, you mentioned a potential EUR 0.9 billion additional debt. Do you have any more details on the consequences of IFRS 16 on your accounts? And second question is just a follow-up on France. Is Mr. Delabarre still managing France directly? Or do you plan to have at some point someone in charge of France?

[Laurent Delabarre, Group Chief Financial Officer]

IFRS 16. So it's very important to note that IFRS 16 had no impact on the guidance we provided in Feb because we are on gross percentage. The impact on IFRS 16 so it should -- the IFRS at the end of June for the first time with a comparison of the 2018 figure. The debt impact is around EUR 900 million. The EBITDA impact because it gets rid of the rent is 150 bps on the EBITDA. On the EBITA, you're adding back the depreciation. So it reduces the impact. The impact on the EBITA is 30, 3-0, basis points, and then [indiscernible] EBITA you are adding back financial expense, so it is very -- it has very limited impact on the net results. And I have also the question on the cash flow statement. We will present cash out on rent expense, so it should have no impact on the cash flow statement. And on the net debt to EBITDA, the debt will be considered as IFRS lease debt. That will be excluded for the calculation of the ratio. With respect to France, France is a very strong contribution to the group, and Patrick has a lot of the opportunity physically and, fortunately, on his platform and that he knows very well. And yes, he's still spending quite some time on that country, but yes, touching place, a very strong team of complementary young people and very experienced that we have a very strong Commercial Director. We have a very strong IT and CFO, in charge of Finance and IT. We have a very strong HR and good logistic guide. So there is a very close team that get along very well together. And that is, at this stage, managed by Patrick. Yes. And that is -- you are seeing -- when you see the performance, I think it's very good to be like that. And there are really high potential into that French team.

[Operator]

[Operator Instructions] There are no further questions at this time. Please continue.

[Laurent Delabarre, Group Chief Financial Officer]

Well, thank you very much for attending this call. Happy to report for the first time on the evolution at Rexel and to share with you this performance. I mean we are all committed to the strategy of -- in combination of perform and transform, and we'll be happy to report more in detail at the end of July. Wishing you a great day. Thank you, bye-bye.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speaker, please standby.