Rexel SA

PAR:RXL

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to Rexel's Third Quarter 2021 Sales Conference Call. [Operator Instructions] Please be advised that today's telephone conference is being recorded, Thursday, the 21st of October 2021. [Operator Instructions]I would now like to hand the conference over to our speaker for today, Mr. Guillaume Texier. Please go ahead.

[Guillaume Jean Philippe Texier, CEO & Director]

Okay. Good morning to all of you. Very happy to be with you today for this Q3 sales call. Usually, the quarterly sales call is done by Laurent Delabarre, our CFO, but given the big acquisition that we announced recently in the U.S., we thought it would be useful for me to be on the call as well.So if we can switch to the first slide, yes. So our sales during this past quarter were robust. This is really the right word to use. Everywhere we look in our world, the underlying trends are positive and solid, boosted by the overall strong recovery of the economy, very active construction markets, government subsidies in many countries and an overall long-term trend towards more electrification.Our sales for Q3 are 11.5% above last year and more importantly, 6.7% above 2019, which was a more normal year and a good year, by the way. Those are good figures, but the interesting part is that they are not at nominal level yet. Laurent will explain this. But there were several countries where things were still soft this summer either because of continued COVID constraints or because of longer vacation taken by our customers or because of supply chain constraints.As we have seen since the beginning of this year, this quarter also included a strong contribution from inflation both on cable and non-cable products. As a distributor, we know how to handle inflation, so this is not an issue for us. Quite the opposite, in fact.Importantly, in relation to our strategy, we continue to grow our digital sales faster than our overall sales, with 183 bps gains in 1 year. The tools are in place in most of our countries. They are good, and it is now a question of pushing adoption to increase the productivity benefits and also be able to address new customer segments that we were not addressing up to now.And obviously, last but not least, a very important milestone was the signing 2 weeks ago of the Mayer acquisition, which I will come back to later in the presentation. I'll just remember -- remind you at this stage of the main financial elements: $1.2 billion turnover; $456 million of enterprise value, value-creating in year 2. We hope to close this transaction before the end of the year after approval by the competition authorities.So on the next slide, one topic I wanted to come back to is the current environment marked by inflation and also some shortages to highlight the fact that the situation, in fact, is as much an opportunity as a challenge for Rexel. On the inflation side, I talked about it a little bit already, but clearly, it is a day-to-day job of a distributor to pass through cost inflation. We have a good track record on this. We have very detailed processes. And I would add that over the last few years, our push to more digital and more data has made us even more reactive and even more precise when it comes to managing a volatile pricing environment. You know that on the P&L side, the situation is usually a plus for any distributor as salaries tend to increase at a slower pace than product inflation.On the shortages on the supply side, I would first highlight that we have been relatively protected from that for the moment. We had to manage some difficulties in Q3, specifically in North America and in Asia, where we had to juggle a little bit, but nothing drastic at this stage. And here again, we have the opportunity to add value in this situation because we have technical expertise. We can help our customers find alternative solutions if a product is in short supply, either with the same vendor or with another one. Also, thanks to the efforts we have made over the last years to optimize our supply chain, we have gained a lot of agility to put the right inventory in the right place. And also because of our scale, we have strong relationships with most vendors, which allows us to have better visibility and better collaboration.So I wouldn't try to predict how long this situation of inflation and short supplies for some categories is going to last, if it will worsen, if it will ease. But what I can say is that we are fully prepared for it.With this, let me hand over to Laurent for the detailed comments on the regions.

[Laurent Delabarre, Group Chief Financial Officer]

Thank you, Guillaume, and good morning to all.Let's move to Slide 6, which shows the geographical performance of our sales in Q3. Guillaume already commented on the trends at group level, with same-day sales growth of 11.5% in Q3 '21 versus Q3 '20 and up plus 6.7% when comparing with Q3 2019. This plus 6.7% same-day sales growth posted in Q3 versus Q3 '19 was slightly lower than the plus 9.6% in Q2 versus Q2 '19. This can notably be explained by several factors: first, the fact that customer took more vacation in '21 after an exceptional 2020, during which they did not take any or little -- very little vacation; second, the new COVID wave in countries like the U.K., Australia and New Zealand; third, tension on the supply chain, specifically on project-related business in North America and China. By region, all 3 geographies are, however, above precrisis levels, with Europe up 10.4% versus Q3 2019; North America up 2.5%, so in positive territory for the second quarter in a row; and Asia Pacific up 1.8%.On Slide 7, we take a look at our overall Q3 '21 sales performance. Our Q3 sales of EUR 3.6 billion were up 11.5% on a same-day basis and up 12.6% on a reported basis. Organic same-day sales growth was boosted by a favorable pricing contribution on both cable and non-cable products. Indeed, the positive copper cable price contribution was plus 6.3% in Q3, similar to Q2. Non-cable price accelerated at plus 6.2% in Q3 '21, corresponding to a plus 5.2% contribution to Q3 '21 sales, largely thanks to North America, where prices are up 10.5%, but also to an acceleration in Europe, where prices are now up 4%. Reported sales were also impacted by favorable foreign exchange of 0.9% and a limited scope effect. We now anticipate the full year '21 currency impact to be flat, assuming spot rates remain unchanged.Let's now look at each geography in a greater detail. On Slide 8, we look more closely at our performance in Europe. Overall, sales in our biggest region stood at EUR 1.98 billion in the quarter, up 10.2% on a same-day basis compared to last year and up 10.4% versus Q3 2019, boosted by both volume and price. I will comment comparing Q3 2019 performance so that we neutralize the pandemic effect.Overall, activity remains robust in Europe, driven by proximity and renovation activities. The quarter also benefited from an expected acceleration in price increase on non-cable products. We saw lower momentum than in Q2 compared to the pre-crisis level. This is explained by several factors, including temporary impact of local lockdowns and the longer summer break in '21 in several countries, as already explained in the previous slide. It's also explained by a lower contribution from the stay-at-home effect and greater business selectivity.If we now zoom in at country level, in our home market of France, which accounts for 38% of our European sales, our revenue rose 14.5% versus Q3 '19, thanks to price increases on non-cable products and a robust activity in all our markets, including a strong HVAC business.Sales in Scandinavia were up 5.8% versus Q3 '19, with positive trend in Sweden, especially with small contractors, partly offset by a longer summer break effect.Sales in Germany were up 27.1% versus Q3 '19, with all end markets above precrisis level. The quarter benefited from further recovery in industry. The country continues to face manpower scarcity issues.Sales in Benelux were up 10.1% versus Q3 '19, with a strong underlying performance in Belux offsetting lower sales in PV products due to the end of subsidies in Flanders.Sales in the U.K. were down 6.6% versus Q3 '19, temporarily impacted by the third COVID wave. We anticipate now a better Q4.On Slide 9, we look now more closely at our performance in North America. Overall, sales stood at EUR 1.26 billion in the quarter, up 17.4% on a same-day basis compared to Q3 last year and up 2.5% versus Q3 '19. I will also comment comparing with our Q3 2019 performance so that we neutralize the pandemic effect.Sales in the U.S. are now above precrisis levels at 2.8% in Q3 '21 versus Q3 2019, showing a positive trend versus Q2, notably helped by strong momentum in regions driven by the proximity business and further improvement in regions that were hardly impacted by the pandemic. This is the case with the Midwest region, which benefited from better activity in Industrial MRO business; and Gulf Central, leveraging a better level of activity with large commercial and industrial contractors. The pace of recovery was impacted by supply chain tension, especially on project execution. Volumes remain around 20% below precrisis levels, largely from our large exposure to project activity, leaving room for improvement in the future.Moving to Canada. Sales were up 15% versus Q3 last year and 1.4% in the quarter versus Q3 '19, notably thanks to activity above precrisis levels in commercial and residential, offsetting lower activity in industrial. The lower momentum compared to the Q2 trend can be explained by temporary tension on the supply chain in Canada.On the next slide, Slide 10, we look now at our performance in Asia Pacific. Overall, sales stood at EUR 317 million in the quarter, down 1.3% on a same-day basis compared to last year but up 1.8% versus Q3 2019.Focusing on the 2 largest countries: Australia and China. In Australia, sales were up plus 2.8% in Q3 '21 versus '19, with positive momentum in the residential business. The lower momentum than in Q2 '21 is largely explained by the severe lockdown in the country. In China, sales were down 6.2% compared to last year despite the negative impact of 900 bps in the absence of aero business this quarter. Now when comparing with precrisis levels, sales were up 3.8% or 23.2% restated from the contract -- from this contract. It compares with around 31% in Q1 and Q2 '21, illustrating the negative momentum of industrial demand in China that can notably be explained by product availability.I will now hand over to Guillaume.

[Guillaume Jean Philippe Texier, CEO & Director]

Thank you. Thank you very much, Laurent.I'm now on Slide 12. In this section, I will tell you more about the acquisition of Mayer, which is a real game changer for Rexel in the U.S. So Mayer is a major distributor of electrical products and services in the Eastern part of the U.S., headquartered in Birmingham, Alabama, founded in 1930. Mayer operates 68 branches in the Southeast. It counts 1,200 employees and generated a turnover of approximately USD 1.2 billion over the last 12 months through the end of August 2021. It's Rexel's biggest acquisition in a decade, building on the successful U.S. transformation carried out over the past few years, which has really given us a robust platform led by an experienced local team.So on this slide, we present the transaction's compelling rationale. So firstly, Mayer by itself is a very solid company with an excellent reputation in the market, high-quality teams and strong values that fit well with Rexel's. Second, the 2 companies have complementary footprints, and Rexel will be strengthened in regions where its presence still offers room to grow, and you will see that in the next slide. Third, Mayer will be able to benefit from Rexel's advanced digitalization, sharing its tools and knowledge to accelerate Mayer's growth. Fourth, this transaction is fully in line with the strategy that we presented at our Capital Markets Day in February, at which we said that Rexel wanted to resume bolt-on acquisitions and grow in its key geographies in the electrical distribution business. Last but not least, this deal offers a high level of synergies and will create value in year 2 post closing.As you see on Slide 13, the acquisition strengthens Rexel's footprint in the Eastern part of the country, complementing the strong platform that we built in the Western U.S. after the 2012 Platt acquisition. The 2 businesses are highly complementary, which will scale up our business and help us deliver significant synergies. As you see on the map, Mayer's 68 branches are located in 12 states with a strong presence in states such as Alabama, Florida, Georgia, Pennsylvania, North Carolina and Virginia. Mayer will continue to operate as a separate banner, and its management, led by its current CEO, Wes Smith, will remain in place, reporting to Jeff Baker, the CEO of Rexel in the U.S.We expect the transaction to deliver synergies of more than circa USD 20 million on an annualized basis. And this will mainly come from several areas, including digital acceleration and data-driven processes such as, for example, churn, upsell, pricing; local synergies, including logistics and transportation; an optimized OpEx base, taking advantage of scale; and also leveraging a larger supplier and customer base.On Slide 14, we take a quick look at the key numbers of the combined operations. Adding up Rexel and Mayer, our last 12 months revenue in the U.S. stands at $5.4 billion. We will have 446 branches, 6,550 employees, and we will gain one rank in terms of North American market share and become the #4 player. So with this acquisition, Rexel confirms that North America is a key pillar of its strategy.On Slide 15, we show that the transaction is also fully in line with our strategy and ticks all financial criteria shared at the Capital Market Day. First, it reinforces our electrical distribution business in the U.S. Second, the first synergies will be delivered in year 1, so we'll benefit 2022, and they will reach approximately 1.5% of acquired sales in year 2. Third, the transaction is projected to be accretive to Rexel's earnings per share in year 1, and it will be value-creating in year 2, fully in line with the group's commitment. And fifth, even after the transaction, Rexel's indebtedness ratio will be below 2x EBITDA on a pro forma basis.So overall, as you can tell, we really think that this acquisition makes a lot of sense both on the financial and strategic point of view, and we are looking forward with its completion before the end of the year.So let me conclude, before opening to questions, on Slide 17, with our 2021 outlook. After a strong first 9 months, we are highly confident of reaching our 2021 guidance and confirm the raised guidance that we provided at the end of June. Leveraging on our continuous efforts, so we target for full year 2021 at comparable scope of consolidation and exchange rates: a same-day sales growth of between 12% and 15%; an adjusted EBITA margin of circa 5.7%; and a free cash flow conversion above 60%.As you saw on today's call, we are actively implementing Capital Market Day strategy, putting us well on track to achieve our 2023 ambition. And it goes without saying that I am fully supportive of the objectives provided at the CMD in February even if I was not there as a CEO at the time.So thank you for your attention, and Laurent and myself will now take your questions.

[Operator]

[Operator Instructions] Sir, your first question comes from the line of Lucie Carrier from Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

I have 3 questions, please, and I will go one at a time. The first one was around the U.S. momentum and specifically around the volume. It seems to me, and maybe this is incorrect, that maybe the volume is actually maybe lower than what we have seen in the second quarter if we compare to pre-level crisis. And I was just kind of curious to understand maybe what's driving kind of the lack of recovery on the North American and particularly the U.S. volume versus maybe what we are seeing in Europe, and if you see effectively this kind of gap in volume recovering in the fourth quarter and beyond or whether this is more structural.

[Laurent Delabarre, Group Chief Financial Officer]

Lucie, Laurent, I will answer to this one. Our volume in the U.S. are still down. They are down about the same level as what we see in Q2. We have there a very strong inflation impact, as we have discussed. We are very much higher than 2019 on the proximity business, and some of our regions are even 30% north of 2019. It's, again, on large projects and industry that is still a bit soft, which leave rooms for the future quarter. But we don't see any material downside versus Q2. It's more and more the opposite.

[Guillaume Jean Philippe Texier, CEO & Director]

Maybe Lucie, one additional comment. This is Guillaume speaking. One additional comment is that of all the geographies, the U.S. is probably the place where we are starting to see a few supply chain issues. And in fact, when we look at our backlog of orders, it's substantially increased in North America. So overall, this makes us very confident in the underlying trends.

[Lucie Anne Lise Carrier, Executive Director]

I also wanted to ask about the pricing. I think I was quite positively surprised by the strength of the copper pricing still in the third quarter. I had expected it to kind of tail down a little bit. So I was just wondering if you could give us maybe an update in terms of which type of pricing dynamic you were expecting for the full year, both for the copper sales and also the non-cable sales.

[Laurent Delabarre, Group Chief Financial Officer]

You're right. And looking at copper itself, it starts to increase last year compared to this year, so we could have expected a lower impact of cable price increase. However, it is the input cost of the manufacturer that has increased mainly on salary and benefits and to a lesser extent, on transportation that has led at the end to a cable price increase of 6.3% in Q3, which compared to 6.5% in Q2, so it's a bit lower. But when you look just at the copper price, it should have been lower than that.On the non-cable price, we have seen an acceleration mainly coming from Europe. Non-cable price increase in Europe was 1.4% in Q2 and moved to 3.3% in Q3, so it increased quite significantly. And in North America, it was close to 8% in Q2, and it's at 9% in Q3. So I would say a quite similar level of inflation on non-cable products.

[Guillaume Jean Philippe Texier, CEO & Director]

Maybe one comment, Lucie, on what you were asking about outlook. When we talk to our suppliers, we get the impression that we are still in an inflationary environment in terms of cost of factors. And indeed, what we have seen, which is not totally usual, is price increases from some suppliers at this time of the year, which is not what we see usually. So we get the impression that we are still in an inflationary environment for the months to come.

[Lucie Anne Lise Carrier, Executive Director]

And my last question was around the Mayer acquisition. I was wondering if you could maybe give us a little bit more details around the profitability of the business but also around the exposure in the end markets to which the company is exposed. Is it more proximity? Is it more project? Is it more industry?And also, I noticed that you were talking about some synergies already coming next year. But maybe can you help us understand how you expect the breakdown of synergies between 2022 and 2023, roughly?

[Laurent Delabarre, Group Chief Financial Officer]

Yes. First one, on the profitability, as you can expect, we don't disclose the profitability of Mayer, but I think you have all the elements in the press release to do the math by doing a reverse calculation on the value creation in year 2. As we have explained on the synergy, a big chunk of it are coming from the purchasing synergy. So that's the one we can grasp quite quickly, and so they will be coming quite soon next year.And in terms of end markets, there are more in large projects and also in the proximity, a bit lesser in the industry compared to the rest of our U.S. platform.

[Operator]

The next question comes from the line of Andre Kukhnin from Crédit Suisse.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

I'll go one at a time. I've got a couple. Could I ask you about the comment you made on the slowdown of the spend-at-home trend? Could you give us a bit more detail on that geographically and kind of significance of that, please?

[Laurent Delabarre, Group Chief Financial Officer]

Yes. It's what we call the stay at home. In fact, during COVID, people feel the need to be better at home, and they save money during the pandemic so when it reopens, they invest in their housing, in the building. And so we see a bit of boost. It was mostly in a couple of European countries such as Austria and, to a lesser extent, France. So that was kind of a very high level in Q1, Q2, and this is smoothing a bit in Q3. And that, coupled also with the vacation effect, explain this impact which we are not so much concerned about because there is a more longer trend about building renovation. And so it will smooth but stay at a high level for the coming quarters.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

Okay. Got it. So you're not kind of calling the -- like a clear slowdown in that. We've just seen a sort of a degree of moderation. Would that be the right read?

[Laurent Delabarre, Group Chief Financial Officer]

Yes, yes.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

Okay. Great. And second question on pricing on -- thank you for the details on Europe that you've just given for non-cable pricing. At that plus 3.3%, do you think we're now kind of mark-to-market in terms of where the spot prices are and have been? Or would you anticipate that to move up further in Q4?

[Laurent Delabarre, Group Chief Financial Officer]

I think it will at least stay at that level and maybe will still increase to some extent. And it will continue also. We will have the carryover also effect in 2022. But we are seeing that compared to the U.S., the inflation came slower than North America. So it will last at least at this level in Q4.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

And if I may, just a final one on capital allocation post Mayer deal. Should we think about now kind of a period of digestion? Or do you think elsewhere in other regions you carry on with the acquisition strategy? And maybe could you comment on the pipeline as well related to that?

[Guillaume Jean Philippe Texier, CEO & Director]

I can comment on this one. This is Guillaume Texier. You've seen the leverage after the Mayer acquisition, which is still very good and still very much in line with what we had announced as a guidance in terms -- at our Capital Markets Day. So we still have room for further acquisitions. We are looking at several of them, but we are staying really within the guidelines that we have given during the CMD, which is bolt-on acquisitions and new technologies basically. So we are looking at a few possible acquisitions, yes.

[Operator]

The next question comes from the line of Andreas Willi from JPMorgan.

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

I have 2 questions, please. The first one on demand, you gave some helpful comments on Europe in terms of sequentially what changed versus Q2 with the summer holidays and so on. Maybe you could give us an indication of where September stands year-on-year, which obviously is less or not impacted by maybe what happened last year during July and August, and whether that's a better indication then of what we should expect to see in Q4.And the second question on -- for Guillaume in terms of you had now 6, 7 weeks at Rexel. Maybe you could share some impressions, some preliminary views also in terms of where do you see potential to reinforce or change certain elements of the strategy, investment priorities, I think that would be helpful.

[Laurent Delabarre, Group Chief Financial Officer]

Yes. On the demand side, I mean, we looked at the quarter, of course, by every month. And clearly, we saw a better momentum in September than in July, August months in several countries. And when meeting with our local management, this is how -- this vacation difference was highlighted. And I can confirm also that the momentum in October is very comparable to the September one, again, being better than the last -- the 2 months before.

[Guillaume Jean Philippe Texier, CEO & Director]

And for the second question, and thank you for your question, I think it's a quarterly sales call, so it's not the real right time to talk about strategy. And also, I'm only 50 days in the position, so I will not dare to draw conclusions too quickly. But that being said, first impressions, first of all, a very good team at Rexel, a very good action plans to implement all the actions that are behind the CMD objectives. So it makes me very confident in what we are doing. Importantly, very good underlying trends in the markets wherever we look. I mean, you've seen the results of the quarter, they are robust. We've had a few one-off items, and we have some supply chain shortages.But overall, the underlying trends are very robust and interesting times for distribution. As I mentioned, a time of inflation, a time of shortages is also a time to prove value from the distribution in the value chain. So overall, a very good and strong first impression of what Rexel is doing in terms of action plans. And I will update you more about what I think in terms of strategy beginning of next year.

[Operator]

Our next question comes from the line of Martin Wilkie from Citi.

[Martin Wilkie, Managing Director]

It's Martin from Citi. So my first question was just on the project business. It seems that some projects might be slower from a customer perspective because of their own supply chain issues. But just to get some sort of sense, you will often have to price and so forth for future projects. When you look at the pipeline of what customers are asking you to price for, so projects going into the beginning of next year, is there any indication that, that's stable or slowing? Or just to get some sense as to how the projects are looking for new projects and, of course, the ones that are currently happening.

[Laurent Delabarre, Group Chief Financial Officer]

Yes. I would say the level of activity, especially in North America, is still at a quite low level. We see -- we start to see kind of shortage that are also slowing the delivery of some project because some products are still missing. However, when we look at our backlog, they have increased in that there is a bit of lag on the book-to-bill. So we execute them slower than in the past. But however, we are quite confident with this backlog that it will come back, knowing that as an agnostic distributor, we try to, as explained, to find alternative solutions when some products are missing to help our customers to execute their contract.

[Guillaume Jean Philippe Texier, CEO & Director]

And to be clear, the backlog in North America overall is at record high. And overall in the world, wherever we look, I see no slowdown, no signs of slowdown in terms of the, let's say, order intake of new projects.

[Martin Wilkie, Managing Director]

That's helpful. And a second separate question, obviously, in some parts of the world, particularly here in Europe, we're seeing big spikes in electricity prices. It may be too soon to see an effect of this. But has there been an acceleration in energy efficiency type projects or products even on obviously certain things like LED lighting or certain systems can cut power consumption? Has there been a marked change recently because of higher power prices? Or is it too early to tell the impact?

[Guillaume Jean Philippe Texier, CEO & Director]

No, I think it's clearly a little bit too early to tell. But obviously, this will even reinforce the trends that were already at play in our space. So this will go in the direction of energy savings projects, which are mostly consuming more complex automation and more complex products. So I think this is really going to be something which will add to the already underlying good trends, you're right. But for the moment, no. For the moment, it's way too early after only 1 month to see the effect, the actual effect of that.

[Operator]

The next question comes from the line of Philippe Lauwerys from Goldman Sachs.

[Philippe Lauwerys, Research Analyst]

My first one is on volumes. I'm just wondering, at the group level, why are volumes being flat year-over-year, especially if you say supply chain tensions are seeing a limited impact? That's my first question.

[Laurent Delabarre, Group Chief Financial Officer]

Yes. We discussed the different reasons, the first -- the one you mentioned, but there are also temporary reasons, as we explained during the presentation, being the third wave of COVID, especially the U.K. strongly hit in the summertime, Australia and New Zealand. The second is what we call this stay at home, so a bit of acceleration in Q1, Q2 smoothing in Q3. And then we have also the impact of this large project we had in the aerospace in China, where we have also a base effect in Q3 compared to Q2. So that's the main reason for this slowdown.

[Philippe Lauwerys, Research Analyst]

Okay. And then just on the supply chain issues, do you expect them to worsen from your perspective into Q4? And how long do you think overall they could last?

[Guillaume Jean Philippe Texier, CEO & Director]

I think when I talk to suppliers, and most of them are also issuing their quarterly results in the next few days, I understand that many of them are juggling with the supply chain. And they continue and they anticipate for many of them that the situation will continue for some time. We are fortunate, as I explained, to be in a position in the supply chain where we have a lot of flexibility in terms of offering different products, different vendors when we did different systems to achieve the same functional goal. So we are in, I would say, a relatively comfortable position. But I expect this theme of supply chain scarcity, which is punctual and limited to some categories, to continue to be part of the picture for the coming months.

[Operator]

The next question comes from the line of Miguel Borrega from Exane BNP Paribas.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

I've got 2 questions, please. The first one is on the Mayer acquisition. I know you don't talk about profitability, but if I could push you a little bit more, if you could give us a sense of where the margins sit relative to Rexel. Are they above or below the level of Rexel is reporting now? And then what are you thinking in terms of integration? Any material refurbishing? Do they have a digital platform equal to yours, our suppliers and customers mostly overlapping or complementary? Is there a lot to do on the Mayer? Or is it just plug and play?

[Guillaume Jean Philippe Texier, CEO & Director]

No, I mean, a few comments. Thank you for your questions. A few comments on the Mayer acquisition. First of all, on the profitability level, to give you a little bit more information, Mayer is profitable in the U.S., but it is less profitable than the group and less than the U.S. But this is a high-quality company with very good teams, and we believe that we have a strong plan to bring it closer to the average, maybe higher depending on how it goes. So that's the first thing I wanted to say.The second thing about the kind of synergies, are they complementary or are they overlapping, et cetera? You've looked -- you've seen that in the footprint. They're mostly complementary in terms of footprint, in terms of customer base. Overall, obviously, there are some overlaps. But I would say that for the most part, they are complementary.And I think one thing which you were asking the question about digital. I think one interesting point is the reasons I believe why Mayer sold their business, why the owners of Mayer sold their business and why they sold it to Rexel, which is the fact that they have a digital platform, but it's not extremely well advanced. And they deeply thought that they wanted to align with a company which was more advanced than them and where they could benefit from the already existing platforms. And that's the reason why I believe they made the transaction -- decided the transaction with Rexel. So this is probably the field, digital processes data in which Mayer can benefit the most from being a part of Rexel. For the rest, it's going to be mostly complementary between 2 very good teams in this part of the U.S.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

Okay. That's very helpful. And then my second question, if you could comment on how price increases will evolve into Q4, is there further to go in Europe? And how should we start thinking about pricing into 2022? If copper prices start to come down and as you see economies reopening, do you think you can sustain pricing where it is today? Or do you think you may adjust pricing to remain competitive volume-wise into next year?

[Laurent Delabarre, Group Chief Financial Officer]

So on the price increase, as we have already commented, we think that the level we are today, I mean, quite acceleration in Europe, and the level we have around 3.3% in Europe will continue over Q4. The around 9% in North America should continue into Q4. I cannot -- that's on the non-cable.On the cable, it's difficult to predict. We discussed the input cost and the value of copper. I will not bet on copper price, but all we can read today is that the level will continue to stay quite high because of the confluence from the production capacity and on the other side, the high demand. And I anticipate on inflation to have next year, I mean, the carryover effect of this year, plus probably an additional part next year, probably coming from higher input costs from our supplier.

[Operator]

And last question on the queue will be Alasdair Leslie from Societe Generale.

[Alasdair Leslie, Equity Analyst]

So a couple of questions. Just the first one, I suppose kind of follow-up on your expectations around the U.S. You're clearly confident on underlying demand there, citing the kind of growing backlog, underpins, et cetera. So you also seemed to be saying that supply chain tensions are increasing, that's impacting the project business, which is obviously where the volume upside is. So how quickly realistically do you think those kind of issues can be resolved? You touched upon just before some flexibility there to work through those issues on your side, but I'm just wondering whether overall, you're kind of as confident as before about the timing of the volume recovery in the U.S., or whether kind of incrementally the supply chain issues now are starting to push out your expectations a little bit.

[Guillaume Jean Philippe Texier, CEO & Director]

If I understand well your question, it's about how long it's going -- how long is this situation going to last. I wouldn't bet on that. It's a very complex and tricky situation where supply chain issues are not coming from our direct suppliers. They are coming from the level 5 suppliers in the supply chain. So very difficult to predict how long it's going to last. But what is important is that we are fully ready in terms of collaboration with our suppliers, in terms of training of our experts in the branches to face that and to take advantage of that when it's possible.So really difficult for me to tell you when it's going to ease and at what pace it's going to ease, but we are ready. That's what I would say. When we talk to our suppliers, the theme over the immediate future, which is the next few months, to think that this will continue very clearly.

[Alasdair Leslie, Equity Analyst]

Great. And then just the second question, and apologies if this was already covered because I missed part of the call, but can you give us some more color around the trends in China? You can maybe comment on the sequential development there. How much of the kind of industrial slowdown that you know relates purely to kind of product scarcity versus kind of an underlying softening in the market in your opinion?

[Laurent Delabarre, Group Chief Financial Officer]

Yes. I mean China, on one side, we have a base effect with a large aerospace contract that was in our 2019 and 2020 performance and now which is completely over. In Q3, it's 900 basis points impact on the performance. And restating from that, we see a good improvement compared to '19. But in that, discussing with our local team, we start to see some a bit negative momentum because of product availability, so a bit of slowdown, especially on the execution on projects. And that is going to at least to the first quarter of next year when we discuss with local management.

[Alasdair Leslie, Equity Analyst]

Okay. But did you see the headwinds sort of accelerate in terms of product scarcity towards the end of the quarter and continuing to October?

[Laurent Delabarre, Group Chief Financial Officer]

I would say on the product shortage, it has accelerated compared to Q2. It's a bit too early to say if it's going to accelerate more than what it has in the recent months. But it is at the level already where local management consider that they are losing momentum and losing sales because of the shortage of products.

[Alasdair Leslie, Equity Analyst]

Okay. And then just -- do you think that the slowdown in the industry in China that you're kind of calling out just is largely driven by product scarcity rather than the kind of underlying softness?

[Laurent Delabarre, Group Chief Financial Officer]

Well, there is a bit of underlying softness as well. But I cannot tell you yet how deep it will go down. When discussing with local management, they don't expect that to go very strongly down in the coming months.

[Operator]

No further question at this time, sir. Please continue.

[Guillaume Jean Philippe Texier, CEO & Director]

Well, thank you very much. Thank you very much for being here today. I will conclude by reaffirming our guidance. We are highly confident in what we have announced in June when we had updated our guidance, and we see good underlying trends. So thank you for participating. And the next call is going to be for the yearly results in February. Thank you very much.

[Operator]

Thank you. This concludes our conference for today. Thank you all for participating. You may all disconnect. Thank you all for joining, and stay safe, everyone.