Rexel SA

PAR:RXL

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Rexel Full Year 2021 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And I would now like to hand the conference over to your speaker today, Guillaume Texier, Rexel's CEO. Please go ahead.

[Guillaume Jean Philippe Texier, CEO & Director]

Good morning, ladies and gentlemen, and thank you for joining us online or by phone. I am Guillaume Texier, CEO of Rexel. And I'm here today with Laurent Delabarre, our Group CFO. So last time I had the opportunity to speak to you, it was our Q3 sales call. I told you how Rexel has posted at that time a robust performance and was supported by positive and solid underlying trends. So I'm very pleased that our Q4 results fully confirm this, making 2021 a historic year for the company. But what's also interesting beyond the figures, beyond the record results alone is to comment on the way that they were achieved as this provides indications -- optimistic indications about what the future may look like.So moving to Slide 3 and starting with the key highlights. 2021, as I said, was the record year for Rexel by almost all metrics. Starting with the middle graph, we posted our highest growth rate by far with 15.6%. This is helped obviously by the fact that 2021 was a rebound year after COVID. But even over 2 years, our average growth rate is at 3.7%, which is still the highest figure in 10 years. As a result, our turnover, which has navigated between EUR 13 billion and EUR 14 billion historically rebounded sharply to reach EUR 14.7 billion even before the full effect of the Mayer acquisition, which is going to easily carry us above the EUR 15 billion mark.And on the right part of the graph, our EBITA margin reached 6.2%, its strongest performance since our 2007 IPO. What's interesting to underline is that the fact that this performance has to do with 2 sets of factors, which really go hand-in-hand and cannot be separated, and you see that on the bottom of the graph. On one hand, you have the external factors. And on the other hand, you have the self-help. On the external factor side, we benefited, first of all, from the sharp post-COVID rebound, which went way beyond the simple execution of the 2020 postponed projects. We see now that the boost for our sector will expand longer and higher than just a one-for-one compensation of the dip because of savings redirected to renovation because of stimulus plans.Second external factor and quite important, a general trend towards electrification, and I'll come back to that later. Everybody talks about it, but we believe that we are really starting to see the effects on our sales, especially linked to growing sustainability awareness and regulations. And the last important external factor, the return of inflation after a decade for us of relatively low inflation or even deflation in some categories. And here, again, I'll come back to that.Those are all positive factors and factors, which we think, by the way, will last. But the record results we are posting for 2021 wouldn't have happened without also a great dose of self-help through all the improvements that the team has made to the business over the last few years, which drove commercial success and margin enhancement, especially thanks to the help of digital tools.On Slide 4, we take a closer look at the highlights of the year. And what I would like to underline is the fact that our performance was delivered in a year, which was far from smooth. Yes, there were volume gains, but our challenge was to serve them without adding too many costs to generate leverage, and you will see that we delivered on that. Yes, there was inflation, which is, in general, a positive for distributors, but we had to demonstrate and to work to demonstrate discipline to pass through to prices, which we did successfully, helped by our pricing processes and by our digital tools.And finally, a key word for us this year was agility as we had to navigate COVID constraints, especially towards the second part of the year, increasing supply chain issues linked to availability of products from our suppliers. And in this tricky environment, we were able to demonstrate our added value to our customers by holding the right inventory, leveraging our relationships with suppliers and using our expertise to propose alternatives.If I go to the following slide, we look at another key highlight our strengthened financial structure. This year, we demonstrated again that the Rexel model generates strong and recurring free cash flow, reaching a record EUR 681 million in 2021, which is EUR 68 million more than in 2020, which had been boosted by an exceptional working capital in flu linked to the pandemic. And compared to a more normative level in 2019, free cash flow is up almost 50%.And our net debt at the end of 2021 stood at EUR 1.55 billion, down almost EUR 400 million compared to 2019. Compared to 2020, it's slightly up as a result of our resumption of an active M&A strategy with 5 acquisitions completed in the year, representing an investment of EUR 439 million. But despite this outlay, our indebtedness ratio fell to a record low 1.37 compared to 2.14 in 2020 and 2.47 in 2019, which means that we have now a sound financial structure, which allows us headroom to continue our growth strategy and increase shareholder returns in 2022 and beyond.In the next few slides, I'd like to focus on what makes Rexel's business model so robust because this is what allowed us to deliver this year. First of all, if I switch to the next slide, to Slide 7, we are positioned on a booming market. And the 2 graphs on this slide are our way of showing that. At last year's Capital Market Day, my predecessor, Patrick Berard presented how Rexel stands to benefit from the structural trends in electrification, increasing electricity usage and increasing demand for energy efficiency amid a global acceleration in the energy transition.What I like -- I mean you will find many graphs explaining that everywhere. And what I like about those 2 ones, which come from IEA is the fact that they don't focus only on buildings, but also on industry, which is another important market for Rexel. And what it says is that if actors are serious about the net zero trajectory or even just about their own pledges, they will have to electrify massively. There is no way around that. And what is interesting is that this electrification will also be more complex and more technical, raising topics such as balance of the electrical network, microgrid, EV charging capacity, automation, innovation, connectivity, which are as many opportunities for us to add value because complexity is always for us an opening to upsell and to sell services.If I go to the next slide, to Slide 8. Here, we show that this electrification trend translates into growth trends in almost all of our product categories, which is quite interesting. The top left part of the pie includes all those exciting categories where sustainable innovation is happening right now, and we all know the names, EV charging stations, renewable energies, heat pumps, for example. Here, we are talking fast growth sustained by -- very often by governmental stimulus plans.The second segment below, it gathers a product category that are maybe a little bit less directly impacted by the sustainable technologies, but are nevertheless vital to make those technologies work together and will very likely need to be replaced as we transition to a new electrical world. We are talking, for example, the big category for us of electrical distribution.And the third category on the right includes products, which are sometimes considered as commodities like, for example, cables and conduits but will also benefit one from the volume growth and, more importantly, are likely to experience an inflationary environment in the future as they are very dependent on raw materials, which may become increasingly scarce. I'm talking copper, aluminum or steel and the news are full those days of reports explaining how the availability of such materials is going to become difficult in the next few years. So really, it's not limited to the top category and to very visible categories of those categories, which are done by stimulus plans, but all the electrification system is going to benefit from growth trends and from inflation.Slide 9 talks about our model, which is fundamentally omnichannel. Rexel focuses you know that very much on digital, as you will also see in the next few slides. But we also believe that for our customers to be served efficiently, we need more than that. And let me start maybe with the bottom line, which is very important. What we do is everything to let our customers focus on their business. And their business is not to pass orders, it's not to drive around to find products, their business is to electrify basically. And this is increasingly crucial as skill labor shortage becomes an electrical issue in our trade everywhere in the world. So what we do is we provide extreme detail on logistics and services, including to the last mile and sometimes in less than 2 hours, thanks to our identified network. We provide expertise and training to our customers, either remotely or on the point of sales. We have a range of digital tools to increase productivity on both sides. And all of those building blocks are important one way or another to our 2 main categories of customers that you see here on the 2 lines, proximity customers and project customers. There are nuances by country and by customer, but the strength of this model and what makes it relevant to our customers is the ability to offer not only one, but all of those features, which are necessary to the productivity of our customers.Slide 10 focuses specifically of one of the key elements of our unique value proposition, digital, which has been a key area of focus for Rexel for several years and an area on which I believe that we are differentiated. This is an investment, which really bears fruits at several levels as it provides additional growth, additional service and additional efficiency. I will not go into the details of this slide, which is pretty much self-explanatory, but suffice it to say that this is a true differentiating factor, which is only available to those players who have the right scale to do it efficiently, Rexel being one of them. For example, it's one of the reasons why Mayer decided to join forces with Rexel last year, the strong belief that digital was the future and that Mayer was not big enough for digital. Last but not least, on Slide 11, ESG and more specifically, sustainability. I am personally a big believer in sustainability through my personal background. I was pleased to see that Rexel is already doing a lot on this topic, being, for example, the only distributor with SBTI targets and also 100% financed through sustainability-linked bonds this year. This is good, but we can and we must do more in terms of orienting our customers towards more sustainable solutions and also in our own operations. And the example on the right shows well what we are doing, for example, around Paris through our investment in an auto store very close to Paris. We are both able to propose an unmatched value proposition, which is delivery on the job site in 2 hours, knowing how difficult it is for our customers to park in Paris like in many big cities. But equally importantly, a totally clean delivery system, including electric vehicles and bikes, saving more than 30% CO2 on our deliveries. This is clearly the future, and we are strongly motivated to accelerate on those topics.So moving to the next part. Not only do we have a solid company, but we also have momentum. And I have to give credit to Patrick Berard, my predecessor, and all the Rexel teams for having really changed the game over the last few years. Truly, we are delivering above expectations in our transformation process. First of all, on Slide 13, we are ahead of our Capital Markets Day's objective that we announced just last February. In profitability, we are at 6.2% if we restate for the one-offs that would put us at 5.8%, but with the guidance to be above 6% as early as 2022, 1 year ahead of schedule. We said in the Capital Market Day that we would grow faster than our comparables, and this is clearly the case. Our digital sales this year are up 27% in 2021 after a COVID year, which so by nature, a big jump in digital. This is a great result. We are well underway to reach 1/3 of our sales in digital. Cash conversion was above our target in 2021. And as far as acquisitions are concerned, we had a busy year. And I would add that we are extremely happy with the acquisition we have made, and I will come back to that.On Slide 14, we detail our performance versus market in the various geographies. This data is based on our internal assessments, often backed by public data provided by industry associations. In North America, we believe that we were more or less in line with the market, despite us having willingly loss positions in some less profitable segments or regions. In Europe, we have gained market share, in particular in France and Germany, and showed selectivity to boost our margin in the U.K. In Asia Pacific, we believe we were globally in line with the market.On the following slide, you see the progress we made in bringing all our countries to our target profitability level. And this is an update of a slide, which was shown at the Capital Market Day. And this slide clearly shows that more than 2/3 of our sales now come with an adjusted EBITA margin above 6% compared to 38% in 2020. So you see the speed as the momentum of the transformation within Rexel.If we move on to the next slide, we focus on the progress that we have made on digital. I was telling you that it's important for us. And you can see here the actions that we have taken in 2021. In 2021, digital represented almost EUR 3.5 billion of sales or nearly 1/4 of our sales. In Europe, we are significantly above that level with 35% of our sales coming from digital and we are above 30% in 8 countries overall. In the U.S., we are also making headway and even including Mayer, which lags somewhat in digitalization, as I was saying. We are 12% in North America, where we see substantial upside. It's also worth noting that in North America, the lower rate of digitalization is also related to the fact that we have a far higher share of project activity in that market, representing more than 1/3 of our sales. And if we look only at warehouse-driven sales to be comparable to our other markets, we will be closer in terms of digitalization to 18%. Digital transformation means much more than simply switching sales to the digital channel. It also means a complete revamp of our organization to make it data-driven.The slide shows you several examples of this. Digital transformation starts with a thorough analysis of our customer and product segmentations. This allows us to deploy our tools gradually grow the group and to implement our key digital initiatives such as customer churn, branch assortment, next best offer, track and trace or e-mail to EDI. 2021 also saw the go live of our supplier portal that reinforces our partnership with our key suppliers and strengthens our role in the value chain.On the next slide, our 2021 performance demonstrates once again that the Rexel model is cash generating and resilient. I was talking about that. Free cash flow of EUR 681 million in 2021 was a record, exceeding even 2020, which benefited from the working capital inflow post pandemic. Our model shows a cash conversion rate of between 60% and 70% on a normalized basis with the exception of '17 and '18 when Rexel focused on investment in inventories to improve product availability, notably in the U.S.On Slide 18, an update on M&A. And you see that Rexel resumed its M&A strategy in 2021 in a selective and disciplined manner, but still ambitious with 5 acquisitions aimed at boosting our growth. Since the last time we spoke, we bought an industrial automation distributor business in the Midwest region of the U.S. Winkle with annualized sales of close to $30 million. Those 5 acquisitions together of the year added EUR 1.2 billion in sales. And one thing, which is tracking, is that they all are ahead of plans in terms of integration and synergies, which says something about the quality of the diligence. We are really very pleased with our recent track record here. We will continue to look at opportunities that match our 3 criteria for acquisitions, reinforce core electrical distribution positions, expand to adjacent specialists and develop value-added models.On Slide 19, let me focus a little bit more on Mayer, our biggest acquisition in a decade. The integration process is proceeding very smoothly, very rapidly, and both teams are finding many opportunities. With Mayer, we clearly have the opportunity to integrate first-rate teams and benefit from a very strong brand recognition. There will be strong business complementarities on transportation, logistics or complementary approaches to some customers. And we'll be able to take the best of both companies in terms of pricing processes, digital or supplier relationships. Overall, I think after just a few months together, we are very confident that this will be a great success story for both companies.The better-than-expected integration process allows us right away on the 3 months after the acquisition to upgrade our synergies targets from 1.5% of sales to 2.5% of sales and to accelerate implementation with already 1.5% expected to be delivered in 2022.And with that, let me hand over to Laurent to go through the figures.

[Laurent Delabarre, Chief Financial Officer]

Thank you very much, Guillaume, and good morning to everybody. Let me go now more in detail into our strong financial performance. Starting on Slide 21, you see our Q4 group sales and the geographical breakdown compared to both 2019 before the pandemic reference and guidelines and 2020. At group level, when comparing with the precrisis level, same-day sales growth is up plus 11.1% versus Q4 '19, accelerating compared to the plus 6.7% posted in Q3. This acceleration at the end of the year is a positive entering into 2022.Looking at the various geographies and comparing with the pre-crisis situation, all geographies accelerated versus the Q3 and notably North America with 9.7% growth in Q4 '21 versus Q4 2019, an acceleration compared to the plus 2.5% in Q3. We'll have a look at each geography in greater detail shortly.On Slide 22, we take a look at our overall Q4 '21 sales performance. Our Q4 sales of EUR 4.1 billion were up 12.2% on the same-day basis and up 12.3 -- 20.3% on a reported basis. This reported sales were impacted by a favorable scope effects as the acquisition of Mayer in the U.S. and the utility business in Canada brought 4.9% of sales in the quarter and also by a positive impact from foreign exchange. We now anticipate for full year '22 scope impact with the acquisition of Mayer to be close to 6.5% and the full year currency impact to be slightly above 1%, assuming spot rates remain unchanged.Moving to Slide 23. Let's have a look at the volume and price contribution in the quarter. The 12.2% organic same-day sales growth in Q4 '21 benefited from a favorable pricing contribution similar to Q3, but with different dynamics between cable and non-cable products. Indeed, the positive copper cable price contribution was plus 5.1% in Q4, slightly lower than in Q3 as the copper price has risen in H2 2020. At the same time, the contribution of non-cable price further accelerated at plus 6.6% in Q4 '21, notably thanks to Europe, while North America maintained its high contribution. Q4 '21 was also marked by a better volume contribution than in Q3, despite a more difficult base effect. Indeed, volume contribution stood at plus 0.5, but plus 1.2 when we restate a large aerospace contract in China that benefited 2020 and is completely gone in '21.If we only focus on our 2 main geographies, volume was up plus 1.2% in Europe on a challenging base effect. And in North America, it improved significantly, up plus 3.1%. If you look on a full year basis, our volumes are up plus 5.9% in '21, including Europe at plus 9.6% and North America at plus 1.2%. While we expect cable price contribution to be lower in 2022 as copper price were high all along 2021 creating a more difficult base effect, 2022 will benefit from the 2 positive contributions from non-cable price. First, the carryover effect of price increases passed all along '21 and notably in Europe, where price increase accelerated in H2 '21 and will benefit H1 '22. Second, the additional price increase that supplier will pass to offset the raw material effect and higher OpEx inflation.On Slide 24, let's look at the contribution of 3 geographies to the 12.2% same-day sales growth achieved at group level in Q4 '21. You have all the details in the press release on a country-by-country basis, so we'll just highlight the key evolutions of the quarter. In Europe, our Q4 '21 is up 12.4% versus Q4 2019, accelerating versus the 10.4% posted in Q3 '21 on a 2-year stack as a result of the combination of further price increases on non-cable products and positive volume momentum, mainly in U.K., Belux, Sweden and Austria.In North America, we benefited from a significant sequential improvement in the U.S. Indeed, Q4 '21 in the U.S. was at 11.4% versus Q4 '19 compared with 2.8% in Q3 '21 versus the same period 2 years ago. This was notably driven by a significant volume recovery compared to the pre-crisis level from minus 20% in Q3 '21 versus Q3 '19 to minus 10% in Q4 '21 versus the same period in '19. This results from an acceleration of our proximity business, which was already very robust in previous quarter combined with better activity in Projects & Specialty. Lastly, by end market, our 3 end markets are above their 2019 level for the first time in Q4 and the Commercial segment significantly improved in Q4 '21. Lastly, in Asia Pac, we saw a sequential improvement compared to precrisis level with 10% growth in Q4 '21 versus Q4 '19 compared to plus 1.8 crores in Q3 '21 versus Q3 '19. This is largely explained by the positive trend in Pacific with the end of the lockdown in major city in Q4.On Slide 25, we show you the building blocks that led to a record adjusted EBITA margin of 6.2%, up 196 basis points. In fact, the progression was either stronger as we did not benefit in '21 from the 15 basis points of COVID-related effects that we disclosed last year and include 60 basis points of governmental subsidies net of minus 45 basis points lower volume rebate, which supported our adjusted EBITA margin in 2020. The progression from '20 to '21 can be explained by a very positive operating leverage with an impact of 170 bps from strong volume growth and price increase, a net positive nonrecurring of 40 basis points. As a result, on one hand, a positive one-off gross margin gain on non-cable inventory price inflation for 80 basis points. And on the other hand, a negative 40 basis point one-off effect from higher performance-linked bonuses, notably for our sales force in the context of better-than-anticipated activity versus our initial budget. This effect had a significant stronger impact in H2 as the tie-up continued to benefit from non-cable inventory price inflation, while performance-linked bonuses had already reached their maximum in H1. Lastly, we also had the productivity impact of plus 36 basis points that offset inflation of minus 34 basis points.Moving to Slide 26. You see how each geography contributed to our record profitability. On gross margin, first, and excluding the positive one-off effect from the gain on non-cable inventory price inflation, our underlying gross margin benefited from pricing initiatives across geographies and also strong business selectivity in our project activity in North America.Moving to the adjusted EBITA margin. Profitability improved in all geographies, even restated from the positive one-off effects. Europe's adjusted EBITA margin stood at 7.1%, up 174 basis points, including circa 20 basis points of nonrecurring items. This strong performance largely -- is made largely thanks to the combination of the positive gross margin impact, the robust sales growth and the implementation of our structural measures. We posted strong productivity gains as we achieved a strong growth with 300 people less than before the pandemic.North America's adjusted EBITA margin stood at 6.5%, up 278 basis points, including circa 100 basis points of nonrecurring items. This good performance is largely thanks to the same factor as in Europe. Similarly, we delivered this performance with 620 fewer people than before the crisis. Asia Pacific's adjusted EBITA margin stood at 2.4%, up 52 basis points, largely thanks to the progression in Pacific.On Slide 27, we look at the bottom line part of our P&L. Let's start with our adjusted EBITA of EUR 906 million, up 69%. Reported EBITA was significantly higher at EUR 964 million, reflecting the positive nonrecurring impact of EUR 58 million from copper price. Other income and expense amount to EUR 45 million, largely explained by an impairment on trade receivables in connection with the legal proceeding in China for EUR 23.4 million. In addition, we also had circa EUR 10 million of acquisition-related expense for the 5 deals completed in '21 and EUR 7 million of write-down on right of use and other fixed assets and limited EUR 6 million of restructuring in a recovery environment well below our normative level, which is between EUR 30 million to EUR 35 million.Restating for one-off costs largely related to the EUR 23 million charge for the early redemption of the 2 bonds that we have refinanced with 2 sustainability-linked bonds. Our financial cost of net debt decreased by circa EUR 12 million to EUR 67.6 million, reflecting the good work done on the balance sheet over the last years.In addition, we have the interest on lease liability for EUR 40.4 million in full year '21 versus EUR 42.7 million last year. For '22, we anticipate now interest lease liability at close to EUR 42 million and financial cost of net debt at circa EUR 75 million as cash out for Mayer acquisition came late in '21 and also in the context of rising interest. In total, net financial expense for '22 should stand at circa EUR 120 million, excluding one-off costs.Our income tax stood at EUR 23.2 million -- 23.2% due to the recognition of one-off deferred tax of EUR 32.2 million as a result of better-than-expected future taxable income in countries carrying tax loss carryforwards. Restated from nonrecurring impact, the effective tax rate stood at 27.3% versus 30.7% in full year 2020, down 340 basis points, notably thanks to lower tax rate in France. For '22 onwards, we confirm our indication of a tax rate below 30%. As a result, net income was EUR 598 million versus a negative EUR 261 million. And our recurring net income stood at a positive EUR 575 million, up 107%, reaching all-time high level for a year.On the next slide, we generated record cash flow before interest and tax, reaching EUR 681 million, reflecting the robust operational results. If you exclude the typical year of 2020, the level of free cash flow conversion is higher than in the previous year at 65.7%. Free cash flow after interest and tax reached EUR 426 million after paying EUR 56 million in interest and EUR 199 million in income tax. The strong free cash flow generation was generated in the context of a significant outflow from trade working capital of close to EUR 324 million in order to finance the strong rebound in sales well above the 2019 level. At the same time, the change in non-trade working capital provided an inflow of EUR 160 million, largely from the provisioning of variable pay to be cashed out in H1 '22. Let me share a few details on the evolution of our CapEx. Gross CapEx stood at EUR 103 million, representing 0.7% on sales, of course, on a higher-than-expected sales level, and this includes 50% of IT and digital CapEx. The EUR 439 million financial investment was related to the 5 acquisitions completed in '21, including the biggest Mayer in the U.S. and also the utility distribution business in Canada. This leads to a slightly higher than last year, our net debt level at EUR 1.65 billion while at the same time, our indebtedness ratio at 1.37x reached an all-time low.Let me turn on Slide 29 to our balance sheet and liquidity picture, which shows that we have no significant short-term repayment schedule. As of December 31, we have EUR 1.27 billion of liquidity, including the EUR 850 million in undrawn facilities on our senior credit agreement. In '21, as you know, we successfully issued 2 sustainable linked bonds for EUR 1 billion due in '28 with 2.18% coupons. This rate will increase by 25 basis points if Rexel is not able to reach its Scope 1 and 2 on the one side and Scope 3 targets by 2023. With those operations, we have extended our maturities and reduced our financing. Indeed, we have reimbursed a EUR 500 million bond maturing in '25, which carries the same compound and a EUR 600 million bond maturing in '26, which carried a 2.75% coupon.Overall, our active financial management over the recent years is reflected in the low average effective interest rate on gross debt, down 3 basis points year-on-year to 2.42%. Reflecting Rexel's improved earnings, strong free cash flow generation and lower indebtedness ratio. Rating agency, Standard & Poors upgraded in September, our BB rating with a positive outlook.On Slide 30, we present our proposed dividend for '21 financial year to be paid in '22. Rexel will propose to shareholders to increase the dividend by 63% to EUR 0.75 per share, EUR 0.29 higher than last year, fully payable in cash early June. This remains subject by definition to approval at the Annual Shareholder Meeting to be held in Paris on April 21. This represents a payout ratio of 40%, in line with our dividend policy. It offers a 3.6% yield based on yesterday's share price.With this, let me now hand back to Guillaume to discuss our '22 outlook and priorities.

[Guillaume Jean Philippe Texier, CEO & Director]

Thank you. Thank you, Laurent. Let's now look at how we see 2022 shaping up. And I'll start with Slide 32, which shows that we are entering 2022 with a record level of backlog. And we are traditionally not a backlog type of business. But that being said, what we are seeing is a strong increase in the U.S. and Canada and France, for example. And you see that plotted on 3 years with Base 100. And this is due to 2 factors, basically, strong underlying demand really and delays in projects because of labor or product scarcity and disrupted activities. And to give you an order of magnitude, backlog represents a material part of the North American business, but they are much smaller in France, let's say around 5% of the business. But this illustrates both the reality and the positive trend of the underlying demand and also the tension in the supply chain.And if I look to the next slide, if I go to the next slide to our 2022 outlook. I would summarize that by saying that, first of all, 2022 presents great opportunities. We will be supported by favorable elements in an uncertain environment as labor and product availability will remain a factor. We expect that non-cable inflation will continue and add to carryover pricing impact. We also expect a robust volume environment with room for additional growth in the U.S., supported by the high level of backlog and continued high demand in Europe. And in this context, leveraging our transformation and enhanced efficiency, we target for 2022 at comparable scope of consolidation and exchange rates a same-day sales growth of between 4% and 6%. And adjusted EBITA margin above 6% and a free cash flow conversion above 60%.In terms of our transformation and growth driver, I would like to finish by saying that we have already made significant progress, but that there is also more to come. And Slide 34 shows you what we have achieved and where we think there is still upside. We consider that deleveraging is largely completed, allowing us to allocate more to acquisitions or return to shareholders. We are also well advanced in excellence in operations and digitalization, but we will continue on those 2 fronts, our steady progress. Similarly, we will also accelerate growth through continued efforts to outperform the market while benefiting from such structural trends as electrification and energy transition. And the areas that offer even more upside are M&A, and you've seen that 2021 was a more active year. We intend to continue to do that. And further acceleration on the ESG side, as I was talking about in my introduction, where we see significant opportunities to leverage our existing strengths. On all of those topics -- all of those strategic topics and on all the ones that will have the opportunity to detail if we switch to the next slide, to detail our strategic road map. At the Capital Market Day that we will hold on June 16 in Zurich at our Swiss headquarters and largest branch. During that event, we will be pleased to take you on the visit of the biggest branch in our network overall with sales of close to EUR 100 million. It features state-of-the-art technology with a new automated storage solution. So you will be able to see firsthand how our activity has evolved in one of our most advanced country. And obviously, we will update you on our strategic road map.So we very much look forward to seeing you there. And now Laurent and I are happy to take your questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Andreas Willi from JPMorgan.

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

My first question is on investments and priorities if you look to 2022. You have, in the past, invested in your urban strategy, automated warehouses, new delivery models. Should we expect further increase in investments there? And how aggressively do you want to push this in terms of also where CapEx is going?And then the second question on your benefit you had from the non-cable pricing, the net 40 bps. Maybe you can just explain how you exactly calculate that, what you call exceptional basically? And looking at '22, obviously, we still have good price increases coming through. Would you then call that just as a -- basically as a normal effect, not an exceptional effect that you embed in your guidance?

[Guillaume Jean Philippe Texier, CEO & Director]

Okay. Thank you, Andreas. I will take the first question, and I will let Laurent answer to the second question. Investment priorities for 2022, clearly, I mean you are right when you mentioned logistics, and I was giving the example of what we did around Paris. You've seen also pictures of the Zurich store. You are right that advanced logistics and customer promise in terms of service is increasingly important in our world. Clearly, as I was mentioning, our customers. I mean 1 trend that we see increasing is labor scarcity in all countries, which means that our customers are looking for productivity, and productivity is provided by excellent service level, which comes with automation and with investment in logistics. That being said, a big part of that has already been done. You've seen pictures of what we have done in Paris, in Zurich in other branches in Switzerland, for example. We have a steady investment program there to make sure that we are differentiated on this front. But I would say that in terms of global investment level, including that and including also digitization on which we are going to continue even though at a probably lower level than in the past, I would hold to what we said at the Capital Markets Day, which was a 0.9% guidance on CapEx. I see no reason to change that. This was already included, I believe, in the plan that the team had presented in February. And so we continue with this plant, which is guaranteeing that, on digital and logistics, we continue to maintain and increase our differentiation level with other distributors. Laurent, for the question about one-offs.

[Laurent Delabarre, Chief Financial Officer]

Yes. On the one-off, you know that it's an inventory impact. You know that on the cable one-off inventory impact has been restated for years from our communication. On the non-cable one, it is impacting our performance. What we have looked on a country-by-country basis is what are, I would say, the exceptional inflation we have faced this year. And really by country, we said that around 1% to 2% is a kind of normal range of inflation we have. So this one has not been restated. It has been done granularly country-by-country basis. And the rest has been restated.And then on the other side, we have taken the one-off cost impact of higher commission for our sales guys and bonuses for our people, leading to a bonus of 80 bps on the gross margin and a negative of 40 bps on the bonus and commission leading to this 40 basis points. And to go one step further, yes, we anticipate next year, so in '22, to have additional inflation. And the global inflation should be we have on one side the carryover from '21. And on the other side, additional inflation coming from our supplier. And today, we anticipate to be around 3% plus, depending, of course, on a country-by-country basis.

[Operator]

Your next question comes from the of Lucie Carrier from Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

Actually, the first question is a little bit of a follow-up on what Laurent was discussing and is a question I've received a lot this morning from investors. I was hoping you could help us understand a little bit more on the top line guidance in terms of the underlying assumption, i.e., what did you assume in terms of a copper impact in 2022? How much do you assume in terms of carryover pricing from 2021 into 2022? Because I think there may be some uncertainty around the overall volume effect that you expected in 2022. So some color on the building blocks would be helpful, please.

[Guillaume Jean Philippe Texier, CEO & Director]

Okay. I can take it. I can take it on the copper impact. I mean, first of all, as Laurent mentioned, we will continue to see some inflation very clearly. The environment is inflationary on the non-cable part of the business. We have some carryover inflation, as Laurent was mentioning. And we will see some additional sequential inflation during the year. The early indications of all of our suppliers and the price increases are going in that direction.In terms of copper, we have an assumption in copper, which is basically stability and zero effect on our P&L of copper because copper -- I mean, in a way -- in the long run, I read all the analysis about scarcity of copper. And I believe that, indeed, we are going to see an increased difficulty in procuring copper. And so that's an inflationary trend in the mid-term. But in the short term, it's not our practice to bet on copper prices because it's a spot market. And so there is uncertainty here on which we took a middle assumption.In terms of volume, what I would say is that, overall, first of all, I was just relating the fact that we see a very strong underlying demand when we talk to our customers, when we look at their backlogs, when we look at our backlog. It's very clear in almost all countries in Rexel that the underlying demand is very high that the order books of our customers are full for the year and even beyond that, which means that there is no problem about demand.Now what is more of an uncertainty is 2 things. First of all, labor availability. We are talking about that when I was talking about logistics. But clearly, this is something that we hear more and more from our customers. It doesn't affect our operations at this stage, but it really affects the capacity of our customers to deliver and to deliver at the speed, which will be required to serve the high demand.And the second thing is materials availability, and we mentioned that during Q3 and Q4. We saw an increasing tension in the supply chain. We are able to juggle with that. We are able to provide and to ensure that our service level remains high with our customers. But clearly, this is creating a limitation to the ability of job to be executed. So those are 2 uncertainties, which goes on the other side of the high demand that we are seeing. And I would say that those 2 limitations, labor availability and materials availability in the long run, there are opportunities for distributors because, as I was mentioning, labor availability at our customers, we can help solve that either through logistics, I was mentioning that, but also through advanced services. We can help our customers focus on what their core business is in the long run.In the same way, scarcity of materials, we can also -- it's an opportunity for us to add value by proposing alternatives by also holding the right inventory, thanks to the relationship with our suppliers. But in the short term, those are uncertainties. So I hope I'm giving a little bit more color on the building blocks. So there is inflation. There is volume -- clearly volume potential in the U.S. where we see a good momentum, especially in the commercial and in the industrial businesses, which were still at volumes lower than 2019. We see good momentum, and we think this momentum is going to continue. The uncertainty -- in Europe, we will continue to see robust demand. The uncertainty on the volume part is around supply chain basically. I hope I answered your question, Lucie.

[Lucie Anne Lise Carrier, Executive Director]

Yes, that's very, very helpful. And just to make sure I understood well, the comment from Laurent, the 3% inflation on non-cable. Is that the combination of what you expect from carryover and additional prices. Is that correct?

[Guillaume Jean Philippe Texier, CEO & Director]

Yes, it is. it is. It is carryover plus the sequential inflation and then there is an uncertainty around copper inflation and then there is volume.

[Lucie Anne Lise Carrier, Executive Director]

Okay. Understood. Very clear. My second question is maybe to elaborate a little bit more on volume. Thank you for providing that slide, I think, where you are showing the volume effect in 2021 versus 2019 -- sorry, 2020. I was just wondering if you could give us this information versus 2019 for Europe and North America and whether you are now seeing, I would say, proper evidence of a better growth recovery in terms of volume in North America, particularly because it seems that it has been lagging.

[Guillaume Jean Philippe Texier, CEO & Director]

Yes, absolutely. We can give you the volumes versus 2019. Laurent, I will let you give you that. And I will make the comments on North America, absolutely.

[Laurent Delabarre, Chief Financial Officer]

Yes. So the volume versus 2019, we were at 0.8% in Q3, and we grew to 1.4% in Q4 in Europe versus '19. And over the year, we are up 4% in Europe. And in North America, we were close to minus 20% in Q3, knowing that we are above 2019 in the proximity business, but we are behind on large projects and industry. And we had a sharp recovery in Q4. So the minus 20% in Q3 became minus 9% in Q4. And on a full year basis, of course, we are still negative. But we see clearly a good momentum recovery on large projects and recovery on industry.

[Guillaume Jean Philippe Texier, CEO & Director]

But let me make a few additional comments on this minus 9%. I mean, clearly, the momentum is there. And when we look at the detailed analysis on the industrial and commercial projects, we see good volume momentum in the U.S. So we are very confident in the recovery and in the demand. Maybe one comment about the minus 9% in volume in Q4. First of all, you have to remember that between 2019 and today, we also selected a little bit the segments, the geographies and the customers, which we focus on. And that was part of our transformation, focusing on the most profitable segment, geographies and customers. And it led us to cancel our participation to some unprofitable businesses. And I think when you look at those 9% compared to 2019, you should also look on the other side to the very impressive margin appreciation that we have seen in the U.S. because one is a little bit the consequence of the other.And the second thing is, and I don't want to take that as a pure calculation because it doesn't make a lot of sense. But when I look at the backlog increase in the U.S. in Q4, the backlog increased almost completely offset this minus 9% in fact. And I -- the reason why I don't look at this as a pure math is that we are always concerned about the quality of our backlog because, obviously, there is a little bit of advanced ordering, which doesn't really belong to Q4. But nevertheless, it's an indication of the tension that we are seeing on the supply chain. So I think that if I remove selectivity and in top of that, if I remove the limitations, which are due to the supply chain, very clearly, we are back at 2019 underlying level in terms of volume. I hope it gives more clarity. And in terms of momentum, clearly, we are seeing positive momentum.

[Lucie Anne Lise Carrier, Executive Director]

And if I can just ask one last question around the dividend now. I mean this is stepping up meaningfully in line with your guidance. Can we consider the EUR 0.75 that you are now paying a bit of a new floor provided a normal operating year from here?

[Guillaume Jean Philippe Texier, CEO & Director]

I think we have given guidance in terms of distribution percentage at the Capital Market Day.

[Laurent Delabarre, Chief Financial Officer]

Yes, we had a dividend policy to distribute at least 40% of the recurring net income. This is just the pure calculation on that with a very impressive recurring net income this year. So far...

[Guillaume Jean Philippe Texier, CEO & Director]

Put it this way to see, I'm very confident in the economy, I'm very confident in our business, but I think it makes more sense from the financial balance of the company to have a guidance in terms of percentage of recurring net income. I'm quite confident that the recurring net income is going to be good, but I wouldn't transform that. I wouldn't take the bet of transforming that into a flow, an absolute flow in terms of dividend.

[Operator]

Next question comes from the line of Martin Wilkie from Citi.

[Martin Wilkie, Managing Director]

It's Martin from Citi. Just a question on the Mayer transaction. You've brought forward the synergies by a year or so. I wonder if you could talk a little bit about the underlying profitability of Mayer before you acquired it. I'm assuming it's been lower than Rexel, but just to think about how we should think about the opportunity once the synergies both this year and next have been achieved, just to understand how Mayer compares to the existing North American business.

[Guillaume Jean Philippe Texier, CEO & Director]

I think Mayer, first of all, provides leadership position in a good part of the U.S., which is quite dynamic in terms of momentum because what we can disclose is that the underlying growth of Mayer in 2021 was slightly higher than the average of the U.S. So it's a good and very active part of the U.S. And so Mayer is providing us with a leadership position. In terms of synergies, we talked about it. I think we have and we will continue to go through the quick wins. Now before that, there is going to be opportunities in terms of also further digitization, et cetera. Beyond that, what does it bring us in terms of overall in North America? I think it brings us scale also, scale and relevance to suppliers, which is quite important; to customers, which is also quite important. Any -- but like any acquisition would give that. I think Mayer gives us scale like any acquisition of this site would give. It gives us also a very great leadership position and a great name in the Southeast of the U.S. So I think those are the 2 things, which we are providing. And I hope also in terms of what I was saying about our M&A policy. I hope also that it gives assurance to the company that we could acquire that in terms of integration, there is a positive to be gained for both the acquired company and for Rexel, which is a good story for the future.

[Martin Wilkie, Managing Director]

And for 2022, you obviously got higher synergies. But would the transaction be meaningfully either dilutive or accretive to the North America margin? Or is it broadly in line with the...

[Guillaume Jean Philippe Texier, CEO & Director]

No, we will be -- with the synergies, we will be very close to the North American average, slightly lower, but very close.

[Operator]

Next question comes from the line of Daniela Costa from Goldman Sachs.

[Daniela C. R. de Carvalho e Costa]

I'll ask two. The first one is kind of a follow-up on margins. And I guess, sort of if you brought forward the 2023 target. Obviously, we still have high pricing carryover into next year. But I was just wondering if you still -- ex pricing, let's say, if prices reverse, do you think plus margins are still sustainable medium term? Or maybe put it another way, how much of the margin increase that you've had versus 2019 do you think is structural versus this exceptional situation that we are seeing on pricing? That would be a question -- the first one.And then the second one, kind of also on -- regarding medium-term views and your observations from having a look at the business now for a few months in terms of the cash conversion over 60%. I understand this year, you probably have to reinvest a little bit into working capital. But as you look longer term with the digitization and all the automation initiatives and things that Rexel has been doing, what's -- is this around 60% the right level to think about? Or are there opportunities to improve that cash conversion?

[Guillaume Jean Philippe Texier, CEO & Director]

On the margin part, I think to answer your question, which I will summarize that what is the part of inflation and what is the part of underlying improvement of the business. I mean, first of all, we delivered a 6.2% margin overall. We restated the one-offs due to inflation, as Laurent mentioned, to 5.8%. There is also a mechanical effect, which is due to the fact that there is inflation and there is a recurring effect of inflation. But there is still, if you compare to the margin that we had in 2019, which is 5%, there is still, I believe, a substantial appreciation, which is linked to operational excellence to productivity and to improvement of our processes, especially in the least profitable countries. But in fact, in all the countries.Now in the future, I mean, you were mentioning what happens is the price reverse. I think copper is one thing. But for the rest, I mean even for copper in the mid-term, I see clearly price appreciation overall in copper. But short term, I wouldn't bet on that. But mid-term, very clearly.And on electrical -- on the rest on non-cable materials, I truly think that the trend. And for the years to come, I mean we don't -- I don't give a guidance for several years. But that being said, the inflation environment is probably here to stay. So I'm really not betting on a price reversal in terms of non-cable products.So I guess the answer to your question is that there was indeed a substantial appreciation of the underlying performance of the business due to all the efforts that we were talking about, digitization, productivity, margin gains, pricing processes, et cetera. And for the future, I mean, what we clearly see for 2022 and probably beyond is a globally inflationary environment.Now in terms of the cash conversion level, what I would say, we have had the CMD in February where we gave overall guidance on cash conversion. We're going to have another one in June, where we're going to update you on the strategic plans and on the overall target. So I wouldn't answer to your question in between. I think at this stage, we are very comfortable with what we have said at the CMD and we stick to that. And we'll see in June if we have reasons to change that.

[Operator]

Next question comes from the end of Phil Buller from Berenberg.

[Philip John Buller, Research Analyst]

I have one on Mayer, which seems to be going very well and very quickly. What are your plans for more deals from here? And given what you just said on Mayer, would you expect bigger deals or smaller bolt-ons? And what should we expect in terms of the normal leverage going forward? Are you happy at these lower leverage levels? Or should we expect leverage to head back up again?

[Guillaume Jean Philippe Texier, CEO & Director]

Thank you. M&A, it also depends on the availability of -- availability of targets. So it's not something that can be easily programmed on a 1-year basis. That being said, I can give you some indications on the kind of targets that we are looking for. We really have 2 categories. There is consolidation in electrical distribution. And really, our sweet spot is what we have done this year. I mean my year is probably on the higher end in terms of size of what we do. We really like small and midsized acquisition, and I would qualify Mayer as a midsized acquisition.And there is another segment, which is quite of interest to us. I mean there are many new opportunities, and we talked about some of them, for example, EV charging stations, services, additional services. On those new activities, it may from time to time make sense to acquire a smaller company. This is going to -- those are going to be smaller-sized acquisitions in adjacent categories to accelerate our development there, to acquire talents, competence and to make sure that we gain a few years in terms of building -- in building our business in new attractive growth prospects. So those are the 2 kind of acquisitions that we are looking for. As I mentioned, in the future, we intend to be a little bit more active than in the past. But really in terms of the leverage that we planned, we had said at the CMD that we intended to be around too, and there's still our mid-term sweet spot in terms of leverage. But as I said, clearly, it depends also on the opportunities and on the availability of targets in acquisitions. But the last thing I would mention is that, clearly, the U.S. is one country where we see great opportunities both because the market is good, but also because we feel that, over the last few years, we have clearly turned around our business and built a strong platform, be it in terms of talent, in terms of processes and in terms of digital. So having built this platform, we think we can now leverage it to get bigger.

[Philip John Buller, Research Analyst]

Got it. And if I may just follow up on Daniela's question. I'm looking at your Slide 34 in the presentation on the digital and the excellence in operations pie charts, which are running around 1/3 colored in. I'm just trying to understand if there's anything we should infer from those, i.e., are these areas that might require some higher investment that could see margins turn back below the 6% level at some point beyond 2022 that we could hear about at the Capital Markets Day? Or is this 6% margin level a normalized floor?

[Guillaume Jean Philippe Texier, CEO & Director]

I won't get into long-term guidance at this stage. This is more the topic of Capital Markets Day. With that being said, as I answered at the beginning of the call, I'm very comfortable with the level of investment that we have right now and with what we gave as a guidance at the CMD, which is 0.9% of sales. We'll see what we guide for in the mid-term. But at this stage, I'm very comfortable that this level allows us to continue to invest in a healthy manner in the business, in the modernization of the business.

[Operator]

Next question comes from the line of Alexander Virgo from Bank of America.

[Alexander Stuart Virgo, Managing]

I wondered if you could just do a couple of things in terms of going to some granularity for us. I'm trying to reconcile in one sense the comments on Slide 24 about end markets being above 2019 and volumes being below. So just if you could clarify that for me. Second, I wondered if you could talk a little bit about the end-market dynamics you're seeing in terms of industrial versus construction in both North America and Asia and particularly in the latter sense in terms of China construction. I guess we've seen an awful lot of headlines around China construction in particular. And I'd be appreciative of your views of what's going on, on the ground. And in North America, I'm just thinking about the strength of organic growth guidance from some of your suppliers for the next 12 months and thinking about how that volume played into your own guidance.

[Laurent Delabarre, Chief Financial Officer]

Maybe I will start to remain on Slide 24. So we have 2 different situation. Europe with already some good momentum in volume versus 2019. It is mostly the segment of more and mid-sized customers to our proximity, made up a very efficient web shop plus branches. And on that, if we compare versus 2019, Europe was -- in terms of volume, I'm talking volume, was up 0.8% in Q3 versus 2019; 1.4% in Q4; and on a full year basis, 4%. Q1 and Q2 were, yes, higher also compared to 2019.In North America, the mix of our business is different. We are more in large projects and industry, what we call our proximity business, which is made of Radiant commercial. And yes, Radiant small commercial is around 40% of the mix. So where we are in those proximity business, such as in the Northwest of the U.S. or in Florida, we have above 2019 level. But because of, first, the recovery of the market, plus what explains Guillaume on the selectivity we made, explaining also the strong rise of our EBITA margin, volume are still behind. So Q3 was around minus 20% and Q4 was around minus 10, but you will see a gradual improvement. There's clearly a gradual improvement in some segments in the industry such as low oil and gas, recovering sharply from a very low point in 2020.

[Guillaume Jean Philippe Texier, CEO & Director]

But I think -- I mean, to comment on the industry in the U.S. as it was the core of your question, I believe this is a potential upside for us. As I said, I think the demand is high and particularly in industry in the U.S. And there is a potential to have a high demand. The question is going to be the ability. Once again, the availability of raw materials and the ability of labor to execute the project.And I think what's interesting is that the demand is high in the industry in the U.S. for 2 reasons. First of all, because there is a recovery movement in many sectors in the U.S. And Laurent was talking about oil and gas, chemicals also, we see activities there. And the second part is that, clearly, what I was mentioning, labor availability becomes a very big topic for many of our industrial customers. And what it leads us to do is, mid-term, to consider automation projects. And as you know, in the U.S., in many parts of the U.S., we are quite strong in industry automation and that will be opportunities in the mid-term.Now in the short term, are we going to be able to execute? Are our suppliers going to be able to provide the materials to serve this demand? That to me is the main uncertainty, and that's the reason why we could be considered as being a little bit cautious on this part of the guidance.

[Laurent Delabarre, Chief Financial Officer]

I think you had a question on construction in China. But unfortunately, in China, we are mostly industries. So...

[Guillaume Jean Philippe Texier, CEO & Director]

Yes, yes, I'm not sure we are extremely knowledgeable about construction in China.

[Laurent Delabarre, Chief Financial Officer]

No, no, we are -- in China, we are only serving the industrial markets, and we are distributing international brand. So almost half of our business is distributing Siemens product. We are distributing also Schneider, Rockwell and ABB. And again, only with industries. So we have no real exposure to the real estate market.

[Operator]

Next question comes from the line of Alasdair Leslie from Societe Generale.

[Alasdair Leslie, Equity Analyst]

So a couple of questions. First, on digital. I think you say you're now connected with all your strategic suppliers on the supplier portal. But how many are you now actively or, I suppose, contractually kind of exchanging data with? And what's the scope to kind of monetize this going forward? And I was wondering how much sustainability can be a driver here, given obviously suppliers' needs for more data, customer insight and you flagged there, you're working on sustainability charters as well on Slide 11. So do you see that as a big opportunity?And then the second question, which is quickly, you gave a portion of sales above 6% margins. I think that's now 67% versus 38% a year ago. Could you say how much is above 7%? I think you gave that a year ago when it was around 33%.

[Guillaume Jean Philippe Texier, CEO & Director]

We'll let Laurent decide whether he wants to give the above 7% proportion, it's a little bit detailed. On the relationship with supplier, you're right that we are in the middle of rolling out the supplier portal, which is quite interesting especially in terms of scarcity, in terms of data exchanges in both sides. I mean it allows the supplier to have a better visibility on what the demand is precisely. It allows the distributor to have more visibility and more precise data exchanges with the supplier on availability of materials. So it goes in the direction.And I think this is the main goal of the supplier portal. It goes in the direction of more intimacy and better service to -- ultimately, to our end customers. Yes, there is a monetization part of it. I wouldn't qualify it at extremely meaningful at the scale of the group. Really the main goal is to improve the service level and improve the intimacy with supplier in a way where a collaboration with suppliers is going to be increasingly important, both because of innovation and because of availability of products.I think in terms of this useful collaboration with supplier, yes, the next frontier is probably going to be about ESG, both in terms of data exchanges, about the ESG qualificative of the products and the solutions. And in terms of also of us being able to push specifically the portions of the offers of our suppliers, which are green and proven to be green. I personally believe, as I said, very much in the role of distributors in this sustainability transformation of the industry overall. And that includes a higher level of collaboration with our suppliers, many of them being quite committed also to sustainability. So I think we can create an ecosystem, which has the ability to push the right solutions to both -- to our end markets, be the construction or industry.So I think really, sustainability in terms of collaboration with our suppliers is an excellent year. And as you were mentioning, we have started to sign supplier charters with -- on sustainability with our suppliers, but this is only the first step, I believe. Laurent...

[Laurent Delabarre, Chief Financial Officer]

Yes, on the breakdown I will not give you the precise percentage, but we have 5 key countries that are north of 7% even if you restate the one-off. So they are -- this level of EBITA that are reachable for more and more countries what was designed in this slide. And the game changer in between before and between '20 and '21 is really the evolution of the U.S., which moved into the bucket above 6% this year.

[Guillaume Jean Philippe Texier, CEO & Director]

Sorry not to give the precise figure. But at least directionally, I think 7% is not unreachable for main country.

[Operator]

Next question comes from the line of William Mackie from Kepler Cheuvreux.

[William Mackie, Head of Capital Goods Research]

A follow-up actually on the same question about the chart of overall margins by country. Just looking at the lower end of it, you've said 30% or so is below the 6%. Can you describe what needs to happen to lift that final 1/3 up above the mid-term margin target of 6%? And how achievable that is? The second is more a question around your working capital and supply chains. You've highlighted the constraints to service levels due to availability of product. Could you provide perhaps a little color by region or by major product groupings where you're seeing the lead times on deliveries becoming overextended on the inbound of inventories? And perhaps on the other side of that, what is the policy with regard to working capital and stock levels going into 2022? Are you sending a signal to build the inventories into the first half of this year?

[Guillaume Jean Philippe Texier, CEO & Director]

Okay. I'll take the questions. Yes, there are a few countries, which are below the threshold of 6%. We believe that we have a strong and sound plan to bring them back to this level. I mean, two of them are well known. So those would be the U.K. and Germany, which are big countries. And I think we have the restructured plans, and we are seeing good progress there in Germany, as I was mentioning during the presentation. We have clearly gained market share, and we have very strong momentum with our customers, gaining new customers every month and progressing on all fronts in terms of profitability, be it in terms of productivity or in terms also of margin. So the action plans are very much about the basis here. I mean providing the right service level to then gain customers and then go to digitization to improve productivity. That's really what we are doing, and we are seeing very good progress there. And the U.K. is a little bit the same story but with variations because in those countries, we don't start always with the same basis in terms of customer mix, in terms of segment mix, in terms of network, in terms of people. In the U.K. also, we focus on the basics of service, on the basics of digital, on the basics of logistics also to make sure a little bit the same story that we ensure a maximum level of service. We regain customers. Sometimes we focus specifically on some segments. And I'm not going to enter too much into the details because that's competitive information. But we focus on some segments on which we see greater opportunities in terms of both margin and penetration, and that's the way we progress.And so I can clearly answer that, yes, we have plans for those countries to come back to the normative profitability level or else we would have done like we have done in the past, the perimeter changes to take the consequences of the fact that we didn't have serious and credible plans of getting there. So I'm quite confident on those countries.In terms of our inventory and working capital policy and shortages. First of all, shortages, we are starting to see difficulties in supply chain a little bit everywhere because they are due to several factors. I mean, there is a very well-known electronics factor. And you know that many of our products and more of our products are connected, those include electronic chips. And the availability of electronic chips is extremely difficult. It has been extremely difficult in 2021. We think it's going to continue to be difficult in 2022, at least in the first half, maybe a little bit less in the second half when I listen to our suppliers. But we will need to leave with scarcity in this category. And we have learned how to juggle with that and proposing alternatives to our customers, managing inventory to make sure that we are able to continue to service our customers.So chips is one factor. But last year, what we have seen also is supply chain difficulties due to transportation. We know very much about the issues about container ships in various parts of the world. So this is also creating availability issues on other categories, which do not necessarily include electronic components. And we have seen also on some other materials like plastic resins or like steel, for example, in some cases, spot availability issues. I think those ones are probably going to improve gradually in terms of all the raw materials and in terms of transportation. What is going to remain is the chips availability, which will take time and investment, as you probably know better than I, to completely fix. This is our new world. We are starting to -- we are learning how to live with that and how to be differentiated in this environment. It's not going to be very different from what we have experienced in the second part of last year. In terms of our inventory policy, we have automatic algorithm, which lead us to increase the safety stock when we see an increase of the variability in the lead times, not an increase in the lead time by itself, but an increase in the variability in the lead time. And this has led us to increase a little bit the level of inventory, the overall, by 2 days overall compared to 2019. So I mean, I'm not taking 2020, which was a little bit exceptional in terms of inventory. But if I compare to 2019, we are 2 days above. I think this is due to this -- through those algorithm, which are leading us to increase a little bit our safety stocks. But what I should say also is that our policy is not to build a pile of stock. I mean we are not speculating on further price increases. We are not speculating on availability of materials based on rumors. We are just having a rational policy in terms of inventory management. And for now, it has been quite successful, ensuring a high level of service to our customers while keeping our inventory under control.

[Laurent Delabarre, Chief Financial Officer]

Yes. And we anticipate 2022 to be stable to where we are today and depending also on, as pointed out by Guillaume, the level of availability. If everything is smooth, we will be able to reduce our inventory.

[Guillaume Jean Philippe Texier, CEO & Director]

[indiscernible] taken into account, yes.

[William Mackie, Head of Capital Goods Research]

That's very helpful. One final follow-up, sorry, could you -- it wasn't clear to me on the 4% to 6% revenue guide growth -- growth guide, what are your core assumptions about the contribution from copper?

[Laurent Delabarre, Chief Financial Officer]

We say that copper is zero. We assume that current copper price, yes. In fact, it will be a small help in the first part and a smaller headwind afterwards. So overall, zero on the overall, yes.

[Operator]

Next question comes from the line of Andre Kukhnin from Credit Suisse.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

Just a quick couple of follow-ups. First, on your margin guidance for 2022, when you preannounced in January, you already talked about over 6% for 2022. And since then, you've pulled the Mayer synergies forward. So I wanted to check, should we think about Mayer synergies message today is incremental? Or was that already kind of taken into account when you preannounced in January, just given the open-ended nature of your margin guidance? I want to double check that.

[Laurent Delabarre, Chief Financial Officer]

Okay. No. I mean the answer is that it was already included in the guidance in January. So you shouldn't add the synergies -- the additional synergies to the guidance. The announcement in January was a very short one. It was mostly a results update. So we kept it not too detailed but we already had that in mind the fact that the synergies on Mayer would be there. But I have to add probably that the guidance is not 6%, it's more than 6%. So the 6% would be a floor.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

Yes, yes. Okay, that's very clear. And just on the price carryover effect, you talked about over 3%, including further price increases by suppliers. Can you quantify just pure carryover effect? I have it down at kind of over 2.5%, but I want to double check with you, please.

[Laurent Delabarre, Chief Financial Officer]

The carryover will be around 2%.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

Okay. Perfect. And final question is a broader one. Can someone touch on what you talked about before just now with the kind of high adoption of electronics. Would this industrial IoT proliferation and rising demand for things like connected sensors and gateways and other edge devices. Could you talk about how you're positioned in those product categories versus more traditional automation and building controls? And whether they carry any kind of different margin profile for you than others?

[Guillaume Jean Philippe Texier, CEO & Director]

We are -- that's a good question. I think we are well positioned in those categories, especially due to the fact that we often offer additional services linked to that. I wouldn't say that the margin profile is so different, maybe a little bit higher. What would you say, Laurent?

[Laurent Delabarre, Chief Financial Officer]

Well, I would say that, of course, we are selling solutions. So a good combination of products. So it helps us to sell more. And then those products are more expensive, and the margin is globally in line with the previous generation.

[Guillaume Jean Philippe Texier, CEO & Director]

So it's more a growth play than a pure margin play.

[Operator]

Next question comes from the line of Christian Devismes from ICC (sic) [ CIC ].

[Christian Devismes, Analyst]

One question for me. It is on the effective tax rate. It stood at 27.3% in 2021, down 340 basis points. Should we consider that level is, say, the new normative tax rate for the coming years? I could make perhaps some comment about the fact that tax rate decline in France and perhaps the share of your profit in the U.S., it's increasing a lot. So could you make some comment about your effective tax rate for the years to come.

[Guillaume Jean Philippe Texier, CEO & Director]

Yes. Thank you, Christian. So I commented that 23 plus is very low because -- well, last year, we have written down some deferred tax assets. This year, we are recognizing again with a one-off impact. The normative tax rate is more around 27%. It's kind of new guidelines to be below 30 first because of the taxable rate in France going down and also because we have permanent difference that are quite stable in amount and that are better absorbed by a higher profit before tax. So we have the kind of dilution of this permanent difference that is also helping us a lot.

[Operator]

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

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

Just a few questions on your guidance again for organic growth of 4% to 6%. Just stepping back, with all the non-resi momentum in the U.S. the residential market in Europe and the energy transition, you said the market is good. But according to what you're saying, basically implies volumes of around 2% in 2022. So how does that compare to market quote which you benchmark? And when would you expect volumes to pick up more meaningfully to mid-single digits, perhaps? And lastly, do you think at some point, your non-cable prices need to come down as the economies reopen to allow volumes to start coming through?

[Guillaume Jean Philippe Texier, CEO & Director]

I mean, first of all, I think I would come back to my initial comments about the volume guidance. The volume guidance is -- I mean, there is no specific volume guidance, by the way. But our volume expectations are determined more by the ability to service and by demand. I think it is very clear that the demand level is high. There is no issue with that. But clearly, the year is going to be determined by 2 things: labor availability at our customers to execute and the ability of our suppliers to provide the materials. That's basically what it is.And so I think making comparisons to the end markets, for example, from this point of view, wouldn't make a lot of sense because it's really, today, supply constraint rather than demand constraint. So that's clearly the story. And there is uncertainty around that. It can be better than what we have said. Maybe it's a little bit conservative. And in this case, we will come back to you at the CMD to update if things go better. But that's clearly the logic behind our guidance.On the second part, which is will the non-cable pricing go down at some point when economies reopen? I think everywhere I look -- I mean, let me take a step back. First of all, I'm not going to predict too much about the future years. That's probably going to be more questions for the CMD. But that being said, when I look at our environment, it is very clear that we are seeing an acceleration, acceleration of electrification. I had a slide showing that. But in more and more categories, we are seeing really a change of slope of the demand. And the change of slope of the demand will require investment in terms of manufacturer production, investment in terms of raw materials. And I'm not absolutely sure that the industry is going to be able to go as quick as the demand acceleration.So in general, I think we are in an environment where scarcity is going to become more important. And therefore, it's going to provide the support on pricing. On a short-term basis, I don't know what it's going to be. I can only say that apart from lighting where there was specific reasons on nonelectrical categories, we have never seen deflation in the past. So I mean the past is never an explanation for the future, but that gives you a few elements to answer the question.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

Great. And just very quickly, on margins and the 40 basis points of net positive effect in 2021, was that all of it in the second part of the year? And is there anything lapsing into the first half of 2022?

[Laurent Delabarre, Chief Financial Officer]

Yes. At group level, we've seen our H1 communication that it was offsetting each other. So it materials a lot in H2. But in fact, in detail, it started in second half in North America. But in North America, we had already additional bonuses, plus we started to have also bonuses in Europe. So we'll have a first impact in H1 in North America, and the biggest part will be in H2 in both Europe and North America.

[Operator]

And the last question comes from the line of Supriya Subramanian from UBS.

[Supriya Subramanian, Equity Research Analyst of Industrials]

Most of my questions have been answered. Just one question around the long-term trends that you're seeing in terms of increased electrification and increased demand for energy efficiency products. Could you share some details around which other regions which you think are moving faster than others in this space? And also, any indication of what proportion of your product sales sort of fall under the energy efficiency category versus the traditional electrical goods product?

[Guillaume Jean Philippe Texier, CEO & Director]

That's interesting -- that's an interesting question. I mean in terms of electrification growth trends, I mean, first of all, it's clearly -- in many cases, it's linked to sustainability concerns. And traditionally, Europe is a little bit more advanced than some part of the U.S., but we are seeing from this point of view in terms of regulations, in terms also of push towards that. But we see in the U.S. going up quite quickly under the pressure by the way of financial markets, which are quite international also.And so sustainability drives a need for reduction in CO2 content. Need reduction of CO2 content requires 2 things basically, electrification and renewable source of electricity. And so we are starting to see that in every parts of the world, driven by a universal trend towards basically sustainability and ESG with more advanced markets in Europe, for example. Our biggest market for some categories like heat bond charging stations would be more in Europe or in France, for example. We have more active categories there.In terms of what categories are impacted, I would come back to the slide, which I had in the presentation, which is -- I don't remember what the number of the slide is, but there was a symbolic pie in 3 parts, 1/3, 1/3, 1/3. And I think it's important to reemphasize that. 1/3, the first 1/3 was the typical category that everybody thinks about, charging stations, photovoltaics, heat pumps, for example. All those categories, which are growing extremely fast because, in many cases, they are subsidized by the countries just to push the sustainability agenda. This is one part. And it represents roughly -- I mean, I could give you more details, and I will probably do that at the CMD, but it's roughly something like 1/3 of the business. But it's not the only part of the business, and I think this is the important point, which is impacted by electrification, because when you start to have -- for example, in the house, when you start to have PV panels, when you start to have EV chargers in the house, then you need to start to have smart electrical load management in the house because you will need to manage an important load charging several vehicles and especially when you go to fast charging is going to have an EV impact on the grid on the system. The same way photovoltaics, if it becomes widespread, it's going to create issues in terms of too much power generation, in some cases, which is going to require batteries and smart management of the electricity at the local level, at the building level. And all of that creates a need for renovation of the electrical system as a whole. You see that those categories, breakers, electrical distribution in general, cable management are things which are -- which you don't think about when you think about electrification. But in reality, they are going to be slightly impacted because those 2 are going to have to modernize.And so because of that, I think that a bigger part that this 1/3 that everybody thinks about is, in general, impacted by the growth trend of electrification. And not to mention the fact that this acceleration, as I was mentioning in response to several questions, is also going to have an impact in terms of availability of material, in terms of scarcity and in terms of inflation, which means that I hope that we are going to see also a strong support for pricing in the next few years because of that. So I hope it answers your question, but basically, growth and electrification is everywhere if I summarize my answer to your question.

[Operator]

I would now like to hand back over to the speakers for final remarks.

[Guillaume Jean Philippe Texier, CEO & Director]

I mean thank you for participating in this results call. I mean, I've said what I had to say. Basically, if I summarize my main messages, first one is that those were historic results to Rexel. We owe that both to a good market. And I think I shared my confidence in the fundamentals of the market for the future, but it also has to do with the strong transformation that the company has been leading under the leadership of my predecessor, Patrick Berard, and that we will continue to push on. We see opportunities for the future. Very clearly, we are going to operate in 2022 in an environment, which is going to be both characterized by high demand but also the need to continue to navigate in supply chain tensions. And I think I look forward to meeting you in Zurich for the maximum of you physically, if the COVID constraint allow us to do that in Zurich because I don't want to make too much of an advertisement for that, but it's clearly an impressive range. And I think you can watch us on the Internet very clearly. But if you can make sure that in your agenda, you have some room to go there. I think you will learn more about Rexel, about the fundamentals of the business. And I hope that it will help you share even more our confidence in the future of the company. Thank you very much.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.