2008 Registration Document - Rexel

6.1.2 SeasonalityNotwithstanding the relatively low degree of seasonalitywithin the Rexel Group’s sales, there is seasonality in cashflows due to variations in working capital requirements, with,generally, about half of annual free cash flow generatedin the first half, a low third quarter due to an increase inworking capital requirements as a result of higher sales inSeptember, and a strong fourth quarter.6.1.3 Effects of changesin copper pricesThe Rexel Group is indirectly exposed to fluctuations incopper prices in connection with the distribution of cableproducts. Cables accounted for 18% of the Rexel Group’ssales, and copper accounts for approximately 58% of thecomposition of cables. This exposure is indirect sincecables prices also depend on suppliers’ commercial policiesand on the competitive environment in the Rexel Group’smarkets. Changes in copper price have an estimated socalled“recurring” effect and an estimated so called “nonrecurring”effect on the Rexel Group’s performance:− The recurring effect related to the change in copperbasedcables price corresponds to the change in valueof the copper part included in the selling price of cablesfrom one period to another. This effect mainly relates tosales;− The non-recurring effect related to the change in copperbasedcables price corresponds to the effect of copperprice variations on the selling prices of cables between themoment they are purchased and the time they are sold,until all such inventory is sold (direct effect on gross profit),offset, when appropriate, by the non-recurring portion ofchanges in the distribution and administrative expenses(essentially, the variable portion of compensation of salespersonnel, which accounts for approximately 10% of thevariation in gross profit).6.1.4 Comparability of the RexelGroup’s operating resultsThe Rexel Group has undertaken a number of acquisitionsand disposals, and exchange rates may fluctuate significantly.Additionally, the number of working days in each period hasan impact on the Rexel Group’s consolidated sales. Finally,changes in copper price have an impact on Rexel Group’sfinancial performance. For these reasons, a comparison ofthe Rexel Group’s reported operating results over differentperiods may not provide a meaningful comparison of itsunderlying business performance. Therefore, in the analysisof the Rexel Group’s consolidated results below, financialinformation is also presented restated for the followingadjustments.Exclude the effects of acquisitions and disposalsThe Rexel Group adjusts results to exclude the effectsof acquisitions and disposals. Generally, the RexelGroup includes the results of an acquired company inits consolidated financial statements at the date of itsacquisition and ceases to include the results of a divestedcompany at the date of its disposal. To neutralize theeffects of acquisitions and disposals on the analysis of itsoperations, the Rexel Group compares the results of thecurrent year against the results of the preceding financialyear, assuming that the preceding financial year would havehad the same scope of consolidation for the same periodas the current year.In the year 2007, the Rexel Group acquired NCA (Australia),APPRO 5 (France), Clearlight Electrical (United Kingdom),Tri-Valley Electric Supply (United States), Boutet (Belgium),EIW (Australia) as well as 51% of Huazhang ElectricAutomation (China). The total amount of such investmentswas €116.8 million for the 2007 financial year includingprices adjustments on previous acquisitions. This amountis the price paid for the shares or assets acquired reducedby the acquired cash. In the same period, the Rexel Groupdisposed of the activity of the company Kontakt Systemein Switzerland, deemed non-core, for an amount of€4.9 million.In 2008, the Rexel Group acquired Beacon Electric SupplyCompany, an electrical supplies distributor in the area ofSan Diego in the United States, the business of the ABKElectrical Wholesale Pty. Ltd Company, an electricalsupplies distributor in Australia, Egleys Electrical in NewZealand, Espace Elec and NFM SA in France, and B.V.Electrotechnische Groothandel J.K. Busbroek in TheNetherlands. These acquisitions amounted to €59.0 millionnet of cash acquired, including prices adjustments onprevious acquisitions.In 2008, the Rexel Group also acquired Hagemeyer in theOffer. As of December 31, 2008, Rexel owned 99.13% ofthe outstanding shares and all of the convertible bondsoutstanding for an amount of approximately €3.2 billionthrough its subsidiary Kelium. The Assets Sales werecompleted in June for an amount of approximately€1.6 billion. In addition, Rexel disposed of its activities inGermany to Sonepar for an amount of €177 million andacquired from Sonepar its activities in Sweden for anamount of €86 million. In total, the Assets sales and theAssets Swaps resulted for Rexel in a reduction of its netdebt of approximately €1.7 billion.Exclude the effects of fluctuationsin exchange ratesFluctuations in currency rates against the euro affect theeuro value of the Rexel Group’s sales, expenses and otherbalance sheet items as well as the income statement.Nonetheless, the Rexel Group has a relatively low exposureto the transaction risk of dealing in different currencies,as cross-border transactions are limited. To neutralizethe currency translation effect on the comparability of itsresults, the Rexel Group compares its historical figures forthe current year against the same period of the prior yearfigures, using for these figures the same euro exchangerates as in the current year.REXEL 2008 | PAGE 69