De Longhi Spa

Good afternoon. This is the CoreSchool conference operator. Welcome and thank you for joining the De'Longhi 1st of 2020 Consolidated Results presentation. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Massimo Garavaglia, CEO. Please go ahead, sir.

Thank you and good afternoon, everyone, or good evening, everyone. Welcome to the De'Longhi Group First Half 2020 Result Conference Call. Today, here with me in the room, I have Marco Cenci, our Chief Strategy and Control Officer, Stefano Biella, our CFO, Fabrizio Micheli, our Director of M&A Investor Relations, and Samuel Chiodetto, Investor Relator. Before I go to the illustration of the Q2 results, I'd like to give you a quick update on the COVID-19 outbreak and the measures and activities that we've been putting in place in the past months and still today to keep our business running and to continue to implement our plans and increase our commitment towards all the stakeholders involved in this very complex period. First of all, we've been working over the last month to implement all the possible measures to protect our employees and to guarantee flexible working practices As we all consider here at Elonghi that the safety and the well-being of our people, who are really the engine of our group, are top priority for all of us. Secondly, the pandemic crisis has really stressed the supply chain and the main distribution challenge everywhere in our industry. To avoid any disruption and limited consequences, we have closely worked with our suppliers, with our customers, with our partners, with our distributors both in the offline and online world in order to overcome the difficulties arising in this context. We have increased our focus on the communication in this period and we have been continuing supporting better our brands with the intention to continue to serve our customer and the final user of our products. Our factories. In our factories, we have implemented flexible models, flexible working models, in order to maximize the production capacity utilization. You can see that in slide seven, if you have the presentation in front of you. And at the time, we have been continuing to invest in optimizing and expanding our manufacturing capabilities. For instance, we have completed the investment that was planned in our new Romanian factory that is now fully operational and is ramping up to a regime level as we speak. Last but not least, we have in this difficult period carefully managed our financial position to retain the necessary room to support our growth and any strategic development that may arise in the future. Now, let me bring you to a quick overview of the Q2 and half year results. before then I open the floor for a Q&A session. I'm going now to the slide 10 and the following slides. The first six months have witnessed the strong resilience and flexibility of our group that has allowed the company to achieve the results that I have to say have been definitely above the initial expectation of some months ago. Looking at the first six months, the revenues were up by 6.9% at the normalized level, with an acceleration in the second quarter that was up 8.2%. Despite the difficulty that arose due to the past months, the group was able to achieve a significant growth in the main product categories, in the core categories of the longings. had maintained a positive trend delivering a double digit growth driven by the expansion across all the portfolio from the automatic machine to the manual pump machine. The food segment was stable in the first half driven by a double digit rebound of the Campbell kitchen machine and the old portfolio has seen an acceleration in the second quarter. We also recorded an important development in the comfort portfolio, mainly driven by significant growth in the mobile air conditioning in the last months. On the contrary, to say the trend in the home care segment has been penalized by a negative market trend, and the consequence of that are the consequences of the changing consumer preference in this period. If we look then at the geographies, the Southwest Europe region grew by nearly 12%, exactly 11.8% in the first half, thanks to a remarkable expansion of the revenue in Germany and in France, a positive contribution for all the other countries, with the exception of Italy, that was really hit by severe consequences of the lockdown, but anyhow, that shows a sign of positive recovery in the second quarter. The Northeast Euro was up by 5.5%, supported in particular by double digit growth in Benelux, in Scandinavia, and also a positive growth in Poland, in UK, and Russia. The upper region grew by 10%, boosted by Australia, New Zealand, and China, that were all up by double digit. US and Canada also recorded a positive growth in both quarters of the first semester. The Maya region was the only region that continued a negative trend, also in the second quarter, really affected by a tough macroeconomic environment and the effect that was adding to the effect of the pandemic on the consumer behavior. I go now to the margin. In the six months, if we look on a normalized basis, the net industrial margin improved from 47.2% to 49.1%, so it's up 1.9%. The adjusted ABA grew by 21.5% to $118.8 million. 13.2% of the total revenue and 14.5% in the quarter with an increase by nearly 1.6% versus the same period of 2019. This increase was supported by positive effect on volumes, on the product mix, was a consequence of a strict price discipline in our commercial policy and was only partially eroded by an increase in some operating costs, especially, we'll come back on that in AP, and higher duties in the U.S. Finally, The adjusted net income was $47.9 million in the first half, up 6.8% versus the prior year. If now we go to the balance sheet, and I'm now on slide 17, the net financial position at the end of the semester reached $388 million. which marked an important improvement over the last six months. The free cash flow before the dividends in the six months amounted to $110 million after investment of around $41 million, while in the same period of last year it was $9.6 million. So this is a net of $77 million last year of the IFRS 16. Regarding the working capital, the value at the end of June was $228 million, a decrease of $116 million compared to the value at the same time last year, with a record performance for what is concerning the working capital that is now declined to 10.6% of the total revenue. for the number at the end of the semester. To conclude my introduction and obviously remind you to the presentation with all the details that we provided you, I have to say that the first half of the year was definitely characterized by performance above expectation, as I mentioned before, tend to a clear resilience by some of the product categories where Delonghi is a global leader, namely the espresso coffee machine and the food preparation and kitchen machine. These results were made possible by the flexibility, the adaptivity of our organization, and also by the preference that was shown by the consumer in all these segments for improving the home experience. Changes that we consider, and obviously with a different degree of evolution, and obviously with all the consideration that we have to do in the future, will probably in a certain way persist also in the months to come. Some of these transformations that we have been seeing accelerated by the lockdown could probably remain in the consumer behavior indefinitely. in the distribution channel also in the future. In this concept, still considering a very large uncertainty obviously due to the overall macroeconomic landscape and the reduced visibility for what is concerning the evolution of the pandemic, We believe that after the results achieved in the first half of the year, reasonably we could expect for the year an organic growth for the whole 2020 in the mid-single digit and an adjusted BDA in value with an improvement versus 2019. I want to thank you for listening my introduction and please is open for a session of Q&A here then.

Excuse me, this is the COSCO conference operator. We will now begin the question and answer session. The first question is from Nicola Longley with Exana. Please go ahead.