De Longhi Spa

Good afternoon. This is the Course Call Conference Operator. Welcome and thank you for joining the DeLonghi Full Year 2020 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Massimo Garavaglia, Chief Executive Officer of DeLonghi. Please go ahead, sir.

Ladies and gentlemen, good afternoon to everyone, and welcome to the DeLonghi Group's 2020 Full Year Resource Conference Call. Today, here in the room with me, we have Marco Cianci, our Chief Strategy and Control Officer. Stefano Biella, our CFO, Fabrizio Micheli, our Director for M&A and Investor Relations, and Samuele Chiudetto, our Investor Relator. First of all, let me start this presentation by thanking all the stakeholders that have enabled Elonghi to achieve outstanding results in 2020, facing the many challenges that this period has brought into our lives. In effect, the difficult times and unexpected developments that we went through required from all the people an extraordinary flexibility and responsiveness. All our employees all over the world have been showing an extraordinary commitment that supported the group in many ways witnessing resilience and dedication at all times. The pandemic crisis has put the supply chain during the year and the main distribution channel under heavy stress everywhere in our industry. And we had to work closely with our supplier, with our partners, with our customer and distributors in order to overcome the difficulties. From an industrial point of view, despite the complications and temporary closures encountered by our factories, especially at the beginning of the year, the group has shown great flexibility and resilience, allowing workers to operate safely and being able to deliver our products to the customer. In this regard, our industrial investment plan as continue and therefore help to expand our production capacity both on our Chinese and European platforms. On the commercial side, the lockdowns have inevitably favored an acceleration of the online world both as a distribution channel and as a new way to communicate with the end consumers. The action taken as a whole have allowed the group to take advantage of the trends underway in the market, which have shown an increased attention of the consumer toward the domestic environment, favoring purchasing choices toward products related to the home experience. Therefore, these positive trends already in place in the coffee makers and kitchen machine in the first quarter of 2020, therefore before the pandemic, with a substantial acceleration in the following months with growth rates higher than what we have initially foreseen. This positive effect found further support from our long-term investment strategy in marketing and communication as well as in the launch of new products in our core strategies. Now, let's take an overview of the full results of the year before opening then the floor for Q&A. Let me remind you, first of all, that in order to provide the two figures on a life-to-life basis with last year, we may now present also normalized value, which excludes the effects of some changes in accounting treatment of financial contribution and discounts. which have been applied since Q4 of the prior year. Let me also make you notice that consolidated balance sheet of December 31st 2020 includes the consolidation of Capital Brands Holdings whose acquisition was finalized on the 29th of December 2020. Looking at the full year, Revenues were up by 12.4% at the normalized level, which means 14.3% on an organic basis, sustained by a strong fourth quarter up 10.1% normalized and 13.6% organic. In the last 12 months, all the core product segments of the group grew, supported by the strong trend envisaged by the home appliances and by the investment of the De'Longhi Group in brand communication, product innovation, and digital strategy over the last two years. The coffee segment achieved a double-digit growth, driven by the expansion of the full automatic and manual machine. Cooking and food preparation was back to growth in the 12 months, thanks to the remarkable developments of the Kenwood kitchen machines. We also recorded a positive performance for the rest of the business, in particular with the significant expansion of the mobile air conditioning and floor care products. Looking at the geographies at the normalized level, all the macro regions witnessed a positive trend in revenues with the only exception of the Middle East media region. Southwest Europe grew by 17.4% driven by double-digit performance of Germany, France, Switzerland, Spain and Portugal. Double-digit growth also for the Northeast Europe supported by the very important development in the UK Russia, Ukraine and CIS countries, Scandinavia and including also Finland. The Asia-Pacific Americas region, our upper region, posted a double-digit growth expansion with a particular strong performance in China, Australia and New Zealand, and with an important growth in Japan, Korea and North America. Lastly, as I mentioned before, Middle East region, our mayor region, was in a negative territory in a year, although with a partial recovery in organic terms in the last two quarters. With regard to the profitability over the 12 months in normalized terms, The net industrial margin improved from 47.3% to 49.6% with a growth of 18%, thanks mainly to higher volume and the positive contribution of the price mix effect. Adjusted EBITDA amounted to $383.3 million, so with an increase of 27.6% with a significant improvement as marginal revenues from 14.3% to 16.2%, despite greater investment in marketing and communication, which reached an incidence on revenue at 12.4% compared to an 11.7% in 2019. Finally, the net profit amounted to $200.1 million, equal to 8.5% of revenues and up by 24.3%. The third quarter, we noticed a similar strong progression in both the net industrial margin, 49.6% of the revenue, and adjusted the BDA, 18% of the revenue. confirming the traditional relevance of the last quarter of the year in the generation of the annual margins. As to the balance sheet, the net financial position on December 31, 2020, landed at $232 million, including the financial effect of the acquisition of capital grants that amounted to $329.3 million. However, excluding the acquisition of capital grants and the payment of dividends for $80.8 million, the cash position improved by $364.3 million even after the investment in the year for $89.5 million. With regard to the net working capital, the closing value was significantly improved thanks to the reduction of trade receivable and an increase in trade payable falling and acceleration in purchases in the last quarter. With investor inventories substantially under control, the ratio of the net working capital to the 12-month revenue was down to an exceptional value of 4.1%. If we exclude the capital brands, we are at 3.9%. delivering a marked reduction from 15.2% at the end of 2019. Closing my introduction and before the Q&A, let me say that the 12 months of 2021 will be equally challenging on several fronts due to the still unstable macroeconomic scenario and to the business complexity brought in by this volatile environment. Despite such circumstances, the group will continue in person the path of increasing investment in brand communication and in new product launching, strengthening also our digital strategy with further investment. Moreover, the company will reinforce the organization and commercial structure in support of product innovation and sustainable medium-term growth. Having said that, The positive underlying trends in our core category are still in shape, and we sustain a positive performance of the group in the coming quarters. Based on the strong evidence provided by the first week of 2021, we estimate a growth in sales on a like-for-like basis in the first quarter at around 50%. which leads us to raise the previous guidance and for this reason to estimate the organic growth of revenues for 2021 including capital brands in the range of 22% to 26% while on a like-for-like basis between 12% and 15%. This important role together with the support of the price mix will be essential to fund Our increasing investment aimed at sustainable growth in the medium term, at the same time allowing us to achieve an adjusted report at the BDA for the new perimeter, substantially in line with 2020 as a percentage on revenues. And now I will open the floor to the Q&A session. Thank you very much for the time being.

Excuse me, this is the chorus call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question is from Nicola Soder of Kepler. Please go ahead, sir.