De Longhi Spa

Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the De Lunghi first quarter 2021 consolidated results. 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 the De'Longhi Group. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group's first quarter 21 results conference call. Today, here with me, I have a macro change chief strategy and control officer, Stefano Bielna, CFO, Fabrizio Micheli, Director of M&A and Investor Relations and Samuele Chiodetto, Investor Relations Manager. I'm happy to announce that last month marked a record first quarter for De'Longhi, both in terms of sales and margin. Let me thank, first of all, all the employees and business partners which sustained and supported the group to achieve these outstanding results in a still very complex and uncertain environment. I think it's worth highlighting that the strong expansion obtained in the first three months of this year compares with the mid-single-digit growth achieved in the same quarter of last year, despite at that time the initiative negative effect of generalized lockdown. During the first month of 2021, consumer demand was a driving force behind the group's performance, but reinforced by the success of the launches of new products in the last months and by an higher spending on communication and very effective marketing activity to support our core brands. These conditions have allowed the group to seize the opportunity offered by the market, creating the condition to maintain a favorable trend in the remaining part of the year. In particular, looking at the A&P investment, the group has prepared and launched many activities to sustain the brands and to improve the consumer experience and engagement, such as the Kenwood Club initiative, the coffee lounge, and all the activities related to the Browns' 100-year anniversary. Over the year, other events will be announced and launched to explore the full potential of our products and brands in the coming quarters in line with our MTP, medium-term plan, strategy. In the last 12 months, The group has shown extraordinary personal, industrial and organizational flexibility in adapting to the new market dynamics and the new challenges. The manufacturing platform has been working at full speed in order to meet the growing demand from the markets, overcoming difficulties in the supply chain. Furthermore, the several complexity created by the pandemic have been put under control thanks to the dedication of our teams who were able to efficiently manage organizational and operational issues. Now let's take an overview of the full year of the results before opening the floor to Q&A session. Let me make you notice that the reported figures include the consolidation of Capital Brands Holdings, whose acquisition has been finalized on the 29th of December of last year. The consolidated revenues of the first quarter amounted to 678.7 million euros, growing by 72.6%. Expansion of the group on a like-for-like basis would have been 59.1% with sales of 625.7 million up 64.7% of constant exchange rates. During the first quarter of 2021, on a like-for-like basis, almost all the product categories achieved double-digit growth, supported by the planned increased investment in communication and marketing to support our brands. In particular, the world of coffee was favored by the expansion of all the main segments, with full auto machines growing above the group's average at constant exchange rate. The cooking and food preparation segment has benefited from the increased attention of consumers toward products related to the home experience and innovative solution, as well as to the themes of healthy food and nutrition. In detail, the kitchen machine segment achieved triple digit growth in the quarter, while remaining main subcategories achieved significant double digit growth. As regards to the rest of the business, both the cleaning and iron segment and the comfort segment achieved positive performances with a significant acceleration in the portable heater category. Now, looking at the geographies, always on a life-for-life basis, the Southwest Europe grew by 59.7% with all the main categories accelerating strongly, in particular Italy, France, at a rate higher than the group's average. Northeast Europe also recorded double-digit growth, plus 59%, showing a particular robust expansion in Poland and the United Kingdom. Here, the negative forex penalized growth by approximately 10 percentage points. America achieved significant growth, on a like-for-like basis, plus 63.3%, despite a negative current effect of approximately 14%. The major regions, Middle East, India and Africa, recovered strongly from last year, with a growth of 149.4%, supported by significant expansion of all the countries in the region. And finally, Asia-Pacific, delivered an expansion of 21.3%, supported in particular by the brilliant trend in coffee and portable heaters. Looking at the margin evolution in the first three months, I would like to highlight. Firstly, the net industrial margin, equal to $355.1 million, improved in terms of percentage of revenues from 50.4% to 52.3% with a growth of 79%, thanks above all to higher volumes and positive contribution of price mix. The adjusted BDA amounted to $128.6 million, equal to 18.9% of the revenues. On a like-for-like basis, it stood at $117.4 million with a sharp improvement in the margin on revenues from 10.7% to 18.8%. And finally, the net profit landed at 80.9 million, equal to 11.9% of the revenues, would be 72.7 million on a life-for-life basis, equal to 11.6% of the revenues. Now going to the balance sheet, the net financial position as of the end of the quarter stood at $318.2 million with a net cash generation of $86.2 million in the quarter after capex of $19.8 million. Over the last 12 months, the free cash flow before dividends and acquisition was $393.3 was almost entirely covering both the acquisition of capital brands for 329.3 million and the distribution of 80.8 million of dividends. The net working capital improved significantly compared to last year. The increase in inventory was widely offset in the 12 months by an improvement in DSO and the better management of the trade payables, thus bringing the ratio of the net working capital to revenues down to 3.8%, a marked reduction compared to last year, but in line with the values reached at the end of 2020. The operating working capital stood at 9.6% on the revenues. Closing my introduction, let me say that these outstanding results achieved in the past months, further consolidated the group standing among the global leading players in the small domestic appliance sector. Thanks to his positioning in terms of the long, sorry, the long he was able to see the various opportunity coming up in the market and to his position in terms of products and to his extraordinary flexible organization. In particular, the continuity of the sound trend in coffee and increased attention of consumers toward the domestic space have strengthened expansion in the household appliances, maintaining or enforcing our positive expectation for the rest of the year. In addition, the management of complexity arising in recent times has shown the resilience and adaptability of the group. consolidated a foundation for a sustainable growth identified in our medium-term plan. As a conclusion, based on the strong evidence provided by the first quarter of this year and the current development in Spain, we decided to revise upwards the previous guidance for 2021 and for the new perimeter, including capital brands, We now forecast revenue growing at the cost of this range rate at a pace comprised in the range between 28% and 33%. It equals a range between 18% and 22% on a life-for-life basis, with an adjusted BDA in line with 2020 as a percentage of revenues. While growing, we will continue to fund our increasing AP investment aimed at a medium-long-term expansion in line with our NTP strategy. And now I would like to open the floor to the Q&A session. Thank you very much.

Excuse me. This is a course called 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 touchstone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question is from Murad Lamidi of Exane. Please go ahead.