De Longhi Spa

Good afternoon. This is the Coruscant Conference Operator. Welcome and thank you for joining the De'Longhi Third Quarter 2021 Consolidated Results presentation. 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 De'Longhi. Please go ahead, sir.

Good afternoon, everyone. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group 2021 Q3 Results Conference Call. Today, here with me, I have Marco Cianci, Chief Strategy and Control Officer, Stefano Biella, CFO, Fabrizio Micheli, Director of M&A and Investor Relations, and Samuele Chiodetto, Investor Relator. Let me start saying that I'm very satisfied about this outstanding set of results achieved over the last quarters in face of an increasingly complex and challenging scenario. And this was made possible thanks to all the people at De'Longhi, our partners that have supported our activities, and our customers off and online who continue to collaborate closely with us in developing the business together. The teams in all geographies have worked relentlessly to solve the complexity arising during the and have allowed the group to reach great results and achievements remaining very focused on serving at best our consumers all over the world. I invite you to go to slide five and I would like to begin the presentation emphasizing the launch of our ambassador campaign that has taken place at the beginning of September That is an extraordinary opportunity to establish De'Longhi as a brand, as a global authority in the coffee space and is a very essential part of our communication strategy as foreseen and illustrated in our medium term plan. Since the launch, the video commercial and the related marketing activities have been spreading across the world in a wide variety of traditional media and digital channels, reaching a very high visibility in premium locations everywhere. And you have some examples in the presentation. Many events are still in the pipeline in the fourth quarter and further on. We are currently witnessing the improved level of perception and recognition of the brand among the targeted consumers group. Going to slide 8 and 9, as already mentioned in the past months, dealing with this complex environment, the group has been keeping up with this commitment in investing in new capacity, innovation, and in communication and marketing. In particular, as to the new launches, we have scaled up the product range in the coffee category and enriched the food preparation offering to further strengthen our leadership. If we skip to page 10, we make mention of the recent opening of our first coffee lounge store in Sydney, Australia. Australia is a recognized place of espresso coffee lovers, and this grand opening is just a perfect example of the activities that the group has been putting in place in order to enhance the consumer's experience and improve the brand awareness and penetration in the coffee space. The last thing that I would like to point out before going to the Q3 results, and here you can see it in slide 9, is the admission of the Longhi Italian factory to the Global Lighthouse Network, a very selective project of the World Economic Forum in collaboration with McKinsey, that made of world-leading manufacturing driving the third industrial revolution to the next level of efficiency and sustainability. It's really a remarkable recognition of the excellence of our operation in dealing with innovation technology in all different aspects. Now, let's take an overview of the Alfea results before opening the floor to a Q&A session. I have to make you notice that the group scope of consolidation in the first nine months of 21 has included also the American group of capital brands, and starting from the 1st of April, the Swiss group Eversys, active in the segment of professional coffee machine, and whose entire share capital was acquired by De'Longhi last May. On line 14, you can see the consolidated revenue. Consolidated revenue for the first nine months amounted to $2,149,000,000, growing by 45.9%. Expansion of the group on a like-for-like basis would have been approximately 32%, with a strong 9.6% in quarter three are always at the same perimeter. Looking at the market on a life-for-life basis, on slide 15, let me highlight that all the main countries have recorded growth in sales both in the nine months and in the third quarter. Autizuro posted a high single digit in the quarter, confirming the positive trend already highlighted in the first phase of the year in continuity with the previous month. Germany and France have achieved a double-digit growth together with other countries, among many Austria and also Greece. Northeastern Europe grew by 4.2% of constant exchange rate, thanks to the strong expansion of Russia and the Scandinavian region. The Americas conferred a double-digit growth in the quarter, nearly 25% aligned with the strong trend recorded since the beginning of the year. Always in the quarter, the major regions of the Middle East, India, and Africa achieved a robust double-digit growth, maintaining a solid nine-month expansion with a growth rate, a cost of exchange rate, year-to-date of approximately 88%. Finally, Asia Pacific grew at a high single-digit rate in the quarter, in particular thanks to the good development in Australia, New Zealand, and South Korea. Going now to slide 17. Looking at the product segments during the first nine months of 21, on a like-for-like basis, all segments have grown, with the core category progressing to a strong extent. In general, even in the third quarter, Such performances were a strong achievement in consideration of the tough comparison versus last year where we recorded a plus 26% versus the year before. In particular, coffee saw a strong trend recorded particularly in full automatic and manual machine. The latter recorded a double-digit growth also in the third quarter thanks to the expansion of the product range that took place in the last few quarters. Cooking and food preparation confirmed in the nine months a significant organic growth thanks to the growing attention of consumers for the product-related home experience. In particular, in the third quarter, a positive development was supported by double-digit growth both in key category of the kitchen machine and the unblender. As for the remaining segments, cleaning and ironing stood out in the nine months on a mid-single-digit growth despite a negative third quarter while the comfort segment achieved a double-digit growth in the quarter thanks to the positive summer in several geographies and the trend of the mobile air conditioning. On slide 20, regarding the margin in the nine months, we note that the net industrial margin improved in terms of percentage of revenues from 49% to 50.2%, thanks to, above all, higher volume and positive contribution of the price mix that amounted to $58 million in the nine months. In the third quarter, the industrial margin was 50.9% against 49.5% of last year. Adjusted BDA amounted to $357 million. equal to 16.6% of the revenues. On the like-for-like basis, it stood at $315 million with a sharp improvement in the margin of revenue from 14.2% to 16.2%. In Q3, the adjusted EBITDA margin across the perimeter declined from 16.8% to 13.4%, almost entirely due to the planned increase of AP investment that expanded from 11.6% last year to 13% of the revenues this year. On slide 22, after the balance sheet, the net financial position as of September 30 was positive by $260 million, slightly declining from the beginning of the year due to the cash out of the dividend and the acquisition of Eversys. However, excluding the dividend acquisition, the cash generation still improved to be strong and equal to $199 million in the 9 months and $389 million in the 12 months period. The net working capital improved significantly compared to last year in value and as a percentage of the rolling revenues. The increase in inventory was widely offset in the 12 months by an efficient management of the trade receivables and payables. bringing the ratio of the networking capital to revenue to 4.1%, a marked reduction compared to the last year figure of 9.8%, and very consistent with the values reached at the end of 2020. The mentioned increase of inventory is explained mainly by the expected business development in the coming months and increased procurements of products and components in light of the tension encountered on the supply chain side. To conclude my presentation, the course-adjusted standards show the robust growth, which is even more noteworthy considering the difficult comparison with last year, whose quarter revenues had grown by 26%. The exceptional results obtained in this period were sustained by strengthening of an investment in marketing and communication for all brands, where the launch of the group's first global campaign, Staring Brad Pitt, is really a game changer. Brand is a new group ambassador for the coffee and the perfect icon to represent the journey we are making towards the establishment of our brands in the lifestyle space, enhancing the consumer experience in coffee and coffee beverages. Finally, I would like to emphasize that in face of the growing difficulties on distribution and production, the group has been able to maintain the planned full capacity thanks to our strong manufacturing network and the extraordinary ability of our teams to react promptly and find solutions to the new global challenges. Having said that, we continue to look positively at the evolution of the business and therefore we confirm the targets and the guidance for 2031 previously communicated. Now we can open the floor to Q&A, and thank you for listening.

Excuse me. This is the Coruscant 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 yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star N1 at this time. The first question is from Lorenzo Margiotta of Bank of America. Please go ahead.

Hi, team. So a couple from me. Firstly, I noticed you've got inventory in place for the near term, which is good. As you look out a bit longer, are you starting to see any product delays building up in the system or are things still under control? Secondly, obviously your Q4 guidance is implying quite a significant slowdown on a two-year stack basis. Is that attempts to be conservative or have you seen something making you think that that should be the case? And then finally, trying to scale the supply chain headwinds, I appreciate it's very difficult. It looks like you maybe have something like 50, 60 million in Q3 based on the EBITDA bridge you gave up. If that's right, is that a reasonable similar amount to expect in the next year or should we expect more in 2022? I appreciate it's early for that one, but I figured I'd ask anyway.

Lorenzo, thank you for the question. As you mentioned, on the inventory, we were very conscious of making sure that we were protecting our stock, considering obviously all the situations that we all know have been affecting not only our industry. So I think that the team and procurement and operations did a great job. On the supply chain side, and I remark it all the time, also thanks to the very strong manufacturing network and sourcing operation of the world, we have not seen in this year any stop in production, anything that is really relevant. And yeah, sometimes, you know, we had... experience some delays in some components and this is something that you know has been spread all over the industry but I have to say that this has not affected our ability to manufacture and our ability even more important to deliver to our customer according to our plan so on that side I have to say if there was a way to to test the resilience of the manufacturing and supply chain operation of the Longhi. I think we've been put really under test and we came out, you know, obviously always knocking on wood, but we came out very strong and confirming that, you know, we didn't have any impact on that side. Yeah, talking about the Q4, The way in which we see it, we have been working relentlessly against our targets that we have set at a certain point. These are very ambitious targets that we have set. What we see today is that all our core categories where we are playing remains positive. We are developing the business. if there are here and there challenges on the distribution side and so on, also in the local market, we have definitely support from positive trends and we believe that all the initiatives that we've been putting in place to support our business are giving the desired effect. We believe that overall the home experience remains very strong, intact, and we are playing categories, being coffee and our food preparation, especially in the segments where we are playing, where we see the strength remaining intact. And therefore, that's the way and the mindset where we enter also for the next year. Now, on my side, to comment, as you can imagine, on the next year is too early to go into that level of details, but the mindset on which we enter, thanks to the trend that we see on our main categories and the initiatives that we've been putting in place that have been part of our medium-term plan, us that we need to remain positive on the evolution for the future.

The next question is from Alessandro Cecchini of Equita. Please go ahead.

Hello, everybody, and thank you for taking my questions. The first one is about actually Edwin's from shipments and raw material and so on. If I remember correctly, so basically you guide for 80 million euros for this year of impact in considering shipping costs and so on. I would like your current guidance for this year, 2021, and what is your thought about, of course, maybe it's very difficult to provide quantitative numbers, but about next year. This is my first question. And, of course, if you see more inflationary trends coming in the third quarter of this year or more in the fourth quarter. So just to understand the balance and on a qualitative way, of course. And finally, I saw CAPEX already at 92, 93 million in the nine months. I would like to better understand what kind of value you have in mind for this year. Thank you very much.

Thank you very much for the question.

On the headwinds indeed we have been working in an environment that obviously we all know has been pretty volatile especially on the side of the rows and components. Our estimation of 80 million was done, in my opinion, very correctly. I have to say that from what we see today, also the evolution of our business, looking at the mix of our product and so on, it could be that we will land between 80 and 90 million, so that would be probably, let's say, the range that I would consider is correct. And this is something that we anticipated is included in our guidance. So on that side, we have been working around these numbers and adjusting around these numbers. So I think it was made by the team a very good estimation of what could have been the potential impact. For the next year, there are many things that will play a role. We are currently assessing where we will have an impact. To me now it's too early to give a bit of sense of an exact number. What I can tell you is, and I mentioned it before, so when I was illustrating our industrial margin, We are going to use the same approach that we have been using also this year. It means a very disciplined price management that we have been putting in place, very constructive. It's part of our commercial policy. And with the same approach, we will enter in 2022, making sure that we have a protection of our industrial products Therefore, we will have to manage the eventual inflationary pressure also for the next year. Several measures have been already put in place in 2021 that will be rolled out for next year. Some others eventually will have to be discussed and put in place, but this is a bit the way in which we want to approach 2022. Now, it's a bit too early to give a number, but we will use a similar approach that we've been using for this year. Are we expecting, that was your second question, an inflationary trend? From what we can see, yes, in line with all the rest of the industry. We can see it and read it but to me the most important thing is the execution that has been very effective of our price management and that should be the same approach that we are using for next year where we will continue to maintain intact our medium plan strategy on the communication as I mentioned several times. For what is concerning the CAPEX, yes indeed we have been Probably at the end of the year, okay, now I cannot be super precise, but at the end of the year, we will arrive at around 100 million. We talk about improving in some part of our network technology, but also extending our capacity to improve our final output, but also to have a faster reactivity to the market. That has been a plan that we've already been communicating, so maybe just to summarize it, the objective was to increase the capacity, make sure that we have more reactivity, so manage better the volatility that today is a bit the name of the game. So these have been the two most important things, and we have been doing that a bit around our network, both in China, with the expansion of our plant in Dongguan, but also in the European plants, especially dedicated to coffee in Romania. And so this has been, you know, the reason behind these 100 million that you see that we are going to spend, we are going to invest this year.

Okay, thank you. So basically we're CapEx back and loaded so that, I mean, you spend more in the first nine months and very marginal investments in the full quarter. So because it's 100, okay.

Exactly, exactly.

Okay, thank you very much.

The next question is from Francesco Brilli of Intermonte Sim. Please go ahead.

Yes, good evening. Thanks for taking my question. A couple of questions from my side. The first one is on the margin on the new acquisitions. I see in the third quarter it was a jump to around 24%, if I'm not wrong, just the BDAs. you can provide us with some additional color on that, on the factors impacting the profitability. And the second one is, again, on pricing. I see a very positive impact from the breach of FDA from price mix. Can you give a sense on at which stage you think you are on your pricing strategy also for next year if you, I mean percentage of what you think you are going to increase the average level of prices of your products to offset the inflationary costs? And finally, a third one on the inventory levels, if you're planning to keep this level of inventories also for the next quarters, just to protect for some adverse factors that you can incur in the next quarters.

Thank you Francesco for the question, I was just checking. Maybe commenting on the two acquisitions is a relevant question. We see both of them now started to be more and more integrated in our business and delivering according to our plan. I have to say that this is valuable for the capital brands in the U.S. and also for the system that we have integrated a few months ago. That is definitely returning stronger also in terms of orders, thanks also to the revamp of the professional coffee business. Again, you know, we have for both of them a target in terms of profitability for the end of the year. The third quarter has been delivering very nicely. Some other quarter can be especially for capital brands being impacted by more promotional or MP activities. So, you know, we need always look at that a bit on a longer basis, so not only quarter by quarter. Overall, what I can comment is that we are very satisfied with the development of the two businesses and they are in line with our expectations. And as we communicated at the moment of the acquisitions, they are both accretive in terms of bottom line, in terms of ABDA. Talking about our pricing, here I have to comment a bit on what I said before. The way in which we are operating is very disciplined and very selective. In the sense that our view is that our price strategy has to protect our industrial margin, has to protect our margins. And as to make sure that we continue our passion in the core categories, achieving the market share targets that we have in our plan, supported by the investment on the brand, especially in this case on De'Longhi for the coffee. It's not a percentage, I mean, a factor. It's a selective approach that has the objective, as I said, to protect the margin and to make sure that we are respecting the right price point where needed to retain or achieve the market share targets that we have fixed. And this is combined with a disciplined approach of the contribution spend to the trader. that is obviously always part of that price management exercise. The same approach that we've been using successfully is going to be used also for next year. The inventory level, as we have been showing in all these past quarters, is a very focused management of our working capital. I would like to highlight the importance of being managed very well, the receivables, addressing also the payments in a very correct way, and these are, as an effect, a working capital level that is in line with our expectation. Obviously, I have to say that on the other side, we have been deliberately retaining higher stock in this period of time also due to all the situation that is surrounding and the challenges on the supply chain side. I believe this is the right decision for the company. We would like to manage the inventories in a very dynamic way in the next months. Always having in mind that obviously we need to manage the cash, we need to manage the working capital. But I would love to see that there is also the opportunity in the next month to hopefully decrease also the buffer that has been retained on the stock. And I would love to see it. And that would mean that we go back to a more normal situation in terms of supply chain. that, yeah, could be that it's going to take some months, but we believe that, you know, yeah, we have been reaching a certain peak, and in the course of 2022, also on that side, we should see a bit more, hopefully, favorable, maybe not at the beginning of the year, but during the course of the year, more favorable, more normal situation. If we can have that, we will be in a position also to, you know, as we did always in the past, to reduce the stock level. But I hope that you agree that it was a wise decision in front of managing disruption that we have been seeing all over the chain. It has been a very good decision to retain a buffer on the stock. We should not also forget September is always the time where we have our stock due to our traditional cycle. But, again, on top of that, there was this strategic decision that we have been taking, and we will keep on using until we see the situation that is easing a bit, and hopefully it will be in the course of 2022.

Thank you very much.

The next question is from Murad Lamidi of Exanbe and Pepariba. Please go ahead.

Yes, thanks for taking my questions. I have actually three. The first one is on the raw material headwinds, 80 to 90 million that you mentioned earlier. How much has been already in the nine months figures and how much is left for Q4 out of this 80, 90 million? Then my second question is about pricing so is the pricing more driven by less promotional activity or by outright price hikes from your side I have another question on ANP next year so you've reached 12.7% of sales I mean you will reach 12.7% of sales in 2021 which is the cruising speed is it fair to expect no material increase in ANP in 2022. And finally, sorry, it's the fourth one. When you look at your operations today, when you look at raw material headwinds, when you look at shipments, when you look at distribution, which one of these items is getting worse in the next few months and which one is getting better? Thank you very much.

Thank you very much. Now, on the first question on the roles, to me the important thing, because we have these 90 million in total, that obviously came in the course of the year, that are included in our guidance. So I will not say this is coming obviously from the raw material. It's also coming from the freight. So it's not only a matter of raw material, but it's also coming from the freight. And yeah, when we give the guidance, we say this is fully factored in. This is an important element that I would like to stress. For the second point on the pricing, Yeah, this is definitely we have been managing our prices. So as I said, trying to respect the sensitive price points, but we've been managing our pricing. We have also at the same time, because this is to me part of the same equation, we have been very, very disciplined in managing also our... Hello? Can you hear me?

Yes, yes, I can hear you.

You can hear us. We have also, sorry, we thought they informed us that probably the line fell down, but it's not the case. So, and also managing very disciplined the contribution to the trade. These are part of the same equation, but for sure, you know, we have been adjusting our prices where needed. But again, Murad, without forgetting, that you can do that but you need also to manage the other part that is the contribution to the trade. Our promotional activity in general has remained very sustained so we have been active on the commercial side and on the marketing side but again in a very disciplined way. For the AP level on 2022 and again You know that in 2022, we will do two things. So we will provide you a bit more information, top line, somewhere at the end of January when we will have our preliminary sales. And then soon after, we will give more information on 2022 prior to March, not only in 2022, but we took the commitment also to give you a refreshment an update of our medium-term plan. So I will be much more factual there. But what I can tell you today is that, as we mentioned several times, our AMP investment is a long-term investment that has the objective to capitalize on our brand, to enforce the awareness, and to increase the penetration in different geography. So we either... long-term investment that we are doing. So we are renewing the campaign with the ambassador also for 2022. We will, of course, evaluate at that point in time what are the right level, the right sizing based on the opportunity and based on the market. But as I said several times, We are very committed on two things, to reach out with the guidance that we are giving, but also to maintain the investment on the brand that we believe is going to be a competitive advantage today, but also in the long run at the right level. Therefore, this is a strategic choice that we have been doing. This is, in my opinion, very important, and I'm sure that has been communicated several times, because we believe that our products and the categories where we are playing, and coffee, but not only coffee, food preparation as well, but for sure coffee, with the investment that we are currently doing, entering a space of more lifestyle experience for the consumer, that's what the consumers are looking for, So it's not only the coffee as such, but it's also our product as an experience and as a lifestyle experience for the consumers. And several new product launches that we do and that I have illustrated in my presentation are going that direction where design is becoming more and more relevant for the future and they need to be very well supported with an iconic campaign. We believe that what we are doing with Valpita is an iconic campaign that for sure will give us a competitive advantage on the long run. For what is concerning the deterioration of the inflation scenario in the last month, one factor that I can tell you for sure that is impacting are the higher ocean freight and the freight and transport in general. This is something that has been probably accelerating more than others. And this is probably the reason where the $80 million became $90 million. But also, as I said, we have been taking the right action to make sure that these are not affecting the target that we've been setting in our guidance. For 2022, to give a bit more of a sense of what we see as inflationary trends and impacts, please bear with me for early 2022 where we will have a bit more elements and we would like to be a bit more crisp in providing information in a world that we know remains volatile. But we have been able to cope with this volatility, so I count that our teams will be able to cope with the same volatility also in in the next year.

Okay, thank you very much.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Luca Baccoccoli of Intesa San Paolo. Please go ahead.

Hello, good afternoon everyone. Two questions from my side. The first one regards the free cash flow generation on 2021. So basically in the first nine months, if we adjust for the M&A and the dividend, you reach 200 million euros of cash flow generation, very close to the 250 million euros guidance of the medium-term plan. So I was wondering if there are any relevant headwinds which we need to be aware of preventing the wrong to go ahead to the net debt target. The second one is basically on 2022. If I understood correctly, you are trying to carefully manage the pricing environment in order to safeguard the group profitability, but at the same time, you expect a positive evolution of the top line. So those two goals are to me very difficult to achieve next year given the strong inflationary pressure and also the high level of sales reached this year. So even a qualitative base, if you can just help us to to understand how those two opposite elements can be combined.

Thank you. Luca, thank you very much for the question.

The first one, on the free cash flow, we reconfirmed our targets. So I believe that on that side, we are tracking in the right direction. As I said, the only thing is we want to manage well also strategically the inventory, but our target is to reach what we have set. So the answer is, yeah, we are on track on delivering what we plan to deliver. For the next year, and again, We will have more details in the beginning of the year, but we remain more on the qualitative side. The reason why we remain positive with our mindset and the way in which we see developing our business is first because we see still many opportunities for us to grow. You know that in our medium-term plan, we've been targeting Asia and the U.S., And we see good signs of evolving in that direction. We see, and again, it's always part of our MTP, in the categories, a nice trend of development, not only in coffee, but also in the category, in the segments where we are playing with the food preparation. You know, we are positioned on the, for example, the kitchen machine on the higher end, on the higher price point, and so on. uh we see also that overall you know uh for sure there's been an impact on uh you know uh our industry from uh from uh from the covid but what we call home experience it remains very relevant for many consumers some changes that been you know uh created in the habits and the behavior of the people by by by the COVID are going to remain. And we believe that we are very well positioned to capture further opportunity in that sense. On top of that, I would like to highlight all the initiatives that we as De'Longhi are doing to continue to be positive. And, for example, the new products. As I mentioned in the past, even in the dark, most difficult days, we have not stopped investment on new products, on MPD and so on. And this is resulting now, because you know that it takes time, obviously, to launch a new product in the market. This is resulting now in a very strong pipeline. will be launches for 2022. Some other will be launches then for 2023. But the fact that the group has been deciding not to stop the investing on a new production platform, new products, is now resulting for us in a great opportunity to have the right products at the right moment. And on top of that, I have to say, is the campaign, and the ambassador campaign, but the communication strategy that we are having, we see that it's generating more traffic on the Long Beach, it's opening opportunities, clearly new geography, then obviously we'd be up to us, we have to see, we have to do our work on the ground, we'd be up to us to capture this opportunity, but what we bring in also for the next year and next years, I have to say, is a lot, and a lot that has been done in the in these past years. And, of course, you know, you mentioned it correctly. You already mentioned it because it came from all of you. We're in an inflationary scenario that could affect our margin. We need to manage it as we did because for us it will not be new. So, you know, we need to go in with the same mindset to protect it. We need to do it in a disciplined way. Obviously, maybe the path of growth will be different than this year because there will be different quarters. We can have a different cyclical evolution and so on. But we tend to believe that we have the right approach and we are positioned as a brand also to be able to manage well our pricing and be able to support our pricing strategy correctly, also thanks to the investment communication that we have been doing, so we are able to manage the price on the shed. So this is a bit the scenario that we see in front of us. Obviously, for more numbers and more detailed numbers, bear with us. We will come back soon. But these are the main reasons why we enter with, you know, the right spirit but with a positive spirit also into the next year.

Okay, thank you for the explanation.

The next question is from Andrea Bonsa of Banca Acros. Please go ahead.

Hello, good afternoon to everybody. My question is related to the strategic relevance of advertising and promotion, in particular How much of these investments can be, let's say, a change on a tactical basis or better? In a scenario maybe next year in which maybe there is still inflationary pressure and maybe your price action cannot offset entirely this inflationary environment, would you consider to reduce the incidence of advertising promotion on sales or this kind of level is set to stay there? Just as an academic and philosophical question, if you may, but we'd like to have your comment on that. Thank you.

Thank you very much for the question. It's a rare question for us because, as I said several times, for us it's a strategic choice. We believe a lot in the strength of our brand, and the demonstration has been that, as I mentioned before, we have seen... that we can win in the market if we are supporting well our brand and if we couple the strength of our brand with an undoubtable strength of our products and our industrial capabilities. Now, you know, business, we need always to be smart. But if I have to answer to you, we want to continue to manage our pricing. But our investment in communication is a long-term plan, and we believe a lot in creating a competitive advantage in the long run if we are able to be very crisp in communicating our brand, if we're able to establish our brand as strong in the minds of the consumer, and getting a preference because of that, increasing the awareness where we believe the awareness is still too low. So it's a long-term play and will not be one quarter that will make us change our mind, but we will continue to be smart in managing our plan. So on that side, again, we are not seeing us doing strange, crazy things, but I believe that the company has the longing that has performed as we've been doing so far, has been going as we've been doing so far, has also generated some allowance, let's say, to invest stronger on our brand that is a huge asset for us, especially in the category where we are playing. Coffee is a fantastic business where you need to connect with consumer, where you need to engage the consumer, you need to play with the emotion of the consumer. And our brand is perfect for that. It's a very dynamic brand. a very fresh brand. It needs to be very well supported. And that's what we hear from the consumer as well, by the way. So this is also a feedback that we are getting. So the investment on the AMP, the investment on communication and marketing and so on, is a long-term thing. I hope you appreciate that we do it not only with money, but also with the quality of the content. I hope you all agree, guys, that the communication and the TV commercial and all the digital videos and all the things that we've been doing also out of Rome to promote De'Longhi have been done with the highest level of quality. So it's not only money, but it's also how we do it and the quality of our message. We in De'Longhi believe a lot in that. So you will see us very determined to do that. That's why I'm saying, and again, you know, one quarter can be a bit like that, another one like that, because, you know, we look a bit down. We won't look...

Mr. Garavaglia, please go ahead. The line is back.

Sorry, guys. Sorry, Andrea. I was just finishing saying that, you know, repeating what I said before, we have a long-term play, but obviously we will be smart in using that on the long run. So, you know, it's not that we will obviously not adjust according to our strategy, but But overall, the plan is on the long run. Then obviously, you know, I cannot tell you that for sure in 2022 we have a clear view on what we want to do. We will then check what is the right thing to do in 2023. And we will continue to do it in a smart way. So, you know, in the sense that the plan is also to make sure that we do it respecting all the other targets and work as we talk, all the other things that we are setting. So this is a bit the approach that we are having.

That was very clear. Thank you very much.

For any further questions, please press star and one on your telephone. Mr. Garavaglia, sorry, there's one more question from Fraser Donlon of Berenberg. Please go ahead.

Yeah, hi there, Massimo. It's Fraser from Berenberg. Thanks for the presentation. I just have two questions. Maybe the first one, to follow up on AMP, I'd be interested as well to have your thoughts on how you see the kind of balance between A&P and innovation spending looking forward, knowing, for instance, that competitors will launch new products into coffee, for example. So, you know, do you see higher innovation spending also as a tool to kind of protect your positioning there? And then second question would just be, could you kind of give a bit of a color on, you know, the M&A environment and any possibilities for you to kind of use the firepower and cash you've accumulated there any time too soon? Thanks very much.

Yeah, Fraser, thank you very much for the question. Yeah, on the MP, yeah, no, for sure, it's very balanced. Our plan, you know, again, always I refer to our MTP, and I would be very happy to refresh it then in the first quarter, also because we have been reaching the targets of, our third year of MTP already now, so we need to refresh it. On the innovation side, I mentioned before, we see, and you were mentioning correctly, coffee. We have a strong leadership that we want to retain, and we want to retain it in all the different segments. As you know, we have a strong offer in all the different segments. And Delonghi on that side, you all know it, is in terms of know-how, in terms of technology, in terms of new technologies, very strong. And we have a very strong pipeline for the next year. We will continue to invest. The fact that we have been growing faster in terms of business allows us also in terms of absolute value to spend more to invest in new platforms and to invest more in new technology. But again, to tell you, I showed in my presentation some of the products that will be launched next year that are really fantastic, where we really are believing that there are big opportunities for us. But we have already a strong pipeline for the years to come, and we will continue to support it. And as I said, thanks to the fact that the business has become much bigger in terms of size, we can support it with more money in terms of absolute terma. The AMP, I mentioned before, is a long-term play that goes together with obviously managing well all the rest of the P&L. But I hope you all see this big opportunity that we have to establish ourselves and the authority in coffee and to position the brand even clearer than it is today for the consumer, not only in Europe, but also in other parts of the world. That's why we have chosen, by the way, an ambassador that is a global ambassador, that he resonates very well with people here in Europe, but also people in the U.S., people in other parts of the world. So, yeah, that's why I say it's a long-term plan because, yeah, we want really to build on the strength that we believe we have and reinforce the equity of our brand. Having said that, you know, we will continue to do it in a smart way, and obviously, you know, it will depend year on year how we, you know, see the opportunity and how we see the way to do it. But, again, I stress one fact. It's not only the money that you spend on EMP, but also how you spend the money. And I trust that, you know, you all agree, guys, that the quality of our spend – and on the ambassador campaign, that by the way is now setting a bit the bar in terms of quality of the campaign that eventually we will do on another point. Not that we do the same, but in terms of quality and the way in which has been developed the campaign, which is setting a bit the bar of best in class for the future. The quality of the communication is also very, very relevant. So it's not going to be only the money, but will be also the quality. But you touched, Fraser, on two big important things for us. It's about innovation and Delonghi has been always demonstrated in the years to be a very innovative company, building a coffee business basically from scratch and becoming now the worldwide leader. And obviously the brand. And we believe, you know, we have two, these are the two key ingredients that supported by a very strong operational and supply chain footprint give us the opportunity really to retain or to even strengthen our competitive advantage in the future.

Last question was about the M&A.

On the M&A, yeah, maybe I'll refer to the stock that we have been active. We should not forget that in these two years we are integrating two companies that we just acquired, one being Capital Brands in the U.S., the other one being Eversys. here in Europe that both are developing nicely. Again, also here, yeah, we see that as soon as there are opportunities that will fit with our strategy, we will be, you know, looking at it. We are looking at it all the time, obviously, with our M&A team that is around me here at the table. We are looking at all opportunities. I always repeat, obviously, we need to make sure that we do the right things and we will do things that will add to our long-term journey. So this is the maximum that I can say at the moment. And again, we are always active on that side, and the fact that we have been concluding two deals in the last year are showing that we are very serious on that side. Perfect. Thank you very much.

Mr. Garavaglia, there are no more questions registered at this time.

Thank you very much. Thank you for listening. Thank you for supporting us. We will come back again to the next round. Thank you very much. Thank you all.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.