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.