De Longhi Spa

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the De'Longhi Full Year 2021 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, CEO of De'Longhi. Please go ahead, sir.

Thank you. And good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group 2021 Full Year Results Conference Call. I'm here together with Marco Cenci, Chief Strategy and Control Officer, Stefano Biella, CFO, Fabrizio Micheli, Director of M&A and Investor Relations, first of all let me remark that we are profoundly shocked by the current situation in europe and all our thoughts and deeper sympathy are with the people in the conflict areas especially our colleagues and our family we make sure in first place to secure our people in that area supporting the move of ukrainian employees to poland And now we are closely monitoring the situation, working with a focused task force both in our headquarter and in Poland. Moreover, we have approved a total donation of 1 million euro in favor of NGO partners as a support of the population in Ukraine affected by this terrible war. Focusing now on the evolved area, in 2021, Ukraine accounted for around 34 million sales, while Russia revenues were around 125 million, that brings a total exposure of around 160 million, i.e. 5% of total revenues of the group. At the moment, we probably estimate zero revenues for now onwards for the Ukraine and Russian businesses, with a slightly negative impact at the BDI level due to some fixed costs. The current situation in Russia is rather complex and we are carrying out further evaluation, but for the moment we have paused all our investment in the area and we are not delivering any more additional products to our local warehouses. No other direct effects have been spotted, and both our subsidiaries, the border countries and the factories in Romania, are working without any interruption. Moving now on the 2021 results. My first comment is that the key pillars of our strategy are driving the business growth with a focus on the expansion of our core categories, in particular, in the coffee area and the strengthening of our international presence where we are working to increase the penetration in America and in Asia and reinforce our leadership in Europe. These drivers have been reinforced by increasing investment in communications such as the global ambassador campaign, in innovation such as the completion of our very successful La Specialista range in new capacity as for the new factory in Romania that will be specifically dedicated to our coffee segment. Before going into more details, let me remind you that the group's scope of consolidation in the 12 months of 2021 has included also the American group, Capital Brands, and starting from April 1st, the Swiss group, Eversys. Talking about 2021, I would like to mention the exceptional contribution of all our employees that in the last two years have been showing an extraordinary commitment and dedication, allowing the group to achieve record results with revenue above €3.2 billion and an adjusted BDA above €500 million. I would like also to thank all our business partners, distributors, suppliers that have helped us to overcome the difficulties arising and that we had to face in the past years. Consolidation revenues for the 12 months of 2021 were up by 37%, with a strong expansion and constant perimeter of approximately 24%, and always at a constant perimeter, a growth of 11% in the last quarter. Looking at slide 10, and looking at the markets on a constant perimeter basis, South and Western Europe achieved double-digit growth in both the 12 months and the fourth quarter, thanks to an important contribution from the main countries in this area, such as Germany, France, Italy, and the Iberian region. Similarly, the northeastern Europe grew strongly, with almost all the countries in the region realizing a double-digit growth in the 12 months and maintaining a significant pace of expansion in Q4. In the full year, the weight of Russia and Ukraine on the total revenue, as I said, was around 5% of the new perimeter. The Americas region achieved a remarkable growth of 30% in 2021, also confirmed by a strong performance in the last quarter, plus 23%, supported by significant acceleration in the coffee segment. The near region recorded a growth in the 12 months of around 43%, higher than the group average. And finally, Asia-Pacific grew by 10.3% in the 12 months, thanks to the expansion of double-digit rate of the main market, such as Australia, New Zealand, China, and Hong Kong. Now on slide 11, looking at the main product segment, 2021 witnessed a significant expansion of our core categories, in particular the coffee segment. that has achieved more than $1.6 billion in revenues and is accounting now for 50% of the total new perimeter revenues. Always on a constant perimeter basis, we are reporting. Double-digit growth of the coffee maker sales in both 12 months and four quarters, supported by a robust expansion of fully automatic and manual machines. A double-digit growth of the cooking and food preparation segment, driven by an expansion of the main product families, such as kitchen machine and blenders, both growing at a double-digit rate in the 12 months. A more moderate growth of the comfort segment, portable air conditioner heaters, and the substantial stability of the home care segment, cleaning and ironing. On slide 14, As regards to the margin of evolution in the 12 months, the net industrial margin improved in terms of percentage of revenues from 49.2% to 49.7% thanks to the efficiency action and the positive contribution of the pricing strategy and mix. Adjusted EBDA amounted to €515 million, an increase of 40.5%, equal to 16% of the revenues, improving from 15.6% in 2020. As a result, even more significant considering the increase of more than €100 million investment in communication and marketing. In more detail, the fiscal year 21 adjusted BDA margin at cost and perimeter remained at 15.6 percent thanks to a positive impact from a price mix of around 121 million and the efficiencies implemented that have more than offset the cost inflation worth around 100 million and despite the increase of AP investment which went from 12.5 percent in 2020 to 13.5 percent of revenues at cost and perimeter. This percentage of new perimeter will be 12.5%. Looking at the quarter four, always at cost of perimeter, the adjusted EBDA margin was 14.4%, including a higher spent on AMP at around 16.6% of revenue in the quarter. versus 14.6% of last year, and this is mainly due to the launch of the new global ambassador campaign. On slide 19, as to the balance sheet, the net financial position of December 34th was positive by 425 million, improving by 197 million in the 12 months, Before dividend and acquisition, the cash generation proved to be even stronger, equal to 407 million in the past 12 months. Bear in mind that the free cash flow figures include investment for 132 million, that is an increase of 43 million euros compared to 2020, and an impact of the net working capital that is essentially neutral. Now, finally on slide 21, as a general final overview, let me say that we have delivered a great and a record set of results which testify the success of the long-term strategic vision. This approach will lead a good strategy also in the following years, as we can count on strong structural trends in our core segments, on the effectiveness of our investment in innovation, communication and marketing, and on the strengths of our brands. Unfortunately, the recent geopolitical developments, together with the criticalities arising in the supply chain, are making the macroeconomic context more difficult to read in the near future. More specifically, the geopolitical development in Ukraine led us to bring to zero the expected contribution of the two markets involved in this terrible conflict for the remainder of the year. Therefore, forecasting organic revenues of 2020 for the group now in line with 2021. The management intends to give continuity to the investment plans in communication and the strengthening of the organization and production structure, which overall will bring the expected adjusted EBITDA for 2022 to around €450 million. We can now open the floor to the questions. Thank you very much.

Excuse me, this is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Luca Baccoccoli with Intesa San Paolo. Please go ahead.