De Longhi Spa

Good afternoon, this is the Coruscall conference operator. Welcome and thank you for joining the DELONGi first quarter 2022 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, CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group's Q1-22 Resorts Conference Call. Today we may have Marco Cenci, Chief Strategy and Control Officer, Stefano Biella, CFO, Fabrizio Micheli, Director of M&A and Investor Relations, and Samuele Chiodetto, Investor Relator. Over the last two years, we have seen a significant increase in consumption in the small domestic appliance business. thanks to the change in consumer habits and purchasing choices and the consolidation of some medium-term trends already in place in the market. In the first quarter of 2022, despite the difficult comparison with the prior year, we saw revenues growing at almost 60% like for like, where the group was able to continue its expansion path thanks to the driving force of the coffee business. I would take this opportunity to emphasize that the growing cost inflation dynamics and complexity that have affected production and distribution in the last 12 months has required an extraordinary effort from all our teams. The company, with the aim to offset the impact in absolute value of these headwinds, has implemented effective mitigation actions such as price increase strategy already put in place last year and carried over on this here. The current geopolitical scenario and the continuation of the conflict in Ukraine bring some concern about possible developments on a global scale, which we hope will find a quick and peaceful resolution as soon as possible. Before going into more details, let me remind you that the Groups for a Quarter results include a change of perimeter, as the scope of consolidation has included also the Swiss group Eversys whose full control had been acquired in Q2 2021. The consolidated revenues for the first three months of 2022 were up by 8.4% with a solid expansion on a constant perimeter of approximately 5.5%. Looking at the market on a reported basis, we observe south-western Europe grew by 3.9% in the period thanks to the expansion of Germany at the double-digit growth rate and the high single-digit development of the Iberian Peninsula and Austria. The area of north-eastern Europe recorded a negative performance both due to the difficult geopolitical situation that affected consumer sentiment in some countries of the area and due to the particular challenging basis of comparison compared to last year. Just to give an example, the UK market last year was up 93% Q1. The Maya area, Middle East and Africa, ended the period with a double digit performance thanks to the expansion of the main market in the region. The American area has further expanded its size from 15% to 18% in Q1, achieving a significant double-digit growth thanks to the development of the coffee business and the anticipation of sales related to portable air conditioner. Finally, the other Pacific region was up by 28%, driven by a strong growth in China and Hong Kong area, as well as a significant expansion of the main markets in the area of Australia, New Zealand, Japan, and Korea. As for the evolution of the product category, in the first quarter of 2022, the double-digit growth of the coffee sector drove the expansion of the group, together with a significant increase in comfort and a decrease in food preparation. Specifically, the coffee sector confirmed the solid growth trend highlighted in the recent years with a strong boost from the business both in the main countries of the Euro area and in the US and Asia. Core products grew at a double-digit rate despite the high level of turnover achieved in the same period of 2021, supported also by the launches of new products and the success of the global communication campaign that sees Bread Pit as an ambassador of the Delonghi brand. More heterogeneous scenario for the food preparation, which suffer from the very challenging comparison compared to 2021. In this context, some categories such as food processor or deep fryers maintain a positive trend, but kitchen machine and blender show a reduction compared to the level reached last year. In the quarter, The contribution of the comfort category was not worthy thanks to the extraordinary performance of the U.S. market boosted by the advance of the sales of the mobile air conditioner for the summer season. Finally, home care, meaning cleaning and ironing, was partially in the negative territory during the period. Looking now at the evolution of the operating margin in the first quarter, we can observe the following. The net industrial margin equaled to $375.6 million and stood at 51.1% of revenues compared to 52.3% in Q1 2021. In particular, in the quarter, the impacts of cost inflation of raw material and transport costs were only partially upset by the positive effect of the price mix, but at constant exchange rate, the margin would have been slightly up versus last year. The adjusted BDA amounted to €100 million, equal to 13.6% of the revenues compared to 18.9% in 2021. At a constant FX, the margin would be 15.1%. The reduction of the margin was due to higher investment in communication and media which accounted at 12.1% in the new perimeter compared to 10.5% of the previous year, larger OPEX and the negative exchange rate effect equal to around 8.4 million euros. As to the balance sheet, the net financial position at the end of March 2022 stood at 274.6 million, decreasing from year end 2021 due to the investment higher versus last year and an increase in inventory level. Over the last 12 months, the free cash flow before dividends and acquisition was 170 million euro, thanks to a strong cash flow from operating activity. And in more details, the first quarter capex amounted to 56.8 million, an increase of 36.9 million versus last year, and that includes 21 million euro related to the acquisition of the new plant in Romania. Moreover, the ratio of operating working capital and revenue stood at 10.2% compared to 9.6% at the end of March 2021. Now, closing my introduction, let me say that we are rather satisfied by the positive trends in Q1, and we still expect demand of our core category in this year and the near future to remain well above the pre-pandemic levels. Nevertheless, the recent geopolitical developments, together with the challenges arising in the supply chain, are making the microeconomic context more volatile for sure in the coming months. Albeit in a scenario of evolving uncertainty, the first month's results and the feedback received from the markets support us in confirming the guidance forecasting organic revenues of 2022 in line with 2021 with an expected adjusted EBITDA at around €450 million. Now we can open the floor to the QA. Thank you very much.

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