De Longhi Spa

Good afternoon. This is the course call conference operator. Welcome and thank you for joining the DeLonghi first quarter 2023 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. Fabio De'Longhi, CEO. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group First Quarter 2023 Results Conference Call. Today, together with me, are Nicola Serafin, Group General Manager, Marco Cenci, Chief Strategy and Control Officer, Stefano Biella, CFO, Fabrizio Micheli, Director of M&A and IR. and Samuele Chiodetto, Investor Relator. Let me start by reminding that in our last conference call, we presented some of the new products launched in 2022 in our core categories, showing how the group has been working to stay ahead of the pack thanks to cutting-edge technology and design. Today, I would like to direct your attention to the launch of Truebrew, an innovative drip coffee machine with grinder emphasizing again the role of the innovation in establishing our leadership in coffee. Truebrew has been launched in March in the American market supported by a fresh campaign starring Brad Pitt as an ambassador. It has a premium position and will have the role to enlarge our product range in the quality coffee experience offering our American customers a new premium solution to brew fresh coffee from whole beans. Now, back to the Q1 results, let me highlight how the group has been able to promptly react to the complexity faced, especially in terms of volumes, growth, and the effects of the cost inflation on consumer sentiment. in particular in this first month of the year the group achieved an operating profitability clearly improving against the first quarters of the pre-pandemic years namely 99 and 20 as well thanks to the combined effects of our efforts in innovation media investments price strategy and last but not least effective measures to control operating costs the first quarter of 2023 was characterized by an unfavorable and complex geopolitical and microeconomic environment, in continuity with the scenario encountered in the second half of 2022. As already anticipated, the start of the year was impacted by some factors affecting the main regions and their sales trend. First of all, in the last two years, we achieved extraordinary growth in the first quarters, respectively 59% in 2021 and plus 5.5% in 2022, on a constant perimeter basis, which represents a very challenging comparison base. Secondly, we have witnessed a partial stocking effect of the trade, due to a more cautious approach of some retailers, which have use their months to decrease the level of inventories. Lastly, let me remind you our strategic decision to exit the portable air conditioning market in the United States, which had an impact of €23.4 million in the quarter and will have a negative effect even in the second quarter. Now, let me focus to the quarterly results. Consolidated revenues for Q1 were down by 18.1%, reaching EUR 602 million with a positive contribution of plus 0.6% from the currency components. As already highlighted in the past months, the European area has been affected more than the other regions, by the effects of the Russian-Ukrainian conflict and the weakening of the consumer purchasing power caused by inflation. In more details, South-East Europe recorded a double-digit decline, with all the main markets down, facing also a challenging comparison to the first quarter of last year, in particular with the one of 2021, which marked a growth of more than 60%, a constant perimeter and constant exchange rates. Northeast Europe showed a decline at a mid-to-high single-digit rate in the context of a macroeconomic and geopolitical scenario experiencing a complex evolution. The MIA region has undergone a double-digit decline compared with a very strong acceleration trend in the last two years. In the American area, cell performance was affected by the discontinuity relating to the exit from mobile air conditioning business, which impacted the turnover by €23.4 million. Net of this effect, we would report a stabilization in the cooking and food preparation business, thanks to the growth of Nutribullet and their products. Finally, the Asia-Pacific region achieved a low single-digit growth at constant exchange rates, with a significant contribution from Greater China, which confirmed its sustained growth. As to product categories, all the above-mentioned effects led to a decline for all the macro-categories of the consumer business, including coffee as well, even if it confirms its relative better resilience. On the contrary, professional coffee, branded Avesis, showed a strong positive trend, which continued its growth trajectory at a high double-digit rate. Looking now at the evolution of the operating margins, the net industrial margin amounted to $304.4 million, equal to 50.5% of revenues, together with a positive contribution of the price mix, circa $6 €20 million and the recovery of transport prices, there was still a residential negative effect from raw materials and production inefficiencies, which will have to find a full recovery in the coming months. Adjusted EBITDA amounted to €64.3 million or 12.3% of revenues, 13.6% in 2022. following investments in advertising and promotions, which, while remaining in line with 2022 as a percentage of revenues at 12.1%, decreased in value by €15.7 million, down to €73.1 million. As to the balance sheet, net financial position as at 31st March 2023, stood at €317.2 million, increasing by €18.5 million from 2022 year-end. In particular, the free cash flow before dividends and acquisitions was €167.1 million in the 12 months. In the quarter, the Group was able to generate €41.4 million in cash from current operations and working capital movements, compared to the first quarter of 2022, in which there was an absorption of €103.8 million. In terms of operating working capital, 8.5% of 12-month rolling revenues at the end of March, the negative change in inventories up to €615 million from the record value of €551 million of the end of 2022 was in line with the expected normal economic financial cycle and was more than counterbalanced by the positive cash generation of trade receivables and payables management. It should also be noted that capital expenditures absorbed €19.2 million in the quarter, a clear decrease compared to last year, which recorded the disbursement for the acquisition of the new production plant in Romania and higher investments in tangible assets. Now, As a conclusion of my results overview, I would like to stress the successful expansion that the group was able to achieve in the last years, emphasizing the adjusted EBITDA doubled compared to Q1 2019, thanks to strong organic growth, effective investments, and focused acquisition, all goals that were able to accomplish while preserving a healthy financial position. Finally, closing my remarks, let me underline that the well-anticipated week start of the year was already included in our guidance. To expect a less challenging comparison in the coming quarters. Also bearing in mind that after the second quarter, the growth will not be impacted by the discontinuity in the mobile air conditioning business in the US. In this context, therefore, We confirmed the guidance for the full year of revenues slightly declining and an adjusted EBITDA in the range of 370, 390 million euros. Now, we can open the floor to Q&A. Thank you.

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