De Longhi Spa

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the De'Longhi First Half 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, Chief Executive Officer of De'Longhi. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group's second quarter 2023 results conference call. Today, together with me are Nicola Serafin, Group General Manager, Marco Cianci, Chief Strategy and Control Officer, Stefano Biela, CFO, Fabrizio Micheli, Director of M&A and IR, and Samuele Chiodetto, Investor Relator. We're very pleased with Q2 results, which showed a significant recovery of their profitability compared to last year, and a stabilization of the growth trends that have been steadily improving month after month since the beginning of the year. In terms of top line, As already mentioned in the recent months, a few exceptional and temporary factors had a significant impact on the first phase of the year. However, if we exclude the discontinuity of air conditioning on the American market, the second quarter achieved a positive expansion, with the coffee segment in positive territory and the Nutribullet business strongly performing. To complete the positive picture, The first six months of the year have displayed a nearly stable EBITDA margin, clearly improving the profitability profile in respect to last year. Specifically, this result was obtained despite the volume decline thanks to careful pricing strategy and strict control on the investments, as well as a recovery of some of the production costs that turned into a tailwind in the quarter. Now let me focus on the quarterly results. Consolidated revenues for Q2 were down by 2.9%, reaching €689 million, with a negative impact of 2% from the currency component. The impact of the discontinuity of mobile air conditioning in North America was €33 million in the three months. net of which the turnover in the quarter showed a positive trend of plus 1.8%. As already highlighted, over the last one month, the European region has been heavily affected, more than other areas, by both the defects of the Russian-Ukrainian conflict and the weakening of consumer purchasing power. However, Over the last few months, the region has shown signs of improvement compared to previous dynamics, returning to positive territory. In more details, southwest Europe showed a turnover almost unchanged compared to last year, thanks to a strong recovery in France and Austria, while Italy and Germany still remained in negative territory. Northeast Europe recorded a double-digit growth, benefiting from an almost homogeneous recovery of the countries of the area. The MIR region saw its turnover fall mainly due to the micro-economics context and the weakness of food preparation. In the American area, sales performance was affected by the discontinuity relating to the exit from mobile air conditioning business. which impacted the turnover by 33 million euros in the quarter. As a result, the area grew 5.5%, thanks to the expansion of the coffee makers and Nutribullet nutrition segments. Finally, the Asia-Pacific region delivered a drop of minus 2% at constant exchange rates, as an effect of the negative performance of Australia and New Zealand. slowing down compared to a particularly strong 2022, but with a strong growth in the other major markets of Greater China, South Korea, and Japan. As regards the evolution of the product segments, the second quarter delivered a return to growth of coffee machines for households after the temporary decline in the first quarter. thanks to a brilliant performance of the fully auto coffee maker segments. Regarding for Eversys, professional coffee machine sector, we highlight the outstanding growth in the quarter at around plus 60%, pushing the weight of this segment on Group's total half-year revenues to 5.2%. Food preparation, although still suffering, shows some product families food processors, personal blenders, spin juices and fryers back to positive territory, while the comfort segment was heavily penalized by the aforementioned discontinuity of the U.S. market. It is worth noting that total coffee area, together with notable exposition, now counting almost 65% of the total group turnover, are destined to represent the main engine of growth and profitability of the group in the medium term. Looking now at the evolution of operating margins in the quarter. The net industrial margin improved to 48.8% of revenues from 45.2% in 2022. This performance was the result of the positive contributions of price mix, €20 million in the quarter. the strict control investments and the recovery of some of the production costs, which turned into a tailwind in the recent months. Specifically, the transportation costs delivered significant savings, along with a partial recovery of the extraordinary costs related to handling the high level of inventory of last year, while the raw material costs leveled off in the quarter. adjusted the BDA amounted to 85.8 million euros, or 12.5% of revenues, delivering a marked improvement compared to 6.9% in the second quarter of 2022, and in line with the margin achieved in the first quarter. The advertising costs remained sustained, even though The weight on sales was slightly lower compared to last year. As to the balance sheet, net financial position as at 30 June 2023 stood at 311.7 million euros, increasing by 256 million euros in the 12 months rolling. In particular, the free cash flow before dividends and acquisitions was 66.5 million euros in the quarter and 85 million in the six months and 308 million euros in the 12 months. In the quarter, the group was able to generate 120 million euros of cash flow from current operations and working capital movements. compared to the second quarter of 2022, in which there had been an absorption of 62 million euros, thanks to the efficient management of the trade receivables and payables aggregate, only partially counterbalanced by the negative change in inventories, increasing from the start of the year because of the normal seasonality. A skill to 181 million euros lower than at the same date of last year. It should also be noted that capital expenditures in the quarter were aligned to last year, while recording a marked decrease in the six months versus last year. Now, as a conclusion of our result overview, I may point out that we are very satisfied with a significant improvement of the margins and the cash generation in the first part of the year. along with the stabilization of the sales in the quarter. This set of results confirm our expectations of a progressive normalization of growth and profitability trends, even though the geopolitical and economical context remains difficult to read, especially as regards to dynamics of consumption. Nevertheless, the Group is confident about the viability of our guidance for the year, supported by the prospect of a recovery of organic growth together with an improvement in margin. In this context, therefore, we confirmed the guidance for the full year of revenues, slightly declining, and adjusted the BDA in the range of €370-390 million. Now we can open the floor to Q&A. Thanks.

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 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask you use handsets when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Francesco Brilli of Intermonte. Please go ahead.