De Longhi Spa

Good afternoon. This is a course call conference operator. Welcome and thank you for joining the DeLonghi third 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, Chief Executive Officer of De'Longhi. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group's third 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 M&A and IR, and Samuele Chiodetto, Investor Relator. We're extremely satisfied with the third quarter results, which confirmed and strengthened the signs of a normalization phase we have been observing across different aspects of our business performance since the beginning of the year. In terms of the top line, the third quarter delivered high single-digit organic growth. And despite some macroeconomic uncertainties, the group was able to achieve growth across the majority of the geographies in both coffee and cooking and food preparation in the last three months. With respect to margins, the profitability trend has shown a steady improvement in recent quarters compared to the previous year, thanks to the strict control of investments and a careful pricing strategy, as well as a recovery of logistic costs and an easing of pressure on remaining operating costs. The NINAMIS allows us to be optimistic about medium-term developments, also thanks to the renewed commitment to invest in communication with the new Perfecto and Nutribullet It's That Simple campaigns, which have been launched in the recent weeks. This confidence is also backed up by the continuous introduction of the new products and solutions designed to improve the customer experience and enable them to make responsible choices. Let me also mention sustainability among the critical enablers for De'Longhi, an aspect that is increasingly influencing our managerial decision and will be incorporated in the group's systemic approach. With the goal of further enhancing internal awareness on this topic, the group has initiated a learning journey for its employees, which kicked off yesterday with a lecture on sustainability held by Nobel Prize Professor Stiglitz. On the innovation topic, allow me to highlight the slides from four through six, where you can see the main product launched in 2023. for key categories. This is the result of a strong focus on investments in research and development, constantly working to enhance quality, design, and usability. Among the others, let me just mention Rivelia, the first fully automatic coffee machine included a bean switch system, allowing consumers to easily switch and explore different bean varieties. And La Specialista Arte Evo, with cold extraction technology, another step to enlarge our target audience addressing the cold brewed drinkers. Now, let me focus on the quarterly results. Consolidated revenues for Q3 were up by 3%, reaching €707 million, with a significant negative impact of minus 4.8% from the currency components. In Q3, all macro regions experienced a notable organic evolution, except Meia. In particular, the European region exhibited growth at high single-digit at constant exchange rates. This is a significant improvement, especially in light of the challenges which the region faced in 2022 due to the geopolitical crisis and decreased purchasing power of consumers. In more details, Southwest Europe showed an expansion in turnover of plus 7%, thanks to the increase in both core categories, which contributed to achieving double-digit performance in Germany, Austria, and the Iberia region. Northeast Europe accelerated versus the previous quarter, benefiting from significant growth in the UK. in the area of the Czech Republic, Slovakia and Hungary, supported both by recovery in the food preparation business and by continuation of coffee expansion in the area. The major region was still in negative territory, mainly due to the micro context and the currency impact. In the Americas, turnover, which in the first six months had been affected by the discontinuity, in mobile air conditioning achieved an acceleration in the quarter, plus 13.8% organic, thanks to the contribution of coffee and a NutriBullet nutrition segment. Finally, the Asia-Pacific region showed an expansion in turnover of plus 2.5% at constant exchange rates, but with a significant negative currency impact in the main countries in the area, both in the quarter and in the nine months. As regards the evolution of the product segments, the course categories show the progressive improvement over the course of the year, delivering a strong organic growth in the quarter. The coffee machines for household sector confirmed a positive expansion already seen in the second quarter, especially thanks to the constant enlargement of the fully automatic coffee market. As regards the overseas professional coffee machine sector, we highlight another outstanding quarterly performance keeping the weight of this segment on the group's total revenue to 5%. Food preparation is back to positive territory, achieving growth at a mid-teens rate at constant effects in the quarter, thanks to the strong expansion of the nutrition segment under the Nutribullet brand. In addition, the recovery of many of the product families, such as food processors, thin juicers, and fryers. Finally, the comfort segment remained in negative territory due to the postponement of the winter season in some relevant markets, while the home care achieved a double-digit growth thanks to a significant acceleration in the ironing category branded brown. Looking now at the evolution of operating margins in the quarter, the net industrial margin improved by 49% of revenues, from 46.7% in 2022, benefiting from the recovery of some production costs. We highlight that in the first nine months, the price mix effect was positive by €30 million. Adjusted EBITDA amounted to €105 million or 14.9% of revenues, delivering a marked improvement compared to 9.2% in the third quarter of 2022. and in continuity with the market improvement achieved in the first six months. The improvement in profitability was also partially supported by postponement of some investments in media and communication in the quarter due to the launch of the new campaigns in recent weeks. As to the balance sheet, net financial position as of 30 September 2023 stood at 326 million euro. and it had been significantly increased from €29 million reached last year. In particular, the free cash flow before dividends and acquisitions amounted to €14 million in the quarter, €99 million in the 9 months and €369 million in the 12 months rolling. In particular, we would like to point out that in the 9 months the Group was able to generate €188 million of cash from current operations and working capital movements compared to a completely opposite picture of last year, minus €159 million of absorption in the nine months of 2022, representing another significant step towards gradual normalization. Now, as a conclusion to my results overview, Let me remark that the group's excellent performance in the last few months supports and strengthens its prospects for post-pandemic normalization, with all key financial metrics, including growth, profitability, and cash flow, continually heading up in the right direction. Although the current economic and geopolitical backdrop remains characterized by uncertainty and variability, We are confident in the group's ability to overcome these challenges and capitalize on the growth potential offered by the coffee and Nutribullet nutrition segments. Having said that, in light to the dynamics of progressive recovery and profitability, we look at the targets for the year with optimism. In particular, we are confirming the estimate of slightly decreasing revenues. We raised the guidance on adjusting the BDA for the year. which we estimate now in the range of 420, 440 million euros. Now we can open the floor to Q&A. Thank you.

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