De Longhi Spa

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the De'Longhi Full Year 2023 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. Fabio De'Longhi, CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group fourth quarter and full year 2023 results conference call. Today, together with me, are Nicola Serafin, Group General Manager, Marco Cenci, Chief Planning and Control Officer, Stefano Biella, CFO, and Samuele Chiodetto, investor relations and external communication director and M&A manager. We are extremely satisfied with the full year results, which once again demonstrate the group's ability to seize growth opportunities, overcome market challenges. In particular, during the year, the group significantly improved the key financial metrics, such as underlying trends, profitability, and cash generation. in the context of a gradual post-pandemic normalization that we observed in previous quarters. After a slow start of the year, due to some transitory and extraordinary factors, the group has shown a significant progression, both in coffee and nutrition and food preparation sectors, achieving organic growth at high single-digit rate both in quarter four and second half of 2023. All through the year, the group maintained a level of profitability that has steadily improved in comparison to 2022, thanks to strict investment controls and a partial relief of inflationary pressures on certain industrial costs. These effects, combined with effective price management and continuous product mix improvement, have contributed to rapidly bringing the group's profitability back close to the historical average. These achievements enabled the group to generate a significant amount of cash flow, more than €430 million before dividends, which was strategically used in the establishment of the professional coffee hub with Lamar Zocco and Avesis for further strengthening its leadership in the market and for creating value for shareholders. Now let me focus on the results. Consolidated revenues for quarter four were up by 4.7%, reaching 1,078 million euro with a significant negative impact of 3.3% from the currency component. Over the course of the year, the geographical evolution was influenced by the weak start of the year. we report that all macro regions experienced widespread organic growth in the second half of the year. Specifically, the group's organic growth accelerated in the main geographies in the fourth quarter, with exception of the American region, which experienced some transitory elements. Southwestern Europe experienced organic growth at high single-digit rate in the second half of the year, with a 10% acceleration in the fourth quarter, where the main markets experienced a considerable uptick, with Germany and France showing high teens turnover progression. Northeast Europe recorded a significant poverty trend in 2023, with a progressive acceleration of developments over the second half of the year, due to a significant expansion of core product categories in the main markets. The media region achieved organic growth in the fourth quarter, in the low teens, but the area remained in negative territory over the past year due to a challenging macroeconomic environment. The exit from the mobile air conditioning business had significant impact on the American region's result in 2023. However, the coffee makers and nutrition, food, and preparation business are in positive territory in organic terms for the year. Finally, the Asia-Pacific region's turnover increased in organic terms over the span of a year, thanks to an acceleration in the second half, which resulted in a mid-single-digit organic growth in Q4. Regarding the product segment's evolution, the core categories performed improved gradually throughout the year, with organic growth trends picking up in the second half. The domestic coffee machine sector highlighted a turnover in line with the previous year, with growth reaching a mid-single-digit rate in the fourth quarter. This was supported specifically by an acceleration at a low team pace of the fully automatic machine category, thanks to the success of the new product recently launched in the market. The nutrition and food preparation segment highlighted positive growth. highlighted positive dynamics in both quarters of the second half of the year, despite finishing the year in negative territory. The growth recovery was primarily driven by the development of both the Nutribullet and Brown brands. With regard to the remaining segments, we highlight a significant extension of ironing products in the quarter, which brings the home care category, floor care and ironing, into positive territory in the 12 months. The trend in comfort, portable heating, and air conditioning in 2023 was strongly influenced by the group's choice to exit the American portable air conditioning market. Finally, we highlight the significant growth of Eversys professional coffee machines, which maintain a consistent extension trend throughout the year, resulting in a turnover growth of more than 30% in 2023. Looking now at the evolution of operating margins, In the full year, the net industrial margin improved to 48.9% of revenues, from 47.3%, thanks to a favorable price mix and easing inflationary pressures on product costs. A comparable improvement was made by the groups in the fourth quarter, from 46.4% of revenues last year to 48.1%. The 2023 adjusted EBITDA reached €444 million, or 14.4% of revenues, a significant increase from 11.5% in 2022. Over the year, the profitability improved mainly thanks to lower inflationary pressures on industrial and logistic costs, as well as an improvement in the price mix. The uptick in margins was also favored by partial savings from investments in media and communication, which were realized through the improved spending effectiveness and more targeted use of assets and channels. Despite the negative currency impact, the group achieved a margin of 16.6% of revenue in the fourth quarter, which was approximately 200 basis points higher than the previous year. As to balance sheet, net financial position as of 31 December 23 stood at 660 million euro, an increase of 364 million euros over the previous year, thanks to significant cash generation in quarter four. In particular, the pre-cash flow before dividends and acquisition amounted to 436 million euro in the 12 months. Let me emphasize that the group was able to generate positive cash flow before dividends and acquisitions in every quarter of the year, which is a noticeable and significant improvement over the discontinuity observed in 2022. Now, as a conclusion to my results overview, I would like to point out that while the current economic and geopolitical scenarios are certain and valuable, the group's prospects are strengthened and supported by the trends of improved organic growth. and financial metrics that have been highlighted in previous quarters. We firmly believe that the group's medium-term potential is still favorable, given the ongoing growth of espresso coffee markets and the path back to growth of the nutrition and food preparation sector. Furthermore, the creation of the hub between La Marzocco and Eversys has enabled the group to strategically strengthen its presence in the professional coffee industry. machine sector, leveraging knowledge and expertise in that area and diversifying the group's market exposure. The most recent positive development in the group growth and profitability dynamics have led us to estimate a 9 to 11 percent increase in sales for 2024, including an enlargement of perimeter with the business combination between Lamardzok and Avesis. At the level of profitability, we forecast an improvement in the year. leading to an adjusted EBDA of roughly 500 to 530 million euros for the group. Now we can open the floor to Q&A. Thank you.

Thank you. 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 one at this time. The first question is from Nicola Storer with Kepler. Please go ahead.