De Longhi Spa

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the De'Longhi First Half 2024 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. 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 First Half 24 Results Conference Call. Today, together with me are Nicola Serafin, Group General Manager, Marco Cenci, Chief Planning and Control Officer, Stefano Biella, CFO, Samuele Chiodetto, Investor Relations Director, M&A Manager, and and Sara Mazzucato, IR Specialist. The group maintained its upward momentum in the second quarter, demonstrating yet again its ability to realize consistent growth in the core business segments and, at the same time, noticeably improving profit margins. Turnover went up by more than 10% in the last three months, thanks to the consolidation of La Marzocco and a 6.9% increase in the household segment, excluding comfort. In detail, this category suffered during peak seasonality because of an unfavorable climate in Europe and the aftermath of the discontinuation of the American mobile air conditioning business in Health One 2023. However, the impact will be diluted during the year. Organic growth in the core categories remains strong, following the trend experience over the previous 12 months. Home coffee continued to grow structurally, expanding at a high single-digit rate in line with the first quarter, thanks to the De'Longhi brand gain in market share in the espresso area and the sound market development supported by solid megatrends. The food penetration and nutrition segment grew as well, extending its upward trend in the quarter, largely driven by the blender category, including blenders, hand blenders, and personal blenders. In addition, iron in products achieved double-digit growth for the fourth consecutive quarter, boosting market share. Organic turnover expansion coupled with an upgrading product mix and a further softening of inflationary pressure on certain industrial costs enabled us to achieve a significant improvement in the profitability at constant perimeter, enhanced by the consolidation of La Marzocco. These favorable dynamics allowed us to jump back to the historical profitability range, reaffirming the upward margin guidance for the year. The group confirms its robust cash generation ability with approximately $425 million of free cash flow before dividends and M&A generated in the last 12 months, employed to finalize the strategic acquisition in the professional coffee business and to remunerate the shareholders, distributing more than 100 million euro dividends. Now, let me focus on the quarterly results. In the second quarter, the group revenues reached 765 million euro, recording an 11% increase compared to the previous year. The group was able to expand its business in all key geographies, with the European area still leading and growing at a high single-digit rate. More details. Southwestern Europe grew at a pace of 6.5% in the second quarter, translating into low single-digit organic growth. The business in the area was impacted by weakness of the comfort segment. due to unfavorable climate conditions. Within the context, certain markets like Austria, Iberian Peninsula, Switzerland, have experienced a robust growth, aligned to the strong trend experienced in the last 12 months. Northeast Europe continues running, registering a growth of almost 14% in the quarter, corresponding to an organic rate of around 9%. The second quarter is the fifth consecutive one of organic growth for the area, driven by the performance of the coffee and ironing businesses. The media region went back to growth, expanding at a high teen rate, 10% organic after a tough first quarter, highly impacted by geopolitical uncertainty. The growth was pushed by positive performance of the coffee area and certain categories within the nutrition and food preparation segments. Americas grew by 10% thanks to the consolidation of La Marzocco. The organic perimeter experienced a slowdown due to the aftermath of the discontinuation of the mobile air conditioning business and the weakness of the overall comfort segment. The core categories were up thanks to a solid expansion of Nutribullet products and positive developments on the fully auto coffee makers and espresso capsule systems. Finally, Asia-Pacific grew at a mid-teens rate thanks to the consolidation of Lamarzocco that upset the slight organic decrease in the area. Specifically, oasis, as expected, suffered a tough comparison with a weak demand on certain countries, while the home coffee achieved a positive expansion in the period. Regarding product segments, it's worth highlighting that there were There has been positive tendency across all macro categories, with only exception of the comfort business, allowing the group to maintain the positive momentum achieved in the last 12 months. Specifically, the coffee machine sector, both for domestic and professional use, which currently accounts for approximately 62% of total revenues, expanded significantly in the quarter. driven by the contribution of Lamar Zocco consolidation and the double-digit growth in household fully automatic machines and espresso capsule systems. The growth of nutrition and food preparation category in the quarter was driven by personal blenders and hand blenders. Lastly, it is worth mentioning the significant growth of Brown branded ironing products, which recorded a 35% growth rate in the second quarter. Looking now at the evolution of the operating margins in the quarter, the net industrial margin stood at 391.5 million euro, equal to 51.2% of revenues, compared to 48.8% in 2023, benefiting from a positive effect of La Marzocco consolidation, the mix, and an easing of inflationary pressures on product costs. The VDA adjusted was 110.9 million euro, or 14.5% of revenues, compared to 12.5% in the previous year. The expansion of volumes, a further easing of inflationary pressures on some industrial costs, and an investment in media and communications substantially in line with respect to 2023, translated into an improvement in margins, despite the increase in labor and logistic costs. As to the balance sheet, the group ended the quarter with a positive net financial position of €305.3 million, following the distribution of €104.8 million dividend to shareholders and €326.8 million of net absorption in relation to the closing of the business combination between Lamar Zocco and Avesis. The four pre-cash flows before dividends and acquisitions amounted to 425.2 million euros in the 12 months and 74.3 million in the quarter, thanks to significant contribution from current operations. To sum up, over the last few quarters, we've been able to successfully capitalize on structural coffee market growth in both household and professional segments, as well as to meet consumers' new needs in nutrition and food preparation segments, focusing on healthy food and cooking, and fast and user-friendly kitchen appliances. This allowed the group to go back to a medium-term growth path consistent with its potential. We believe the general outlook for our core products and market remains positive, notwithstanding the uncertainty in characterizing current economic scenario. The consolidation of La Marzocco, the continuation of the upward trend in home coffee, and the stabilization of the nutrition business, along with the outstanding margin recovery and robust cash flow generation, give us confidence in reiterating the guidance for the full year. Before, we confirmed the forecast of a 9% to 11% increase in sales for 2024, including an enlargement of the perimeter through the business combination of La Marzocco and Eversys. In terms of margin, the quarterly results reinforce the expectation of reaching the upper end of the guidance, which foresees an adjusted BDA in the range of 500 and 530 million euros for the new perimeter. Now, we can open the floor to Q&A. Thank you.

Thank you. This is the Chorus Hall 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 to use the handset when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Nicola Storer with Kepler Chevres. Please go ahead.