De Longhi Spa

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the De'Longhi Third Quarter 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.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group 9-Month 2024 Results Conference Call. Today, together with me, are Nicola Segalfin, Group General Manager, Marco Cenci, Chief Planning and Control Officer, Stefano Biala, CFO, Samuele Chiodetto, Investor Relations Director and M&A Manager, and Sara Mazzucato, IR Specialist. In the first quarter, the group revenue climbed by 14% following La Marzocco consolidation and expansion of the House of Business, which recorded another strong quarterly performance, accelerating from the first half across the key regions, such as the US and Eastern Europe. I would like to emphasize that over the last 18 months, the group has consistently delivered outstanding results in terms of business growth and profitability, investing in product innovation and communication initiatives, and capitalizing on the espresso market's structural upward trend, as well as several rising opportunities in the nutrition sector. Our growth strategy remains focused on leveraging our strong brand awareness in core categories, each brand in our portfolio, is a clear category captain and plays the role of expanding category penetration in the market. Since the start of the year, we've been able to significantly increase the group operating results at double rate offset growth at the top of our range of our strategic goal. This improvement is attributable in part to the perimeter expansion, but also to the stabilization of the industrial costs and positive mix effects. indicating the continued growth of our consumer interest in the premium segments of our product portfolio. It should be emphasized that the improvement in profitability in 2024 was accomplished in the context of higher spending on media and communication, AMP, with a significant pickup in the quarter due to both a different phasing in the year and additional activity supporting product launches. Let me quickly review the major product launches in the recent quarters, as shown in the presentation. Starting from the Longhi brand, we've been working on the global rollout of Rivelia, winner of three IF Design Awards and a Red Dot Design Award. An introduction of Magnifica EvoNext for the mid-end consumers, launched on the manual space. La Specialista Maestro and La Specialista Opera, with advanced technology, including the code extraction. Code, after last year's tremendous success of the Multi-Go Pro, has thus completed the launch of the Go Collection, including also the Compact Stand Mixer and Hand Mixer, with excellent performance and luxury design, all in a compact size. Nutribullet has enlarged its blender family. with smart sense, featuring a smart auto-cycle and nutrition flip, which can keep ingredients cold up to 24 hours and can make smoothies on the go. Last but not least, Brown has expanded its presence in the ironing market with innovative products, in addition to strengthening its portfolio in the hand blender and cooking categories. All these product releases were backed by specific media investments, which reached mid- million of potential users. To name a few recent brand activations, I would pick the event for the launch of the new Nutribullet Flip portable blender, the Cambridge campaign for the introduction of a new Go collection, and the Worldwide Coffee Campaign with Brad Pitt as an ambassador. Most of these initiatives are underpinned by an evolution of the marketing mix towards a large-scale social media impact and e-commerce performance marketing plans. Furthermore, let me point out that with a strong spirit of innovation, Lamar Zocco and Porsche collaborated to develop a dedicated product range, which have been globally released at several events across the world. Shanghai Coffee Festival, London Soho House, and the Los Angeles Porsche. This is yet another example of how Lamar Zocco continues to lead the industry, by blending tradition and cutting-edge technology together with iconic design and precise engineering. Now let me focus on the quarterly results. In the third quarter, the group revenues reached $806 million, plus 14%, with respect to the previous year. The group was able to increase its business in all main geographies, with America posting a solid organic growth, accelerating in comparison to most of the recent quarters. In more details, southwestern Europe area recorded an increase of 7.4% in turnover, corresponding to a low single-digit organic growth, favored by the performance of certain categories such as Switzerland, Austria, and Iberia, in line with the trends experienced in the last 18 months. Northeast Europe advanced further in the quarter three, achieving a the fourth quarter in a row of double-digit organic growth, with Poland outperforming the Arab, followed by UK and Czech Republic and Slovakia, both delivering mid-to-high single-digit growth. Regarding media, quarter three was up double digits, thanks to the perimeter expansion and low single-digit organic growth despite geopolitical context. The American region accelerated in the quarter, resulting from the consolidation of La Marzocco and strong like-for-like growth, thanks to a mid-teens growth rate in the home coffee in the quarter. Finally, Asia-Pacific was up by 10%, thanks to consolidation of La Marzocco, which helped offsetting the decline in the region's performance on a like-for-like basis, further affected by negative currency fluctuations. In terms of product sectors, the key categories positive growth to dynamics persisted throughout the year with a solid development in the last quarter for both the home coffee sector and the nutrition and food preparation segment. The favorable performance of the business together with the contribution of the integration of Lama Zocco led the coffee area to represent over 60% of the group revenue in both periods, specifically in this quarter Home coffee machines recorded an increase in turnover at a low teens rate, thanks to the significant expansion of fully automatic machines and acceleration of the capsule systems. The nutrition and food preparation segment confirms the trend of the first half of the year, increasing turnover at a low mid-digit rate in the quarter. Let me highlight in particular the return to growth of Canvas kitchen machines. increasing at the mid-teens rate in the period, and a continuous expansion of the blender sector, thanks to Nutribullet's personal blender and Brown's hand blenders. The comfort sector was in negative in the quarter under review, but had no substantial impact on the group's overall performance. Homecare recorded an increase in turnover at the mid-single-digit rate, after four quarters in a row of double-digit growth driven by the Armanin-branded Browns. which continues to rise even in a period of reference. Looking now at the evolution of creating margins in the quarter, the net industrial margin stood at $416 million, equal to 51.6% of revenues, compared to 49% in 2023, benefiting from volume increases, the easing of inflationary pressures on product costs, and a positive product mix. The BDA adjusted, was €131 million, or 16.3% of revenues, compared to 14.9% the previous year. Aside from Lamazocco consolidation, profitability had been enhanced by a significant volume effect, cost stabilization, and a favorable price-in-mix contribution. The quarterly improvement in profitability was achieved in the context of greater investment in media, EMP, with a percentage of like-for-like turnover of 12.9%, an increase of about 190 basis points versus Q3 2023, supporting the planned product launches in the period. As for the balance sheet, the group ended the quarter with a positive net financial position of $266 million, following the distribution of $105 million dividends to shareholders. and $327 million of net absorption in relation to the closing of the business combination between Lamarzocco and Eversys. The four free cash flow before dividends and acquisition amounted to $372 million in the 12 months and $36 million in the last nine months. The expected positive contribution from current operations, together with the improvement of working capital in the last quarter, give us confidence in substantial cash flow generation for the full year. In conclusion, we ended the third quarter with yet another outstanding set of results, keeping us confident about the company growth, profitability improvement, and a generation of significant free cash flow. Despite the volatility that characterizes the current geopolitical backdrop, we feel that the general outlook for 2020 our key sectors and markets still supported. The coffee market has been experiencing robust growth, driven by espresso market expansion and consumer premiumization across multiple countries. The nutrition and food preparation have maintained their upward trend in recent quarters, thanks in part to the recent introduction of new products that are increasingly geared towards a consumer attitude to healthy eating. Furthermore, recent advertising initiatives have been effective in strengthening brand awareness and market share, astounding retailers, and enhancing consumer engagement. In this context, we've revised our full-year guidance upwards, raising expected top-line growth to 11% to 12%, previously 9% to 11%. corresponding to an adjusted EBITDA level of around €440-550 million, respect to €500-530 million previously projected. Now we can open the floor to Q&A. Thank you.

This is the Coruscall 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. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Nicola Storer-Kepler. Please go ahead.

Good afternoon. Thanks for taking my two questions. The first one is on the expected margin evolution for Q4 and its main building block, in particular AMP and gross margin evolution. So linked to that, I was wondering if your guidance for advertising promotion expenses for the year is confirmed and so we should expect for quarter reduction in the weight of EMP expenses on sales and maybe if you can help us understanding how much of the gross margin expansion that we have seen here to date is linked to La Marzocca consolidation and how much can be considered at the same perimeter and if you expect this trend to continue into year end. The second question is on Eversys, if you can give some flavor on the performance of Eversys in the nine months or in the quarter and maybe giving us an update on the project with Starbucks and if it has survived the latest CEO transition at Starbucks. Thank you and congratulations on the results, which were really remarkable. Thank you.

Thank you, Nicolò. Thank you a lot for your kind words. With regard to margin, we expect the margins to continue to be stronger in quarter four. As you noticed, we are benefiting from some cost reductions. We're giving back some of the margin to the trade, as well as we are improving mix. So, as a consequence of all this, we continue to expect to have strong margins in the quarter four, pretty much in line with what quarter three was. This will happen on the back of, let's say, increased AMP investments. So we have noticed probably that we have increased AMP in quarter three. There's been a stronger increase versus the year before. Despite that, we've posted a stronger ABDA performance. We expect to continue investing more compared to last year in quarter four, probably at a lower rate compared to the incremental investment versus the year before in quarter three, but still higher than the last year. We expect that on the back of growth expectations and and positive margin developments, we expect to continue to expand our EBDA. La Marzocco is certainly contributing very positively. La Marzocco has a higher EBDA, higher than average, but the improvement in quarter three is due to the strong performance of household. I have to say that, unfortunately, overseas has been weak, and we expect a continued decline at overseas by double digit. But again, on the back of record year in 2023, where we had exceptional performance due to some one-offs, particularly in China. which now is certainly a very difficult market for the moment for professional equipment. But all in all, we keep our focus, and we think that we are still optimistic about the next development of devices, and we expect also to start rolling out devices The first Starbucks deliveries for next year, the expectation next year is to start with approximately 500 units, which will be delivered as soon as possible. I mean, we now see that the rollout should happen in the second half, in the second half.

Thank you. Is it fair to say that this 500 units is higher than the probably 100 you were mentioning at the time of this?

Honestly, still, to me, it's still nothing. I mean, the business potential is huge. We are now getting closer to delivery. It could be 300, it could be 400, it could be 500. It won't change. I think now the indication is probably 500 units, which is great. Now we will really test on the field the product and the opportunity, and the stake is potentially very high. As you know, Starbucks has about 20,000 stores just in the United States. 10,000 are directly operated and 10,000 franchising, plus then they have international networks. So I think there's We're getting closer to the moment of truth and we're looking forward to it. It's a great innovation and we are very excited. But again, it's still a process that will involve further efforts and investment and focus on our side. But it's great to see that also despite the The recent management change at Starbucks that you have mentioned, I mean, the new CEO has confirmed the plans.

Okay, but why all these delays? I mean, first it was expected for end of this year, then beginning of next year, now it's second part of next year. Is this something depending on you or on Starbucks?

It's partly dependent on us. We've been requested to make changes. It's a dialogue. The product has been, let's say, modified based on the test. I mean, we're talking about not just a new product. I mean, it's not like a new coffee maker on a very consolidated technology that is substituting an existing coffee maker with similar technology. We're talking about... very innovative product that implies also in-store, major in-store investment and a redesigning supply chain model for the stores on cold brew, which is obviously an incredible opportunity on one side. On the other side is also, for sure, a more complex deal rather than selling a a similar or evolutionary technology.

Cool. Thank you very much.

The next question is from Alessandro Cecchini, Equita. Please go ahead.

Hello, everybody, and thank you for taking my questions. The first one actually is on the US market. So performance over the last quarter has been not, I mean, as expected. while in this quarter you executed very well with plus 9%. So more on a strategic point of view, I would like to understand what is changing from your side in terms of marketing, in terms of product. So just to understand if this is, I mean, the start of a new, I don't want to say a new era for belonging in the U.S., but I would like to better understand your strategy, new products in the coffee business. So the market, the coffee business in the US is, I mean, I don't want to say greenfield, but not so far from this, from an espresso point of view, so I would like to better understand your point in this very important geography. My second question is about coffee, what I mean, your expectation for quarter in particular in Europe, so if you still see room for gaining market shares in the field thanks to new products. So this is my second question. My third question is still on coffee, is on Nespresso. I would like to understand if there is room for you to win new agreements worldwide or you are, I mean, okay, or the current framework is like this. And my last question on kitchen machines returning to grow, I would like to understand if you have a feeling if this is due to the new range, the new products, or is, I mean, a category that is a little bit rebounding from after several quarters of negative performance. Thank you.

So the first question was about USA. I would say just a good quarter. I think the past quarters have been impacted by some, let's say, a consequence due to the exit of portable conditioners, some also temporary weaknesses due to some overstocking in Nespresso, in particular in the first half of the year. I think that it's a good quarter, certainly a good quarter. We're happy with the performance. I think that we now are a very focused, agile company in two segments, which can deliver secular growth. and one is obviously nutrition, where Nutribullet is performing very well, is winning market share. Despite the ninja initiatives, we have substantially won market share in our core segments, as well as we see espresso and cappuccino as potentially growing market. Nespresso has stressed again their will to win in North America and they continue investing alongside with us. We have new launches, Vertro, we have Pop and also Latissima Vertro, which are rolling out. So we feel strong also about our ability to to win shares in the market. FuliAuto also, we have launched a new product. We have completed the range for North America. We are winning shares and the market is growing. Coin is the fastest growing segment in the U.S. now. So, positive news on the U.S. With regard to coffee in Europe, We are confident about market growth. We think that the growth will be in the market, which will enable us to post growth again. Also, we have strong market shares. We're performing well in all the key markets. The market shares are higher than last year at this point of time, so we will ideally take advantage of our market position and expand our market in the last quarter, in which we will invest with new launches, with a renewed media campaign. We will invest more than last year and also capture the opportunities in the premiumization of the market. The last question was about Nespresso. Sorry, we were in a question about Nespresso. Yes. Highly confident to announce soon four new markets with Nespresso. So that's, I cannot say more, but highly, highly confident on that, which will strengthen us in coffee and also in very important European markets.

To Kitchen Machine, Nicola, you want to maybe... We had a good quarter on Kitchen Machine as we are, it's an area where we are looking back to gain market share and we have a strong activity also with the retailers to get back market share on the top of a launch of the new product, the new Can-We-Go collection that is on the top of the food processor launch, the last year that was very successful and this is giving new edge to the category let's say on the back of this quarter it's momentum back on the category thank you about Nespresso if I understood correctly you spoke about four new markets in Europe yeah highly confident about that ok thank you

The next question is from Isacco Brambilla, Mediobanca. Please go ahead.

Yes, hi. Good afternoon, everybody. Thanks for taking my questions. I have three. The first one is on capital brands. In the presentation, you mentioned several activities to push the brand in Europe. Could you remind us, even roughly speaking, the split between sales in the U.S. for capital brands, Nutribullet and versus Europe. Second question is on AMP. No later than six months ago at the Capital Market Day, we were talking about gradual decrease in AMP expenses as a percentage of sales. Now it looks like you are accelerating on that. So which are the drivers of this change? Do you see higher opportunities in the market right now? Last question is on building blocks of margin outlook for next year, if you can give a sense of which forces you see as positive and negative looking ahead to 2025 and all. It's early, you will provide the guidance later on, but just if you can help us on a qualitative basis.

Okay, let me start from the A&P part. As you have seen, we had the first half of the year where we are in line with last year's investments, and we had an acceleration this quarter where we grew the incidence on sales by more or less a couple of points, 1.9%, because we are looking to capture very surgical opportunities, and this is something that we are looking forward to get also in this quarter, probably at a bit slower pace because we have tried to create momentum in the past quarter, but we will keep pushing also on this one. Obviously, the incidence is increasing a bit compared if we look at let's say, constant perimeter without the effect of the combination of Lamardocco. We have very detailed activities by all brands. So with the launch of the Flip campaign in the U.S., we have a broad social media campaign to create awareness. We are working across Europe, in France, in Spain. In several countries, we have a big launch with Kenwood, make it big with the new collection, the Go collection, that now is complete with three products. And obviously, we are keeping momentum on the coffee with the ambassador campaign that will go across all the fall seasons.

The third question was about the full year 25 outlook. It's a bit too early. I think that the quarter is indicating the potential of the company. I think that our products are very useful products that also tougher economies or economic downtrends can be very useful and can be gifts, can be small purchases that can help families also to face higher costs as well as very gratifying when maybe families are spending less money outdoor, for traveling, for entertaining. So, too early to say, but it has been a really good quarter. We think that the company will continue to focus on delivering organic growth, as well as continue to keep eyes open and capture also many opportunities. I know that we are sitting on a lot of cash, and we will hopefully generate further cash in the next month, as usual. We have added two nice businesses to the group in the last four years, with Nutribullet, which is helping us in North America, to get stronger in North America, as well as offering international opportunities, and with Mazoco now, and the combination with Eversys. So we had two nice acquisitions, and hopefully we will also also enhance the growth opportunity with new acquisitions in the near term. In particular, we want to continue to deliver an accelerated ABDA organic growth. has a strong leverage and we want to continue to maintain our strong business model in a way that if we can continue also to accelerate the growth opportunity with new acquisition we can deliver ideally a double growth rate at Obviously, this is a best-case scenario. It's in the top of our range, but we want to continue to deliver growth and accelerated profits despite the increased investments to support our products and the launches.

Going on the question about capital brands, the Americas is more or less 75%, three-quarters of the total capital brand business, and one-fourth is outside of the U.S. Both are growing significantly, double-digit. This is obviously a signal of the opportunity that the international expansion still has.

Many thanks, everybody, for the answers. Very clear.

The next question is from Hela Zarok of WHF. Please go ahead.

Yes, hi. Do you hear me?

Yes, we do.

Thank you for taking my questions and congratulations for the good set of Q3 results. My first question is on the professional coffee segment. If you could give us more color about business development in Q3, you already talked about Eversys. But what about Lamazoku and your expectations going forward? And what about the weakness seen in the professional coffee segment in China market in H1? My second question is on fully organic growth. Should we expect the same trend seen in Q3 to continue in Q4? Could you please remind us of the guidance for organic growth for the full year? My last question is on the comfort segment. What was the performance of the comfort segment in Q3? Should we expect it to accelerate in the coming quarters? Thank you.

Okay, thank you. First question is about the professional division, let's say, development. Then I will hand the word to Nicola to comment on the other question, the organic growth and comfort. On professional, I said Eversys is... showing a double-digit decline. As I said, it's coming from a record year in 2023, where we got, I'd say, one-off deals in particular in the Chinese market. So we expect the weakness of emphasis to continue in the last quarter of the year. probably at a double-digit rate still. We think that next year we will expect to normalize and go back to growth progressively during the year. With regard to Marzocco, Marzocco has outperformed again the market and has posted a mid to high single-digit growth in the quarter, in the quarter three, and on the back of positive U.S. market, positive European market, and a solid expansion in the prosumer range. In particular, Linea, Micra, and Mini still are delivering growth in the prosumer space. I highlight also the success of the venture with Remova and the new Porsche design products which have been incredibly successful in terms of commercial success as well as an incredible visibility in the marketplace. So we expect Lamarzocco to continue its trend also for the end of the year.

About the expected organic growth in Q4, we are seeing a robust start of the quarter, so we expect to be in line with Q3, and this is what is also pushing our our big guidance to the highest boundaries of the expected guidance. We are preparing big events like Black Friday, Christmas Eve, and let's say we are optimistic at the moment. This is despite, just to comment on the comfort category, because comfort has been, and seasonal products have been not a great year this year, and still also the winter is milder, So we do not have a positive outlook on the comfort for the quarter. But the incidence on the total revenue of the group is very limited. So the negative, the current double digit negative trend is not very impactful. So we expect a robust growth on the quarter despite a negative performance on the heaters.

The next question is from Natasha Brilliant, UBS.

Please go ahead.

Hi, thank you very much for taking my questions. Three from me, please. So firstly, can you just remind us how much of your U.S. revenues are produced in China and whether you've had any early thoughts about potential tariffs and what you might do to mitigate that if the tariffs were to come in? Would you start building inventory ahead of time or how are you thinking about that? Second question, you mentioned a lot of cash and M&A is still very much on the agenda. Has the pipeline changed? Have you identified any targets? Just any more colour there? And without any M&A, where do you think cash will end for 2024? And then finally, just to come back on your midterm targets in terms of the margin, obviously with the higher guidance and strong momentum, we'll probably end this year at the lower end of the targets you gave us at the CMD. So how should we think about that going forward? Does it give you a bit more comfort that we could reach the upper end of that mid-term guidance? Thank you.

Sorry.

So, Nicola, can you handle the first question? Yeah, yeah.

So about the U.S., let's say that of our revenues in the U.S., we have a good balance across two geographies because we have more or less 50% of the revenues coming from Europe, production from Europe, and 50% from China that is impacting something like 7-8% of our revenues. In terms of COGS, obviously, we have already activated on the view of what can come with the tariffs. We have plans for exiting from China. Some are already activated and some are ready to come in the next months, eventually, across also different geographies.

It can be Asia to Asia or even Asia to Europe.

In absolute value, we want maybe to... Yeah, yeah, it's about 78% of our... In absolute value, about 130 million... 130 million, 120, 130 million... 130 million euro of COGS are coming from China where we are activating the initiatives that Nicole has mentioned. Yeah, with regard to M&A, no, I said M&A is a priority. Our intention is to continue to perform acquisition with a regular pace in order to uplift our organic growth with the intrinsic kind of an organic acquisition strategy. Our priority will probably go to the markets which are more potential for us. or where we want to win market share or products that can be complementary to our range. Coffee for sure is a priority as well as but maybe coffee is more difficult to find opportunities at least in the household. Maybe in the professional space it will be possible. In terms of geography, I would highlight the opportunity offered maybe in the U.S. I think the acquisition of Nutribullet has been really for us very synergistic and very successful and we think that U.S. is still one of our priority markets where we're going to focus. So U.S. coffee or nutrition I think for sure will continue to be our priorities. With regard to the Cash, usually we generate in the last quarter of the year between 180, let's say 150 in the worst case scenario, but as high as 200 million euro. So I think that this year should be no different. So I would expect between 150 and 200 million of cash, yeah, generated in the last quarter. Which would bring the year-end cash or net financial position above 400 million. Yes.

Yes, the last question was... Are the expectations on the ABTDA margin? It will be probably at the bottom. Sorry. No, at the top of our business plan, yes.

Okay, so the mid-term targets, you're comfortable thinking about the upper end of that target now?

Yeah, yeah.

We are working with it. Thank you very much.

The next question is from Francesco Brilli, Intermonte. Please go ahead.

Yes, good evening. Can you hear me?

Yes, we can, yes.

Okay, perfect. Thank you very much for taking my question. I have a couple of questions. The first one is, first of all, congratulations for the remarkable results you achieved in this quarter. The first one is back to the question on tariffs. I see you have a lot of contingency plans in place. But is it fair to say that you are in better position vis-à-vis the competition you have in the U.S. as far as it concerns the production footprint, so the balance between imports from Europe and China? This is my first question. And the second one is on... just on costs. A lot of that's been answered on AMP, but I was just curious on why you are constantly seeing high logistic costs. I was expecting something to be easing going forward. So if you can provide us some call about that and if you expect this line of costs to ease going forward. And the third one is a more general one on Everseas. from two perspectives on the technology you will be providing to Starbucks and it is something very specific and unique that you have and you have developed for them and it's something that's also in your household products have no reference in the market. I saw some players that are introducing some cold brewing technology just to understand better what level of uniqueness you are providing to the market, both on the professional and the household products. And still on this project with Averseas and Starbucks, can we think – I know that it's very early, but can we think on the margins of this project – of something in the middle between professional products and household products, given the large volumes you will be providing to them. In case of everything, it will be successful. Thank you.

Thank you for the question about tariffs. Definitely being a European-based company, we have a more global supply footprint than our major competitors in the US. This is offering to us alternatives and options. of supply from either Europe and Asia. Already today, out of our turnover, we are a bit in balance. It's more 55, as I was mentioning, 50, 50, 55% from Asia, 45% already from Europe. And we have this option of both make and buy and outside of China, in Asia, or in Europe, both for food preparation, nutrition products, and eventually some coffee products that we have from China. So definitely we are well suited in this moment about this about the logistic costs definitely we are still facing a bit of higher freight cost compared with last year but it is easing and the impact in the Q3 is more or less 50% of the impact that we had in the first half of this of the year so it is slowing down a bit this event but still being higher than last year I don't know if that answers your question.

I think, if I can add on, Delonghi is certainly in a better position than its key competitors. I think I would also recall the fact that we have a very strong industrial know-how. We have factories, we own factories in Europe and in Italy. And we have a strong experience in relocating our productions, using also third-party supplies in some cases. We have done that in the past. And I think this is a very important asset. And then also the exposure. As I said, if you think that De'Longhi has with a 50% COGS on sales in general, we have About 1.6 million of cogs, and we're talking now about 130 million. For us, it's pretty small and has strong capabilities, so for us, it can be a competitive advantage, certainly compared to others, in particular maybe smaller Australian players or or big Americans with a huge exposure to third-party suppliers. With regard to the Eversys technology, it's a combination. There is a co-development. A portion is proprietary to Starbucks, but Starbucks picked Eversys as supplier of record for the project. for the know-how and the existing technology. It is our brewing unit, it is the capacity of our brewing unit, our technology that enables Starbucks to have a great technology, and that is ours. That is ours and can be exploited eventually in a different fashion, in a different way in the market with other players. Obviously, the part that I said is Starbucks IP, but the core technology is Eversys.

Thank you. Thank you very much.

The next question is from Luca Baccoccoli in Tesa San Paolo. Please go ahead.

Hello. Good afternoon, everyone. Can you hear me? Okay, good. So I have some questions on the tariffs. So the first one regards how fast could you relocate production Asia to Asia or even Asia to Europe? And if in the meanwhile, could you build up inventory in the US in order to smooth out the potential negative impact? And related to that, I would like to ask you if you have any past evidence of the price elasticity of the demand in case of price increases in US market or in other markets, just to have a reference. And finally, The other question is on your cost base. So you were mentioning some slowdown on the increase in freight costs, but also some tailwinds on inflation, other cost items. So I was wondering how should we see next year. So are the headwinds prevailing on the cost base or is it the opposite? Thank you.

Okay. So, about time to relocate. We have already some active backup solution for part of this 130 million mentioned before that are already produced outside of China. So it's a question to ramp up this, and this is something that can happen across 2025. So in the next, let's say, 6 to 12 months, we have a good opportunity a good acceleration path. About price elasticity, it's a great question. What we have seen for the time being is that it depends on category and on the competitive pressure of the category. There are some products where some price increase has been happening, and there has been some in the past because 25% of tariffs have already been introduced for a while. And there have been some recent categories that have been introduced this year where most of this has been absorbed by the value chain. So there was no price increase. So I think that the option here is more to have an alternative sourcing than increased prices. And about next year, we see freight probably relieving a bit and easing. We have a bit of favorable industrial cost this year. Favor of this, that probably will stabilize and will stay there. Next year, showing the light for light, will be not any more favorable because it is this year and we do not expect that it will be any more next year.

Okay, great. Thank you.

The next question is from Andrea Bonfa, Banca Acros. Please go ahead.

Hello, good afternoon to everybody and congratulations for the results and also from my side. Very quickly, most of my questions have been answered and I would like just to better understand the net cash position because I Sequentially, generally speaking, you tend to improve your net cash, but I was wondering if that is related to a buildup of stocks, but looking at your figures, they seem lower than last year. So just a call on that. And if you can elaborate a little bit more on the expectation for coffee, consumer coffee, in the last quarter and next year, if, let's say, mid to high price, single-digit growth is still feasible.

Thank you very much. Yeah, sorry.

So the first question is about the net financial position and what is expected in that financial position at the end. So at the moment we have a positive cash position for 266 million. Usually we deliver say 100 and between 150 and 200 million. In the past years we've been delivering a very robust cash generation. I think that the company has still a strong ability to deliver strong cash flow. It is positive. This year is a bit softer because last year we have really outperformed. So we're still, in a way, slightly suffering because of the excess generation that we witnessed last year. But I think that we should be able to deliver between 150 and 200. So with that, end of September position, 266, we should be around 466, to have an example, yeah, between or around there, yeah. Expectation on the COVID market, I think that the market has grown cyclically, dramatically in the past. De'Longhi had slightly more than 100 million in sales in Special machines back in 2004. Now approximately 60% of our sales, which are around 2 billion, are in coffee. I think this trend will continue to be strong. We have great products, new launches, brand, ambassador. There was acquisition of, acquisition of La Marzocco, a building company. competencies, we are investing in people, so we'll be still our priority and I'm confident that we'll be still our engine for growth for the future. Then in the short term, we might have better years or more difficult years, but that has been a transformational segment for the group and we believe that we will continue to be our strongest opportunity. Extremely pleased with how we have reshaped our product portfolio in the food area. Nutrition is the new word, and I would like to highlight the phenomenal performance of Nutribullet, in particular because also in a segment that is extremely competitive, where probably Ninja has invested a lot, but we keep winning market share also in this segment. Now we are relaunching with a new approach, with a new angle, Kenwood, with the Go line. Last year, MultiPro Go, which was a compact food processor, has been extremely successful. Now we have the Go Sand Mixer and the Quick Mixer Go, which will complement the Ranger, and we will probably be more appealing, more attractive to the new generation and to more customers.

Thank you very much and Fabio, Nicola, congratulations for the results.

As a reminder, if you wish to register for a question, please press star and one on your telephone.

For any further questions, please press star and one on your telephone. The next question is from Fraser Dolan Berenberg.

Please go ahead.

Hi, thanks for your presentation. I just had two questions. So I think you've been rolling out with Target in the U.S. in coffee. So I just wondered how much of that is kind of, let's say, behind you in Q3 and how much is coming in the coming quarters? And then the second question is just about kind of, let's say, tariffs. So is there any evidence that in Q3 there was some kind of stocking going on in the U.S. by retailers ahead of possible election result? Or indeed now, do you start to see any interest? You know, this should be carrying more stocks given the risk of, let's say, high costs.

Thank you very much.

No, I think tariffs are not affecting the trend in coffee. No. Nicola, you mentioned we have $130 million in the total costs related to products made in China for the U.S. market. Coffee is a small portion, approximately $25 to $35 million, so it's certainly very manageable. So this will not affect for the moment. There is no indication that it will be affected.

And there is no indication of restocking in the U.S. because of tariffs or expecting the results of the presidential election ahead of this?

Yeah, with the coffee development, we see We have three major areas of focus. One is together with Nespresso, and it's certainly an immense growth opportunity. We continue to be in the midterm. We had a strong port where we have recovered massively the weakness at the beginning of the year. We have now... FuliAuto are growing very fast, where we have a leading position. And the third opportunity is to grow our market share in the pump grinder segment, where we have new products and new launches, and we have an ambition to increase our presence. So our coffee growth opportunity in the U.S. is...

It's huge. And 90% of this product, 95% of this product are coming from outside of China. So they will be absolutely not affected by any tariffs risk. And the other 5% that is there, we have already a plan to relocate.

Perfect. Thank you both.

Mr. Delonghi, there are no more questions registered at this time.

If there are no more questions, I want to thank you all for attending the