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.