De Longhi Spa

Good afternoon. This is the course call conference operator. Welcome, and thank you for joining the DeLonghi first quarter 2025 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 DeLonghi, Chief Executive Officer of De'Longhi. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group Quarter 1 2025 Results Conference Call. Today, together with me, are Nicola Serafin, Group General Manager, Marco Cenci, Chief Planning and Control Officer, Stefano Biela, CFO, Samuele Chiodetto, Investor Relations Director and M&A Manager, and Sara Mazzucato, IR Specialist. Today, the Group Board of Directors meeting was held at the Accademia del Caffè Espresso of La Marzocco as an introduction from the new Board of Directors to the professional business, and also as a way to highlight the increasing relevance of this area in the group result and strategic choices. In this regard, let me emphasize that the professional coffee area, now accounting for 13% of total business, grew on a pro forma basis by approximately 22% in the quarter, reflecting a double-digit increase for both companies. Avisis has seen a business recovery in major areas compared to last year, including China, while Amazoco has benefited from the continuation of upward trend in commercial machines, along with a remarkably strong development pattern in the home space that is yielding positive results in terms of growth. Last month at Milano Design Week, La Marzocco celebrated its home espresso machine, spotlighting partnerships and collaborations, including Porsche for La Marzocco and House of Negroni. These were just the only recent occasions where La Marzocco connected with people to showcase its profound dedication, quality, and tradition, and was met with incredible enthusiasm and passion for the community. In this optimistic backdrop, the only unexpected news in the last weeks has been Starbucks' decision to stop the cold coffee project. We believe that during this period of great uncertainty, some plans may have shifted. But as frequently stated, no upside from this initiative was factored into the group guidance or business plan. Therefore, we anticipate no impact. The household business grew by 7.2% in the quarter, confirming the strong trend in the past two years, and the group's ability to deliver consistent organic meat to high single-digit growth over time. In this quarter, we have been working on several initiatives to gather consumer preferences, investing in design and innovation, and communication. In terms of products, since the start of the year, we have received numerous awards, for our distinctive design across all our brands. Just to name a few of them. In the coffee, we won both the iRed Dot and the iF Design Awards with Prima Donna Aromatic. The La Specialista Touch and Dedica Duo, all of which were recently launched in the market. In the nutrition area, among many, let me highlight the iRed Dot and the iF Design Awards received for Kenwood Go. and the Go Collection products that over the last two years has had a great success among consumers. Lastly, let me remark that we have been awarded with a high-rated prize on some products in the brown ironing range, which has been recording a double-digit performance over the last two years. Time of communication, I'm excited to share that we've been working on the first On the third coffee global campaign, starring Brad Pitt as an ambassador, which was launched in the summer and will be the group largest ever in terms of consumer reach, leveraging both traditional and social media channels. The previous two campaigns delivered excellent results in terms of growth, market share, and brand equity, allowing us to consolidate our leadership position while fueling an exceptional steady growth in the coffee segment over the last eight quarters. Confident that by leveraging this investment, as well as considering the resilience and attractiveness of our categories, our products will continue to get consumer preferences, even in potentially challenging scenarios. Now, let me focus on the quarterly results. The group achieved a robust increase in turnover of 14.6% in quarter one, driven by considerable 7.2% organic growth on the household division and a substantial acceleration of the professional division to a performer rate of 22%, alongside the consolidation of La Marzocco. Specifically, in the first quarter, the group recorded positive performance across all geographies and for both divisions. In more details, Europe saw a 10.7% increase in turnover, driven by both divisions. In particular, household division grew by 6.6%, with market dynamics in line with what has been seen in the recent quarters. while turnover in countries such as Italy, the European Peninsula, United Kingdom, increased at a significant pace of growth, thanks to the positive performance of coffee machines in the home market. The professional business division instead benefited from the strong return to growth of evases, as well as the significant increase of Lamazoc. In the media area, recovery continues, with 25.6% increase in quarter one, thanks to the organic acceleration of some countries, such as Saudi Arabia and Turkey, and despite the ongoing geopolitical tension in the region. The American area experienced an 18.7% growth in Q1, thanks to a positive performance in both the professional division and the household segment, as well as the partial increase in perimeter. We highlight a significant expansion in coffee for both professional and household divisions. while the nutrition sector witnessed a decline from last year, also due to a challenging comparison. Finally, as a Pacific turnover increased by 23.7%, with positive contribution from both divisions. The household segment was driven by China's accelerated expansion and Japan's mid-teens recovery. The first quarter of 2025 observed positive performance from both of the group divisions. Specifically, the following should be noted for the household division. Home coffee achieved an expansion in turnover of around 10% in line with the structural evolution of the market seen in recent years. We emphasize the positive contribution of all product categories with significant growth in the quarter of pump machines benefiting from recent product launches. In the quarter, the nutrition and food preparation segment slowed to a low single-digit rate due to challenging comparison with the previous year, despite the good performance of Kenwood kitchen machines and other products, such as blenders and fryers. Finally, we highlight the positive performance of the other categories, comfort, home care, and other, with Brown-Arring system confirming the substantial upward trend recorded in the last two years. Regarding the professional division, we highlight a solid expansion of the businesses, which expanded by 22% on a pro forma basis. Both brands achieved the double-digit sales increases, with Avesis significantly recovering from the weakness highlighted in 2024, and Lamar Zocco continuing to strengthen his position in the home luxury segment, thanks to increased brand awareness and exclusive collaborations. Looking now at the evolution of operating margins in the quarter. The net industrial margin increased to 52.3% of revenues from 50.9% in 2024, driven by positive mix, higher volumes, and cost efficiencies. The adjusted BDA margin stood at 15.4%, a marked increase compared to 14.2% of last year, backed by the expansion of volumes and improvement of the mix in the household divisions, as well as by the consolidation of La Marzocco for two additional months. Margin improvement was achieved despite increased media and communication investments to support the business growth and the launch of the new campaign. I'd like to point out that the adjusted EBITDA margin increased thanks to an improvement in household division profitability over the previous year, as well as a margin of more 23% in the professional division. Regarding the target facility during the last conference, we highlighted a potential net impact of 15 to 20 million for the full year 2025. Since then, the situation has evolved, but our teams have been working on a comprehensive target mitigation strategy focused on sourcing diversification, commercial actions, and cost control to minimize the potential effect. As a result, we've been accelerating the relocation process with the aim of manufacturing 95% of the US products in Southeast Asia and Europe by the summer. And we are now fine-tuning commercial actions with retailers. By taking these actions, the possible impact should be revised to a total land effect of around 15 million euro for the entire year 2025. In March 2025, the group net financial position stood at 482.8 million euros, up from last year, thanks to cash flow generation before dividends, buybacks, and acquisition of 320.1 million euros in the 12 months. In the first three months of the year, cash flow before dividends, buybacks, and acquisition was negative for 124.2 million euros. mainly due to the effect of the cash absorption related to inventory increases, which followed the originality of the business and grew on an extraordinary basis in order to minimize the potential risk deriving from the current scenario. In conclusion, during quarter one, we achieved a 14.6% increase in revenue and further improved profitability. driven by strong acceleration and the expanded scope of our professional division, alongside a robust momentum and geographical diversification in the household business. These dynamics once again confirm the strength of our brands and resilience of our core categories. That demonstrates our potential to deliver sustainable and consistent solid mid- to single-digit growth over time, while maintaining the best-in-class margins and cash flow generation. The group development and investments over the last decade has provided us with the necessary flexibility, adaptability, and responsiveness to deal with numerous headwinds. We are thus confident in our ability to handle these complexities and minimize the potential impacts of the evolving international scenario on tariffs. In light of these actions, and the favorable trends observed since the start of the year, we reaffirm our 2025 guidance, projecting a 5% to 7% increase in turnover, as well as an adjusted EBITDA of around 580-600 million euros for the new perimeter. We now welcome your questions. Thank you.

Thank you, sir. This is the course call 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 your question from the question queue, please press star and 2. We kindly ask you to use handsets when asking questions. The first question comes from Jane Garov of Barclays.