Seb Sa Unsp/Adr

Bonjour. Good morning, everyone. Welcome to the Group CEB first half 2023 sales and results presentation. Welcome first and thank you for being with us. I know that it's a very busy day and week for all of you. I will be taking you through this presentation together with Nathalie Lomond, our Senior Vice President in charge of Finance. As you know, we will have first a presentation and then We will move on to questions either through phone or webcast. Let me take my . We'll cover four points in this presentation. We'll start with a review of the business trends in the first half of the year, an analysis of our financial results. We'll look at our balance sheet and financial structure. And then I will share with you our conclusions and outlook after this first half. Maybe the first comment on the first half is that we've seen a marked improvement in our business trends versus what we've been experiencing not only in Q1, but in the previous fourth quarters. And starting with the context, we can qualify the environment as being challenging. We see that the overall economic, macroeconomic, geopolitical context is tense. We see interest rates still rising. We see inflation We see a pretty unstable state of economic growth throughout the globe. The second element that may be a bit more specific or impacting our category is that we know that we had a surge of demand during the COVID period with people staying at home for quite a while and spending more than usual on their equipment, be it home cleaning equipment And we see overall normalization of that demand for small domestic appliance. Yet this is uneven. We see that Europe is recovering a bit faster than the U.S. We see that China is probably a bit later down the road in that recovery. We see that Southeast Asia, like China, is further down the road. And even within Europe, we see that Germany is kind of a couple of months behind France. So that impacts the reading of our numbers, but yet we have a pretty good understanding and tracking of what's going on as much as we can plan for it. The third element that we see, and that is a combination of sound financial management, it's also a consequence of raising interest rates, we see Some retailers across the globe running some destocking or running their inventories below the historical levels. That happens in some U.S. retailers. That happens in some European retailers. That also happens in some Southeast Asian retailers. And of course, that impacts our short-term sell-in retailers. So that's for the global economic context. As far as the group is concerned, we have, as I said in the introduction, a very positive second quarter. We were expecting to be back to organic growth for the consumer business in Q2. We've done better than we were expecting, so the recovery is a bit better, a bit faster. We've been growing substantially in the professional business since Q2, Q3 last year, and we said earlier on in the year that That momentum would carry on or even accelerate, and we see that in the first half of the year. We also said in February that our margins would see a progressive improvement during the year. It does, and this is driven by three factors. Sales increase, of course, cost of goods, sequential improvement with the easing of the freight costs and the components and materials cost. And we have some phasing in our cost drivers between the first half and the second half. Some of you may remember that last year we spent a bit more than we should have in the first half, and we recovered that level of investments and spend in the second half. And better than words, I think those graphs, this graph outlines best what we've bent by going through a fourth quarter of consecutive growth and five quarter of no growth with Q1 2022. We see that Q2, sorry, 2023 is 6.8% organic growth, like for our growth. That's against Q2 last year of minus 5.1%. So what we've been saying since Q3 last year, Q4, about a progressive improvement and recovery of our sales is actually happening as planned. We will run through this presentation now looking at two time dimensions. We look at half one on one end because this is of course a half one review. We will also be looking specifically at the second quarter because the second quarter is a very different picture from the first quarter so it's important to understand Yes, what's going on in the first semester, but also what are the specifics on the second quarter. So bear with me. I will try and navigate you through this half one, Q2, first half, first semester, and second quarter. Starting with the organic growth in the first half of the year. Well, the good news, the great news is that we are back to organic growth in this semester, plus 1.3%. We have a currency effect that starts to pinch quite a lot at minus 121 million euros, minus 3.3%, and we see some positive parameter effect with the acquisitions we've done in the second half of last year and the first part of this semester, leading to 3.6 billion, 12 billion sales reported in the first half. Digging into currencies and maybe just to set the ground for what's going to come afterwards in the comments on currencies, which is a big element of our guidance and looking forward at the business. We see that the first half is split into two quarters. Thank you very much. The first quarter saw an impact, negative impact of 27 million euros on sales of currencies. Whilst in the second quarter, that impact raises to 94 million euros. So we see an acceleration of the impact on sales, primarily driven by the Chinese yuan, and then some what we call emerging market currencies, the Turkish lira, the Egyptian pound, the Colombian peso, the from Ukraine, and also the Argentinian peso, and the yen that is also weak versus the euro. We'll come back to that argument later on. When we zoom into the second quarter sales, as I said, we are 6.8% above last year. Inorganic marked €119 million improvement. That is above the negative currency impact of €93 million. We have a parameter impact €14 million that raises in importance, plus 0.8%, leading to a quarter at €1,790,000,000. I'll now dig into the details of those second quarter sales by business. Starting from the top, so 2.3% reported sales growth, 6.8% like-for-like growth. Split into professional business and consumer business. In professional, we had a very good first quarter, while the second quarter is almost just as good as the first one, with 29.6% growth in the semester. and 21% like for like. Whilst in consumer, we've seen a turnaround. Basically, consumer posts almost flat sales, minus 0.7 and plus 5.2% like for like sales, which is again, and I will say it again, it's expected, but a bit better, a bit faster than expected. And we have, this is the sales by regions. Of course, I will dig into each region in the next forthcoming minutes. But I think you have two blocks of countries. You have those countries that have turned back to become growth drivers. This is Europe as a whole, with the whole of Europe turning 12.8% like for a growth in the second quarter, both in Western Europe and in other countries. I'll come back to that. And then the second block of countries, sorry, we have China, which after a slow start in the year that was expected, is posting a 5.5% organic growth in the second quarter. Again, that is slightly better than expected. And then we have those countries which are still in the later stage of the recovery, or in the earlier stage of the recovery post-COVID. with Americas, which should turn positive from Q2 onwards. And then we have some countries that are lagging behind, but they are small. They are the Southeast Asian countries, other Asian countries. I'll come back to that. So overall, the big pillars of the group, Europe and China, are back into growth territory, organic growth territory, solid. That's great news. And then we see Americas lagging slightly behind, one or two quarters. And we see other countries kind of a bit more behind. And, of course, professional business, and has been so in the last four quarters, is really pumping up the growth of the group throughout. Starting with talking about the professional business, not much to say on this business except that, of course, it's an outstanding number. When you grow a business, 31%. on a business of this size, 31% year-on-year, is the reflection of a sound strategy, sound execution, and basically a place where a lot of things, if not everything, works very well. In fact, we have outstanding growth across our historical markets in professional coffee. Yes, China is the best performer, but at the same time, Germany is posting double-digit growth. U.S. is close to it. U.K. is staggering over 40% growth in the semester. So we see that our product offering allows us to increase sales throughout all the regions or the major regions we operate in. And that's because our products are basically answering and responding to pretty fundamental needs of our customers in a better way than our competition. The second thing that is confirming quarter after quarter is a very solid mix between large deals, you know, those deals where big customers, 10,000, 5,000, 2,000 stores come and strike a deal with us across a period of time. These are what we call large deals, contracts. And the core business, and core business for us is machine sales on regular, call it, Individual customers. That's what we have in large parts in Germany. And service. And service is a key part of it. It's about a third of the business. And service is a key part of the business because it's a way first to make sure that the machines keep working day in, day out. But it's also a way to generate additional revenue and margin and to have a loyal and daily relationship with our customers. Last but not least, on professional, we had two acquisitions in the first half. We acquired an Italian professional coffee, traditional barista machine company in Italy called La San Marco, and we acquired Paco Jet, and I'll come back to that in a second. La San Marco is a company based in northern Italy. It's a century-old company. They have patents. They have a very strong and specific know-how. And they are bringing a very nice and exciting complement to our range of professional coffee machines, which are today essentially fully automatic coffee machines or filter coffee machines with Wilbur Curtis in the US. So we continue developing and expanding our portfolio of products in professional coffee because we see that sector as one that has very, very positive growth prospects. Second acquisition we did, a bit well known maybe for the grand public, is Pacojet. Pacojet is a staple product, is a staple brand in quality restaurant kitchens. To the point that Pacojet has even created and patented a word which in English is pacotizing, which is transform a product with the Pacojet machine to have brilliant quality emulsion. It's a staple in those restaurants and in those kitchens. We are really, really excited and positive about this acquisition. This will allow us to enter in restaurant kitchens in a great way. Let me move on to the consumer business, and I will start with, again, focusing on the second quarter. Starting with that picture, overall, we said that consumer is growing 5.2% like for like in the second quarter with a reported growth of minus 0.7, slight decline. Again, Western Europe or Europe and China are driving that. In terms of product categories, we've been selling A lot of ingenious, stackable cookware products. We have developed and expanded very substantially in our ceramic range with a range called Renew in cookware. We are developing fast in the oil-less fryers. You have an oil-less fryer here. That is what we are seeing. In fact, here you have the ceramic pans that have been launched this year. We have a great product success in kettles, and also in linen care. We have launched a new range of garment steamers, which you see on the screen, called Pure Pop. Very, very exciting start for this new product. And last, in the consumer business, we've acquired late in the semester, Forgeadour. Forgeadour, which I will talk about, which makes us European leaders in the plancha business. We talked back in February, we talked back, we were talking about the sequential recovery of our business through the year. And in fact, this is what we observed. Yes, of course, EMEA is leading the pack with Q1 minus 5, Q2 plus 12.8%. It's always like for like sales. Asia is also showing a marked improvement, minus 6, plus 2, and you will see that between China and the rest of APAC, it's a different picture. And even the Americas, which are still posting negative 6.6% in Q2, are coming from a minus 13.7, so the sequential recovery is happening in all the regions. If we dig into EMEA, a few comments. The first one is most countries in EMEA are back into positive territory. We have a couple of exceptions, but many stuff that we can explain for very local specific reasons. We had two challenges from Q2 onwards last year. One was France and the other one was Germany. France has delivered a very satisfactory double-digit growth in the second quarter. That is helped by a strong recovery in linen care. We have a strong, solid performance in floor care. And in cookware, we've been helped by a strong loyalty program with one of our biggest retailers on Ingenio. And this is, of course, helping all these three combined make France delivering a double-digit growth in Q2, and we think that will continue certainly in Q3. Germany is still negative in the second quarter. You will remember then that last year, Germany started to kind of come down in around May, June, a bit later than France. And of course, that makes the comparative numbers still a bit high for April, May. Yet we see a sequential improvement in a context, and that's also the case for France, where the overall consumption for our products is still negative territory. It is still sluggish in France and Germany, and in fact, a bit more sluggish in France and Germany than in the rest of Europe, where we see some green sprouts of consumption. And to the point, that's the point, other email countries are up strongly in the second quarter. We have We have markets which are in positive territory, and we have market companies which are really delivering very strong and robust performance, as they've been doing for many years now. You know that Central and Eastern Europe is a key contributor to the growth of the group in the last five to 10 years, and that is continuing and recovering and confirming. Turkey and Egypt are affected by strong devaluations. And of course, the organic growth is kind of impacted in positive by our ability to pass price to compensate for these high inflation environments. If we move into Americas, the number may look worrying. We are not concerned at all by the number. We've seen a second quarter improving sequentially in North America. And that is despite continued retail destocking and weak market demand. I mean, that's a thing in the newspapers. Yet, it is slightly ahead of our expectations. And we see going down the road and going against more favorable costs, we see that the second half of the year should be totally different from the first half of the year. That is also backed by the fact that we have consolidated our leadership position In cookware in the U.S., you know that, you know, you're not, you don't know you. Well, the U.S. market is over 70% a cookware business for us and we are leader in the market and we are consolidating this leadership. So that combined with facing better comps and therefore better market conditions makes us pretty confident that we will turn the trend from now, basically. We have sales that are up again double digit in Mexico. You remember that Mexico in one of our previous presentation, Mexico is one of those countries where we have solid continued double digit growth based on growing market, based on growing market shares. That continues and that is becoming month after month, quarter after quarter. Another key pillar of the group. Whilst in South America, we have a pretty different picture. Brazil is facing a very high competitive environment, and we are kind of managing, balancing between margins and growth. In Colombia, we have negative numbers, but with no real concern. We had 40% growth in Q2 last year in Colombia, year on year. And we had, I think, one or two VAT-free days organized by the government. The business is very healthy. Our market position is stronger than ever. Our market position is becoming stronger every quarter, and we are very confident that this performance in Q2 23 is only a seasonal hiccup. I'll move into Asia with a pretty contrasted performance in the second quarter. You see China, I'm on the top right box, China plus 5.5% like-for-like sales in the second quarter, minus 2.7 reported. This is the effect of the renminbi devaluation, the Chinese yuan devaluation. And we see other Asian countries at minus 9.4% like-for-like, which are suffering. Let me explain to you what's going on. There are really three blocks. The first one is, and this is the most important one, and China is 70% of our Asian business. The first one is that China has returned to organic growth. China has returned to organic growth against a market that is sluggish. You know that consumption in China has not really recovered. And for that consumption that has recovered, it is more catering and hospitality and leisure So that's what we have as a context. What we have also is support that is continuing its premiumization strategy that is multiplying new product launches that is accelerating its innovation and its increase on its weight of the market, gaining market share on all product categories and that backs the trend of sluggish consumption. And we know that it stands, we know that it's competitive, yet we're confident in our ability to deliver that positive review growth throughout the second half and that's in the context of market environment that we don't really know if and when consumption will recover on our products this year. That's China, so sluggish market a very strong, continued strong performance from support on all categories. We have a second block, which is Japan and South Korea. South Korea is in recession state or mode, and we are suffering from that. In Japan, we see, again, a very soft market. We see very soft market conditions with the continuous devaluation of the Japanese yen. Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr are in a positive territory, and this is the benefit of having several categories that there's always one that will grow faster than the others. The winners, if I may, of this semester is, of course, Linen Care. Well, of course, Linen Care. Linen Care is great news because, as you know, it is a category where we have a very strong market position, and we've seen for the last few years the development of garment steamers as an alternative to steam irons or steam generators. We're expanding in the garment steamers. You've seen the Pure Pop launch, and we are very, very happy to see that the linen care category is recovering. Beverages is highlighting a strong recovery in our kettles business in Japan in particular. We are market leader in kettle in Japan with, I think, over 50% market share. And this is pulling the beverage segment. At the same time, our full auto business is there and expanding. Home care, home cleaning mainly. We had a difficult first quarter. The second quarter makes up for that difficult start of the year, driven by versatile vacuum cleaners, but also some canisters The traditional canister vacuum cleaner that is recovering as well. And electrical cooking recovery reflects the expansion of the group into the oil-less fryer, the recovery of expansion into the oil-less fryer category that we invented 15 years ago with Active Fry. And we are gaining momentum and we are gaining space in that category. To the last point on the events on the sales of this quarter, the activity of this quarter, is the acquisition of Forgeadour that we did in the latter part of the semester. Forgeadour is a French company based in Bayonne in the southwest of France. They are doing enamel cast iron planchas, very complementary to our other So that acquisition was done in the latter part of the semester and will be consolidated in our accounts as from the third quarter. So you don't see it today. We announced during the semester two initiatives in terms of logistics. In fact, we've created two new logistic platforms, one for Western Europe, small domestic, small electric appliance, if you want, and one for Western Europe that is completed, sorry, and one in Western Europe, cookware products that we've announced and we'll start the construction now. That is, these are substantial investments, $80 million for BD De Mines in SDA, $30 million for Tille Châtel in Coucouerre. And I think it's a reflection of several things. The first one is we believe that we have some gains to be had in the logistics and in the transportation of our products. We believe the second one is that France, with our production base, with our customer base, is an ideal place for localizing these warehouses. And we believe that consolidating distribution of our products within Western European countries makes a lot of sense from a financial standpoint. So these are the news or the information I wanted to share with you on the semester in terms of activity. I will now hand it over to Natalie to take us through the financial results consecutive of all that. Thank you.

Thank you Stanislas. So moving to the first, the operating result from activity. So in this first half of the year, the group has delivered an operating result of 180 million euros with a sales totaling 3.6 billion. So this operating result in the second quarter, 115 million is almost a double of what has been delivered So clearly showing the acceleration of the profitability improvement of the company. And if you look at the like for like performance, you can see that for the first half of the year, the ROPA or the offer that we have delivered is almost in line with what has been delivered in the first half last year. I will now move to the bridge to explain you what has happened in the course of this first six months for 2023. First, starting with the volume. So we are now in a positive contribution in terms of volume with plus 12 million included in the improvement of the operating profit. The price mix has also increased by 35 million. And a part of that is coming from price increases that we're placing to cover for the negative FX impact in emerging currencies, the euro rating versus the euro. Cost of goods sold is still negative compared to last year, but it's improving when compared to the first quarter. Actually, what we see currently is our current production costs are actually lower when compared to what they were in 2022. But you know that there is always a time lag between the moment where we see cost production decreasing and then when we see them flowing into cost of goods sold in the P&L. But anyway, that's very good news for the second half of the year. Unsp-Adr Unsp-Adr Unsp-Adr And administrative and commercial expenses are increasing by 49 million. A significant chunk of that is coming from labor cost inflation. You may recall that we said that we would expect a labor cost increase from inflation throughout the group of around 5% on a full year basis, so a significant part of that is here. And we're also investing on our D2C platforms. So from 199 to 198, it's almost the same level of operating profit that we're delivering on the like-for-like basis in the first half. And then, as Stanislas explained earlier, we are hit by a negative impact that is coming from the devaluation of some currencies, mostly in emerging countries, against the euro. The plus two from the scope effect is coming from the contribution of La San Marco and Sumo. Looking into more details in our growth drivers, so I commented a decrease. Actually, it's an increase in our innovation costs. You know that innovation and range replenishment are, from a long-term perspective, key drivers to the growth of the company, and so they keep on increasing. almost 6% on a like-for-like basis. Whereas, as I said, we're facing a high-com base in 2022 regarding marketing and advertising. And this is why you see here a decrease when compared to previous year. Now, moving from offer to the net profit, we have an expense related to employee profit sharing for 11 million. Other operating income and expenses are quite limited, 9 million, and they're mostly made of acquisition costs. Our financial expenses are decreasing when compared to last year. The main items explaining for this decrease is a reduction of our financing costs, both in euros and in some emerging countries. And on the other hand, a technical item, which is the change in value of the options that we have set to hedge the price of the shares that we buy for our long-term incentive plans. Tax expenses in line with what it was in 2022 and monetary interest are a bit lower. They decrease from a lower activity in support when related to what they do with the rest of the group. So we're closing the quarter with a net profit of 76 million, which is a slight improvement when compared to 2022. Now I'm moving to the balance sheet and the financial structure. And I will first focus here on the balance sheet and maybe give a bit of explanation on the change of the value of the equity. which is impacted obviously by the positive net profit and on the flip side by dividend distribution and also lower currency reserves. The other item worth commenting is the evolution of the operating working capital that you can see here on this slide. First thing, when comparing to the first half of 2022, you see a significant decrease of our inventories, almost 600 million. That is massive. And when you see the impact on the overall working capital, again, when compared to H1 2022, it's a decrease of 400 million. This is clearly the proof of the effectiveness of all the action plans that we have implemented since the end of H1 2022 to reduce at the same time our inventories and our sourcing. And then when comparing to the number that we had at the end of December last year, there's a slight but very limited increase in working capital. You should keep in mind that The working capital level at the end of the first half is always the highest point for the company as we are preparing for the second half of the year, which has a strong seasonality pattern in our business. I am now moving to the free cash flow generation. So from the operating results of 180 million, We have to take into account the profit sharing on the one hand and adjust for the non-cash items, which gives us an EBITDA of €308 million. That has been consumed by a limited change in working capital when compared to last December, as I just mentioned. Some investments, the tax and the interest rate a charge for the first half and some positive impact on non-operating working capital that are mainly coming from fiscal and labor-related taxes. The group has delivered 132 million of free cash in the first half, which has helped us decrease the financial debt. On the other hand, financial debt has been impacted by the dividend distribution that took place at the end of the semester, by acquisitions. So as a reminder, the 184 million here stand for the acquisition of La San Marco, of Pacojet and of Forjador. And by other items, The most significant of them is the share buybacks that we do on GroupSafeShare and also on SuperShare for long-term investment plan. We also have some restructuring costs here. And another significant item is the cash out related to some litigation that were fully provisioned in VMF and that were dated back prior to the acquisition of that business in 2017. So that would be the last slide. The first graph pertains to the operating working capital as a percentage of sales. You can see that with what we are delivering at the end of June, we are really back to a normative level from an historical standpoint. gearing stands at 0.7 and the leverage is 2.6 turn and 2.3 excluding the impact of the recent M&A and the IFRS 16. So that's it for the financial results. Over to you Stanislas.

Merci Nathalie. Right, I'll share with you our conclusions and the outlook and the comment on the outlook for the for the second half and the full year. Maybe if we step back from this first half, what do we see? We see that our consumer business is back to organic growth. That's great news. We see an outstanding momentum in the professional business, and we see we're expecting a professional margin improvement. That's all what we're expecting, a bit faster, a bit better. Now, we believe that revenue and offer progression should continue in the second half of the year. And we've been saying that very consistently over the past difficult four quarters. We are very confident in this industry's long-term growth prospects. We see that consumers really have a strong appetite for our products. And we see that in emerging markets. We see that in developed markets. We see that in our stronghold countries, China, Western Europe. And so we believe that this business has a very strong and positive long-term potential. Now, looking and zooming into the second half of the year, I think it's important to share with you the way we see the currency's environment. Obviously, with a lot of disclaimers and dots and commas and Because nobody knows what currencies are going to be like and how they will evolve in the forthcoming few months. Remember, a year ago, we are talking about dollar-euro parity through 2023. Yet we have a scenario, and I think it's important that we share with you that scenario that explains the evolution of our guidance. The main scenario we see is that we will have a stronger euro Expected in the second half, and that has some adverse impacts on our business. Of course, on sales, on reported sales, if the euro is stronger, reported sales should be lower than organic sales. That's pretty direct and straightforward and mechanical. And we estimate at this stage with our hypothesis, again, of FX rates, we estimate that this could have an impact around 5% of group sales on a full year basis. So what we see is a full year impacted negative 5% by currencies. Then we have the impact of currencies on the offer. We say that this, we believe that this impact will be neutralized, not neutral, will be neutralized in part by price increase that compensate currency depreciation in emerging markets. We see that in Turkey, in Egypt, in Argentina, in Russia, in Ukraine, in Brazil, whenever we have a material devaluation of the currency that creates inflation, we raise our price and give or take the phasing effects. There is a kind of pretty direct compensation between effects evolution and our ability to maintain our margins. When it comes to more mature businesses, we are short in US dollar and the Chinese yuan. And we have been covered and protected last year by very positive hedging results. So yes, those currencies will be lower than the euro in the second half than they were last year. But the currency rate we see is not the market rate. It is the hedging rate. This edging result will be negative in the second half of the year versus the second half of 2022. And this will be offset by the tailwinds we all see on freight costs, on raw material costs, on component costs. So in our mature business in the next six months, we see tailwinds in our cost base. We see negative hedging results. that will offset those tailwinds. This is what allows us to say that the FX negative impact on the ORFA will be neutralized in the full year. If there are some questions, of course, I will answer that because it is not straightforward or easy to understand. That said, we are strengthening our guidance for the full year We said that we would see a progressive recovery of sales in consumer. We said that we would have a strong growth in professional that stays. What we add is we expect a mid-single-digit like-for-like growth in the full-year group performance. So that is a quantification of the guidance for sales. And when it comes to OFA, we think with all those considerations that I've just shared with you that our OFA for the year will grow by at least 10%. I think this guidance reflects two things. I think first the year is developing sequentially as we're expecting it to develop. And we've seen an acceleration of the recovery in the second quarter. that allows us to give more precise and quantitative indications on the outlook for the year. Thank you very much for your attention. We will now take questions on the phone and on the webcast. I'll leave it up to the operator. Thank you.