Electrolux Professional AB (publ)

Welcome to Electrolux Professional Q1 result presentation. My name is Jakob Rubai. I'm Head of Investor Relations here at Electrolux Professional. With me today, I have Alberto Zanatta, President and CEO, and also Fabio Sarpellon, CFO. And I start with handing over to Alberto. Please go ahead, Alberto.

Thank you, Jakob. Good morning to everybody. We closed Q1 with the several highlights and several things happening to this company. The first one is that we completed the listing clearly. We completed the listing according to the time and since March the 23rd we are listed at the Nasdaq in Stockholm. The second one, important, is despite all the things happening during the last month of the quarter, all of our operations are up and running. We are able to operate in all our factories, the ones in Italy, the ones in France, in the United States, in Asia. Not all of them are currently operating at full capacity, but we are in the condition to produce, develop, produce, and ship the products. Key things, key highlights in this quarter. The first one, the comment about the development of the sales. The market is clearly affected by the spread of the coronavirus, in particular, starting from the end of February, March, clearly. And our sales organically went down 13.7%. We have also to consider that the comparison is done with the first quarter of 2019 when we had the subway rollout in the same period. And the difference between the two is roughly a third. So a third of this gap is because of the subway rollout. The other one is related to the decline of the demand that increased the speed or the magnitude of this decline increased clearly during the month of March. The second element is the margin, the profit. The missing volume determined a decline of the margin. We have been able to compensate this decline of the margin and the the full impact of the corporate cost that we had in Q1 with activities on cost. We've been able to mitigate this negative impact, not completely eliminating it. Thanks to this, the EBITDA is still over 10%. The third element is the cash flow. Cash flow in the quarter is 16 million SEC. is lower compared to the first quarter of last year, in particular because of two elements, the increase of credits and the increase of the inventory. The increase of inventory is something that we consciously did, decided to have, because we decided to increase the inventory in particular in the satellite warehouse to make available product for the replacement business. The increase of the credit is related to the fact that, in many cases, customers had to postpone not only the delivery of the product, the shipment of the product, but also the payment. These are things that we are managing. Cash is king these days, so we are daily managing the relation with the customer, staying close to them, helping them, and clearly looking and monitoring how this element is developing. As I mentioned, the market is affected by the COVID and is in particularly affected the segment related to restaurants and hotels. That is accounting for roughly 50% of our business. We see that other customers, they are suffering much less. In particular, I'm saying the hospital, the care segment, in general, the operations where we sell laundry appliances. This is the reason why, when we will see food and beverage businesses, we will see that the decline of the business is more evident with the food and beverage segment than the laundry one. I already mentioned that all our operations are up and running, and this is also related to the fact that we took, already in February, actions to ensure the safety and the health of all our people. In all our operations around the world, we had less than 10 people infected. We have in place a crisis team to make sure that we guarantee continuity, in particular for what concerns the supply chain that is currently working and providing the condition to operate to all our factories. As I mentioned, the decline of the sales accelerated during the month of March and during that month the decline accounted for roughly 25% less sales compared to the same month of last year. The general market, the uncertainty is so high in the general market, so significant that it is not possible to make a forecast for the financial development. Also because we do not have clear indication of how the pandemic will continue when the lockdown will be lifted and so on. If we look at the geographies before talking about the segments, the area, the most affected area is North America where we had both laundry and food businesses down food and beverage and laundry business is down, also because last year, in particular for food and beverage, we were comparing the current performance with the performance of last year when we had the subway rollout. Also, in the Asia-Pac region, we have a decline of sales of both laundry and food, and in this case, it's because of the impact of the spread of the coronavirus came first and in particular affected the countries like Japan, Korea, where we have a large presence in the laundry segment. In Europe, that is, as you all know, two-thirds of our business, food and beverage was down while laundry in the quarter was up. Now, a couple of words about the businesses in food and beverage and in laundry. Starting from food and beverage, sales were down close to 15%, 14.6% to be precise, and the margin went down. And here, clearly, again, we have the comparison with the rollout that we had last year on one side. On the other side, Organically, we were even more than 14.6 because we are 20.4 down because we reported the sales of the unique company that we acquired in the second quarter of 2019. The decline of the margin is mainly related to the missing volumes in our factories. If we move to laundry, The picture here is different because you see that the net sales are basically flat. In Europe, we said we had an increase of sales, a small decline in the US, while the decline is also substantial in the APAC region because of the spread of the virus affected the first of those countries. The margin in this case is higher than the one reported in the first quarter of last year. It's above 17%. And this is related to the fact that the impact of the volume, clearly we don't have it laundry or marginally. But at the same time, The actions to reduce costs that we put in place for the entire company clearly had a positive effect on the laundry business. At the same time, in the first quarter of last year, we had the peak of investment to introduce the new product, the Line 6000, that we didn't have discussed in the first quarter of this year. Having said so, I will let Fabio comment more on the financials.

Thank you, Alberto, and good morning to everybody. Let me start with the sales bridge. As you see in the slides, sales overall declined 9% in the quarter. Currency translation had a positive effect, roughly close to 3% point due to the weakening of spec versus most of our sales currency, in particular US dollar and Euro. Acquisition contributed close to 2% and it refers to the UNIQ, the coffee espresso company we bought in April last year. Organically, the business declined close to 14% over roughly 330 million SEC. Laundry, as anticipated by Alberto, was slightly declined 2% compared to quarter one 2019. And so far, somehow confirming the larger resilience of the customer segment served by our laundry segment. And this is somehow good news, because as you have seen, laundry in quarter one was back to the historical good level of profitability. 17.7% was the margin in quarter one. In food and beverage, the decline was close to 20%, and as Alberto mentioned, roughly one-third was related to the large subway rollout in quarter one last year. If we exclude this larger rollout, when we look into the geography, U.S. was somehow flattish on quarter one last year. Whilst Europe and APAC declined, somehow APAC faster than Europe because starting from China, it was earlier affected by the coronavirus business consequences. When it comes to the financial overview, we reported 10.6% EBITDA margin in the quarter, roughly 100 million SEC below last year. The main driver, as Alberto anticipated, was due to lower sales and production volumes that accounted roughly for 170 million SEC in EBITDA. The efficiency measure that we put in place compensated this lower contribution from sales and production for roughly one-third. And we find this benefit both in reduction of the lending cost, but also reduction of SG&A. And this overall one-third of cost mitigation is including also the additional cost of to operate as a standalone company. But let me also take the opportunity to give you an update about two pillars of our margin expansion. First, the restructuring plan that we launched in September last year is proceeding according to plan and as anticipated during previous investor call, we expect that in quarter three this year, the benefit from the restructuring will fully compensate the emerging cost to operate as a standalone company. On the continuous improvement, when we focus into January and February, definitely we have been able to deliver according to plan on the productivity in our factories as well as on the direct material cost reduction. R&D, Alberto already mentioned, we had a peak last year due to the large effort to introduce new products in the market and we have seen a considerable reduction along the full order. Additional measures have also put in place within the product cost, but also as G&A to reduce the running cost, both for what concerns the labor cost, releasing temporary people, canceling overtime, asking the people to consume previous year holidays, as much as putting on hold all or majority, I would say, of the external spending. Overall, in the quarter, currency contributed positively, both translation and the translation in the comparison. When it comes to operating working capital, reported operating working capital increased roughly 5% year on year. This increase is due mainly to about two facts. First, the weakening of SEC boosts in SEC the value of operating working capital. And secondly, we have in the perimeter this year unique. The coffee beverage company we acquired in April last year. Incomparable perimeter, meaning excluding from one side the currency translation impact and unique impact. operating working capital in absolute terms at the end of March was roughly 9% below the same level of March 2019. When it comes to average of operating working capital sales, instead it increased to 18.2% at the end of March, and this is due to the combination of the acquired businesses that have higher operating working capital weight on sales, and overall an increase of the average inventory, due in particular last year to the overlapping of the phasing and phase-out of new products. Lower sales, also in Q1, negatively affected the EPI. On a net debt, we have reached 1,088 million SEC at the end of March, roughly 60 million SEC higher than December, ending up to one with a ratio net debt on EBITDA below one, confirming a strong point of the company that we are a pretty low leverage company. In Q1, as anticipated, we have put in place a long-term loan for 600 million SEC and a revolving credit facility for 250 million euro. We have repaid the loan to Electrolux Group, the financial loan, for roughly 1.2 billion SEC And at the end of March, Electros Professional Group had in cash 643 million SEC and additional available revolving credit facility for 190 million euro. Cash flow in quarter one was 16 million SEC roughly 200 million below last year. Alberto touched already about EBITDA, that was the first ingredient, roughly 100 million lower than quarter one last year. He mentioned already about the development of inventory. Let me elaborate more around CAPEX. CAPEX in the quarter was 70%. was 100 million SEC. 70 million is referring to the finalization of the acquisition of the production site of SPM. SPM is the cold beverage company that we bought in 2018, and in quarter one, we finalized the acquisition of the real estate that we consider a key location for the future development of the cold beverage within the group. When it comes to the investment in Thailand, it's continuing according to plan. The Thai investment is a major investment that we are running this year. It's about the build-up of a new production facility in Thailand where we are going to consolidate the existing manufacture operation of laundry and beverage into a unique site where we are going to implement the state of art for what concerns manufacturing with clear expected benefit both in terms of service level to the customer and reducing the running cost. The project as anticipated is a proceeding according to plan and is expected to be finalized in quarter one next year. Once this project is completed, we expect that the level of capex on sales will be back at the historical level. Having said so, let me also touch about specification that we are taking in this moment to preserve the balance sheet and cash in this difficult environment. As I've already mentioned about what we are doing on receivables, we are strictly monitoring the development of the receivables both for what concerns the collection activities as much as continuing to review our customer assessment. We are reviewing the planning for what concerns the inventory level to secure from one side the prontal availability of the products, but also monitoring the development and driving the development of the inventory value. Last but not least, we are taking action to reduce not only the running cost, but also the level of capex for this year. And management has decided to keep few strategic projects. One is the ones related to Thailand and a few selected development projects. This is key for us because we want at the same time to preserve at best cash short time because cash is really important short time and also continue to invest on few selected strategic initiatives for the future. Thank you, Fabio.