Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Group Q2 result presentation. My name is Jakob Ruba. I'm heading up investor relations and communications. I'm here in sunny Stockholm today. I have Alberto Zanatta, our president and CEO, and Fabio Sarpalon, our CFO with me. And as always, we kick off with Alberto. Please go ahead, Alberto.

Thank you, Jakob. Good morning to everybody. Q2 was a strong quarter. During the quarter, we delivered organic growth, sales development around 15% and organic above 8%. But in particular, we expanded the margin and the earnings by 65%. So we delivered a profitable growth. is another step towards our financial target, an important step that is bringing us closer to the target that we have. The result was achieved, we have to say also, despite the performance of an area that we expect to be the most profitable one, the North American food market, That reported a decline in sales and a good margin, but a margin below our expectations. To be said also that the comparison with 2022, as to consider that last year in Q2, we had items that have been affecting the comparability, like the divestment of the Russian operation, accounting for 35 million SEC. And also during Q2, The laundry business suffered. Laundry business in particular, the overall business was suffering because of the supply chain challenges. But in particular, it was laundry that was affected by missing production. We had to stop production for missing component in May. It went through for some weeks where we were not able to complete the product. So we produced, if you remember, product with the missing electronic boards and And then we started to deliver them in Q3. So in some way, we have been missing business that we estimate with an impact of roughly 30 million SEC negative in Q2. So even if I'm adding these two items to the 2022 numbers, the 2023 performances in Q2 are showing a profitable growth, a profitable development. The third element of the financials is obviously the operating cash flow. And we had a strong generation of cash in Q3. That is, by the way, normalizing the performance for what cash generation is concerned. Last year was affected by a relatively weak cash generation during the first three quarter of the year. This year we started the year already much better in Q1 and in Q2 we are at a normalized level. confirming that this is a company that can generate more than 100% cash conversion. If we move now to the analysis of the different dynamics in the different geography in the different regions, we have to say that you see that We have basically the Americans positive, Europe positive and flat Asia-Pac. Let me start from Asia-Pac because, again, it seems to be the area where we did not grow. The reality is that in that area, last year, we delivered the large... very large project in Uzbekistan. You have to consider that the project in Uzbekistan that was both for laundry and food delivered in the second quarter of last year accounted for roughly 15% of the total sales of the region so if i'm excluding that one also that region is growing significantly the business along along the year in particular in q2 food was killed in china even if below our expectation in india Again, food was the one affected by Uzbekistan as well as London, but mainly food. More than two-thirds of the Uzbekistan project was food. The average was good all across the regions, and London, again, all across the region, in particular, again, India and China. Now, Europe, very strong performance in Europe, in particular beverage and laundry that we've been growing all across the different countries in Europe. Clearly, beverage is the season high quarter, so very important to do strong in such a way. Food grew a little bit less than before. beverage and laundry, but still very good performance in the Mediterranean area. Mediterranean area we call the Hispanic or the Iberian region, Greece, Turkey, and remarkable performance also in Finland, where we completed pretty large projects. The region with the Larger gap, let me say, or differences in thermal trend is United States, where we had laundry performing super well, while beverage was slightly positive and food was negative. And again, I'm repeating here the comments that I made during the Q1. In North America, we experience a declining demand of our product in relation to the stocking of our distributors. It is in particular related to the distributors that are selling the refrigerators that have been at the stocking since the beginning of the year. We see some Some positive sign with new orders coming. We saw this happening at the end of June and continuing into July. So let's now have a deep dive into two segments, starting, as usual, from the food and beverage. Overall, food and beverage was organically growing growth. 0.5, so a flattish business. Again, remember the Uzbekistan project that was pretty large and we delivered it in Q2 with good performance in Europe while, again, the sales declined in the Americas. comments already made, and in Asia, with a reference to be considered about the Uzbekistan project. In particular, beverage, within the food and beverage, was very good. Beverage was the one suffering the most years ago during the pandemic, and it is the one recovering more than any other on these years. China grew, yes, double the growth, but is less than what we were expecting because the recovery and the reopening of the Chinese market is slower than expected. Margin improved significantly, so the profitability improved, and it was mainly thanks to the price and the mix-up, thanks to customer care, where in our operation we grew the participation. Participation means customer care sales versus the total sales of the company, and we grew the participation of the customer care business to the total sales. If we go to laundry, laundry performance were really strong. But again, We have to look at the comparison. There was also the Uzbekistan project. Inside, indeed, sales were super strong in America, in Europe. In Asia-Pacific, there were single-digit growth compared to the double-digit in the other two regions. But again, in Asia, we had the Uzbekistan project who was delivered. In this case, also the margin, the margin grew more than 100%. That is good, clearly. And it's driven also for price, but in this case also volumes. So volumes had a very positive effect on the laundry business. Two comments about the laundry, two additional comments. In addition to the fact that, again, the comparison with last year has to consider also the fact that in Q2 we did not sell a lot of product because we produced incomplete units that have been recovered in Q3. So there's been a sort of shift there. of business from q2 to q3 last year and we said that the impact in the earnings is roughly 30 million in addition to that one if we i think is it has to be a mention a comment between the q1 and q2 of this year where in reality we had a super strong March in Q2 and a relatively weak in April, that normally they should be normalized. March was an extremely long month and April was an extremely short month. So I would look at the two quarters together with a normal progressive development of the business in Laundrie. The other element in Laundrie is also that we increase, in particular in Q2, with a catch-up versus Q1 again, so we should divide between the two quarters, the R&D investments, because we started a very important project to renew the architecture of some land in the laundry portfolio. With this said, I would let now Fabio go in deep into the analysis of the financial performances.

Thank you, Alberto, and good morning to everybody. As you have seen from the financial data, since quarter two 2021, supported also by the market recovery, we have been consistently increasing both the top line and EBITDA performance compared with the previous year. And this, let me say, pattern of consistency, positive consistency improvement, I believe it is beside the data such an important pattern of our development. In Porto 2, we generated close to 400 million sacks in EBITDA and a margin of over 12%. Also here, consistent improvement, both in food and beverage, where we are over 12%, and in laundry, where we are over 16%. The value increasing EBITDA was roughly 150 million. Alberto mentioned that in the comparison we needed to consider the last year we had roughly 35 million one-time costs related to the investment of the business in Russia and the disruption of the supply chain that we had in laundry affected the profitability to last year for roughly 30 million. But even excluding these couple of items, the improvement has been roughly 90 million, so plus 40%. That I consider really a remarkable improvement. Back to the comment of we are growing, but we are also growing profitably. EBITDA was increased thanks to a combination of higher gross margin, but also lower selling administrative expenses on sales. We have expanded the gross margin value by 19%, higher than sales. This increase was driven by price, more than compensated in the quarter and also year-to-date the inflationary items. The volume growth in laundry, the mix-up of customer care, these were the main drivers of the gross margin increase. Also in the quarter, happy to report that with the stabilization of the supply chain, also the logistic costs have been decreasing quarter on quarter. Selling administrative expenses increased in the quarter in value also because of inflationary items, but the weight on sales has been reduced by roughly one percentage point, meaning that we are growing profitably, getting also productivity improvement of our organization. And this result has been achieved whilst continuing to invest in innovation and digitalization on the company. This is, I believe, an important also thing to consider because we are growing, growing profitably, but we are also investing to create the condition for a sustainable, profitable growth also going forward. Coming out from the EBITDA A few words about the financial net. Financial net in the quarter was 24 million lower than the level of quarter one. It has been helped by reduced level of funding, but also we had positive contribution from currency transaction in the not second denominated deposit. The tax rate in the quarter was 20% below the average. At the same time, also to give you a sort of guidance, I expect that for the quarters to come, to go back to the guideline we gave in the past of around 25% of tax rate on the income. Income for the period was close to $260 million. Earning per share at 0.89 sec per share. Also here, remarkable result. We doubled more or less the net income compared with the last year quarter too. Then a few words about the cash flow. Alberto already mentioned it earlier. We are back to what we say is a normalised cash flow. This group historically has been a strong cash generating group. The level of operating cash flow has always been above the EBIT and EBITDA generation. And also this quarter, I would say, After, let me say, a good quarter one, we further improve the cash flow, despite the additional requirement we had on the operating working capital. Few words on the capex in the quarter. The level of capex has been relatively low this quarter, but I expect it's going to normalize to historical spending in the quarter to come. I mentioned operating working capital development. Year over year, operating working capital increased by 20%. Five points, five, six points are currency translation related, and the rest is increase of the operating working capital value. Also related to the pricing, that is affecting the value of our goods, but also the value of our receivable. Here to be said that I consider somehow we are reaching the peak of the operating working capital in terms of weight on sales. And now I believe that with the stabilization that we have in the supply chains, we have finally the conditions to work on improving the operating working capital, in particular on the inventory side. Yes, we have now the condition to review the safety stock, for example, of this product, the size of purchasing, for what concerns the component, bringing down the inventory to a normalized level. When it comes to the receivable, as reported in the previous quarter, the situation is pretty good. I believe we have the historical low past due on sales than ever. Overall, you see our position, our financial position is pretty solid. We reduced relation debt on EBITDA at 1.3 times. So significant down compared to the level we had in December. In the quarter, we have repaid another part of our term loan, we repaid 15 million euro on top of the 35 million euro we repaid already in quarter one. So overall 15 million repayment in funding in two quarters. We have now, we started quarter three with a strong liquidity. We have over 700 million in liquid fund and 200 million euro revolving credit facility fully available. mean overall as a conclusion solid quarter overall good profitable growth and a pretty strong balance sheet and with that let me say i'm really look at this group with a solid group with really also from a funding perspective the condition to support the profitable growth and with that back to you alberto thank you fabio and uh