Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Group. Today we are presenting our third quarter result. My name is Jakob Rubai. I'm Head of Investor Relations and Communications. And as always with me, I have Alberto Zanatta, CEO and Fabio Sarfalon, CFO. I leave the stage to Alberto. Please go ahead, Alberto.

Thank you, Jakob, and good morning to everybody. So Q3 is the third quarter of this year, third quarter where we are still above 10%. And if I look at the nine months, so the year to day performance, we are still ahead of last year, both in terms of sales and EBITDA. Going into the detail of the quarter, let me start from the cash conversion, because that is for sure the headline, considering that we had a strong cash generation with 135% cash conversion, cash generation that gave us the possibility to further reduce the ratio between net depth and EBITDA. Going at the sales, it is a quarter where we reported declining organic sales, slightly above 5%, and this decline is mainly driven by the performance in the United States. The decline of organic sales had also obviously an impact on the profitability, and our EBITDA decreased slightly more than 8% year on year, with a delta compared to last year of roughly 27 million, slightly less than 30 million SEC. If I look at the decline of profitability, decline of the margin, and EBITDA in absolute terms, as I mentioned, the first reason is clearly the the drop of volume, the decline of sales, in particular, I repeat, in the United States. A second reason that is important because the negative impact is even larger than the gap compared to last year is the currency, the negative currency transactions impact. We will detail a little bit more from which currency it comes, but the negative impact is around 40 million SEC. A third element that... that I want to mention when we compare the performance of 2023 with the one of Q3 2023 versus Q3 2022 is that the comparison between particularly laundry when in Q3 we started to invoice the product or the order that we cumulated in the second quarter of the previous year of last year And that were delayed or shifted to the second part of the year because of the missing component and as a consequence the unfinished product that we produced during that quarter. The total amount of this shifted order is around 220 million sec all in laundry. So it is impacting the laundry performance is this one. And I would say that roughly slightly less than a third was in Q3 and obviously slightly more than two thirds in Q4 last year. If I look at... the dynamic, the sales, the loss of volumes and sales that we reported in Q3 by geography, I already mentioned that the big drop is in North America and it is both in laundry and in food and beverage. In North America we had, in reality, the South America business going up, but it is so tiny compared to the North America that didn't clearly compensate the significant drop of volume that we had. The region of Asia Pacific, Middle East and Africa reported a growth that was quite significant in laundry and slightly up also in food and beverage if we exclude a large project that we had last year so like for light we had a growth both in food and beverage but significantly grow also in in in laundry due to the fact that we have been commenting this during the past quarter a point about china as you As you see, we are not noting anymore China as the negative one because we see things moving. They are not back to what we expected and what it should be, but we see things improving in China in the area. Europe is flat compared to last year, but also here we have two dynamics. We have the we have laundry slightly up and food and beverages slightly down. Slightly up and slightly down means 1-2% percentage point. But let's go into the detail of the two segments. So if we talk about food and beverage, food and beverage, we said it, we have been... down in Europe, and also here we have clearly two speeds. We have the Nordic country, the Nordic market that are reporting a softening of the demand, and they've been negative in the comparison with the last year, while the Mediterranean region is still growing both in terms of sales and in order intake. The big hit, you see, is in North America. And here you see the 10% in Asia Pacific, Middle East, and Africa because, again, I repeat, it was in particular related to the big order that we had last year. If I exclude that one, it was a very large order, one-off, obviously. And if you exclude this one, the trend is positive in the region. A couple of words about North America because I'm sure there are questions and there have been questions also during the past months about the situation, about us gaining, losing market share in the market. In North America, the business is structured basically in three typologies. The distribution, the institutional business that are the big kitchens that you can find in markets school, public sector and the chain business. The distribution business is tiny and it was the one that was affected by the stocking. Last year, we had a super good year in distribution. It was significant last year. Now it's getting back to normal. During the first part of the year, we basically, I don't mean we didn't invoice, but the invoice was tiny because all our distributors, they were selling the product that they bought in large quantity the year before. Now it's normalizing. In October, we see a positive order intake. It's the first time since the beginning of the year. So we believe that the stocking phase is over and this should normalize the trend. Institutional chains are basically 50-50 of the remaining business. That is the big, big portion of our business in North America. If I look at the chain business, I would say that what we see is that our customers, so the chain customers that are already buying our product, they didn't switch to other competitors. So we didn't lose customers. We clearly see this one. So they slowed down the order of new product. That means that they slowed down the opening of new restaurants, right? the replacement of existing product. They postpone the investments. The new customers, the ones that are testing our product, also in this case, we didn't lose any ongoing test. So we see that these customers are also continuing to test our product, both in the labs and in the markets, but they are postponing the decision. I believe the word postponing is... is a key one because this is what we saw during the last weeks of September when we reported also majority of the drop of the sales. The third part of the business in North America is the institutional, we said. That is majority of the legacy business that we had before the acquisition of Unified Brand. And this is probably where we had challenges. It is an area where we clearly had internal and external challenges. Internal related to the integration, because during the quarter, we have been running the full integration of the system, including, sorry, of the team, including the merge of from three to one IT system. But also we had some external challenges with our reps, and our representation in North America. So that is the area where we surely had more challenges in the market. Order intake for food and beverage, we see that with the dynamic related to Europe, better in South, a little bit weaker in North America, sorry, in the northern part of Europe, is on the same level of last year with the exception of USA. Laundry. If we go to Laundry, again, sales have been up significantly in Asia-Pac. They've been also up in Europe, slightly up in Europe. They've been down in the United States. And now the comparison in particular with what for what Europe is concerned, has to consider, as I said, that last year we had roughly a third of the 220 million of business that was shifted from Q2 to the second half of the year, roughly a third was in Q3. And it was in particular in September of Q3. So, So that is the big point of laundry. And we have also to remember that this shift of business was a shift of highly profitable business because we produced the product earlier, the fixed costs were there, independently if we were invoicing or not this additional business. So it was this shift of business impacted not only the sales, but also the profitability. The order intake of laundry was on the same level of last year. I believe with this said, Fabio, we can go into the financials.

Thank you, Alberto, and good morning to everybody. As you have seen, Q3 was a solid quarter with an EBITDA margin above 10% and 290 million in value. Despite the decline in sales, as you heard from Alberto, primarily in the US, and adverse currency transaction impact, it is really worth noting that we have been able to further improve the gross margin by 1 percentage point, but also the value-in-value gross margin increased despite lower sales. Positive contributions continue to come from price, more than compensating deflationary items like the labor cost. In the quarter, we also started to see a positive contribution from direct material, and the high-margin customer care business continued to grow more than total sales. few words on the currency transaction. As you heard from Alberto, the impact in the quarter was significantly, approximately 40 million SEC impact year over year. And let me say the big offender are the weakening of the SEC, both versus euro and Thai baht, but also the strengthening of the Thai baht overall, not only versus SEC, but also versus euro. And here are a couple of examples in laundry. You know we have a large production facility here in Sweden for laundry that buys raw material and components that are Euro-based products. in term of pricing. So a weakening of the SEC has definitely an impact on the currency cost of the raw material. The same applies still in laundry. We have a large production facility for laundry and beverage in Thailand. And despite the improvement that we are doing in that operation, the strengthening of Thai baht has a negative impact on the product cost. Moving outside the EBITDA area, it's worth to report that the finance net somehow increased compared to last year due to the increase of interest rates. It was 33 million SEC in the quarter. I would say an increased amount, but worth to mention that it represents really a sustainable piece of our P&L. Tax rate in the quarter was 26%, slightly above the average, but I would say no change on the overall guidance of 25% tax rate over time. Cash flow was strong, definitely strong in the quarter, confirming that cash generation is now normalizing at the historical good performance that you see also in the chart here. EBITDA was over 300 million, and this strong EBITDA has been combined with a reduction on the working capital requirement. A remarkable result I have to stress that we achieved while you continue to invest in CAPEX both on the product development but also in the automatization of our production facility. Operating working capital was 2.2 billion SEC at the end of September. Reduced compared to the level we had in June this year and 4% below September last year at the same currency. Receivable decrease in value because we generated lower sales compared to quarter 2 this year but also quarter 3 last year in terms of comparability. But what I wanted to mention to you is a remarkable improvement that we have had in inventory. With the stabilization of the supply chain and the action that we anticipated to you and with discipline put in place, Inventory was significantly reduced and it is now 8% lower than September last year at the same currency and further reduction as expected by year-end. We are definitely on the right track to revert the operating working capital requirement on sales. Our financial position has been further strengthened and we have now a ratio on EBITDA at 1.2 times. That is a significant reduction compared to 2.3 times that we had just three quarters ago. Cash availability was 650 million SEC. And here you have the graphs regarding the evolution of the ratio net debt on EBITDA. Worth to mention that this reduction has been generated thanks to a combination of increased EBITDA and EBITDA a reduction in debt of roughly $860 million sec year over year. Reduction that is achieved after having paid the dividend for additional $220 million. Looking forward for the future, I expect this trend to continue, meaning further reduction of the ratio net debt on EBITDA to continue. And this is particularly important because our balance sheet is strong and will be further strengthening going forward. And the reduction in debt is important, in particular in times like this one where the money is more costly than it was in the past. Last comment from my side on the financial development is about an important step that we did in quarter three. We launched a commercial paper program for a value of 2 billion SEC. We have issued 600 million in September on the program and we had really a pretty good and large interest from the investor. I believe that this is an important step in expanding our sourcing facilities. A step that, when you look at the combination of the normalized cash flow generation, this new commercial paper program, the 200 million euro unutilized, revolving credit facility, you clearly understand that we have definitely the means to support the business going forward, including also potential and possible many opportunities. With that, back to you, Alberto.