Electrolux Professional AB (publ)

Good morning and welcome to Electronics Professional Group and our first quarter of 2024 result presentation. My name is Jakob Rubai, I'm heading up corporate communication and investor relations and with me as always I have Fabio Sarpellon our CFO and Alberto Zanatta our CEO. I leave the word for you Alberto, please go ahead.

Thank you Jakob and good morning to everybody. Three highlights from Q1. The first one is that the comparable profit increased. If we exclude the integration related cost for TOSE, the margin improved sequentially. I would say we are constantly improving the margin. And this is coming because this is a quarter where we have not an easy comparison with the last one. Many things have been different. The first one, obviously, and the large one is the acquisition of Tosei. As you know, we acquired Tosei in January, so we have a full quarter of contribution both in sales and in earnings in profit and this has been a positive contribution because we added roughly 7% in sales and the margin of the business generated by TOSE was higher than the average of the entire group. But at the same time, we had the acquisition related cost. And in this case, clearly the contribution was negative. The 38 million SEC contributed negatively to the overall result. The other thing to be said in the difficult comparison is that we reported a decline of organic sales. So this decline contributed negatively to the result. But it is a decline that has also to be seen in lieu of the fact that we were ahead of last year until February. in terms of organic development and then the gap was created in March and March last year was an extraordinary strong month with between 10 to 15 more working days than March of this year. So comparable profit increased. The second highlight of the quarter is that we clearly see sign of recovery in the U.S. Still sales in the U.S. are down compared to Q1 last year, but the order intake is higher. The pipeline with the chain business is increasing. So we see sign of recovery in the U.S., The third highlight is about laundry. In laundry, we decline volume and we decline margin. Besides the fact that in laundry, the majority of the integrated related costs for Tosai are in laundry, in any case also excluding this cost, the margin decline, and this is mainly because of the missing volume. Same comments I made in relation to the overall picture of the group. Until February we were ahead of last year, then in March we created a gap. That in laundry was even larger than for the food and beverage business. because we had some delays in delivery of some specific product. Not months of delays, there have been some days or weeks of delays, but enough to create the gap in the month of March. Last things, as in the past quarter, we had a strong cash generation. comment about the sales I already made it so organic sales as I said are down they've been down mainly in the month of March I would I would like just to underline one area, that is Europe food and beverage, because whatever I said about working days, about the length of the month of March is valid, obviously, also for food and beverage and Europe. But in this part of the world, we have been flat. compared to last year and this is a remarkable performance also because we were expecting a decline business in Europe because of the missing incentives from governments in reality the business is holding very very well in all this area despite the decline of the business order intake is up compared to last year now let's have a deep dive on food and beverage food and beverage also in this case comparable business the margin is up in this case it is up even considering the acquisition cost so it is sequential improvement of the profitability of this part of the business. It is a good one. Europe is the one performing strongly, but also the other two parts of the business, the United States and the Asia-Pac, have improved the margin compared to last year. You know that we have a lot of focus on improving the margin and this is proved by what is performing in food and beverage. The order intake is higher than what it was last year across the different regions and in particular we are seeing in North America. Laundry is the area where we had a decline of the sales and a decline of the margin, independently from the negative contribution of TOSE. And this is explained mainly because of the missing delivery during the month of March. As I said, it is related to some products, specifically our semi-professional products and some products coming from the LUMBI factory that, by the way, are the high margin products, but it is the lace that we already recovered. So it is not something that has to worry us in the coming future. The order intake is significantly higher than a year ago. With this said, I would let Fabio comment the financials.

Thank you, Alberto, and good morning to everybody. As anticipated by Alberto, quarter one was an important quarter for the electricity profession, where from one side we have finalized another important acquisition with TOSE in Japan, but also we have been able to further strengthen the comparable profitability before the integration cost. Thanks to TOSEI, the top line has been increased by 2.9%, compensating the organic decline of the traditional business, or roughly 4%. Reportable profitability was 10.7% in the quarter and this amount includes from one side 6 million acquisition costs and then the one-time event when you run an acquisition that was 32 million sec of cost in terms of inventory step-up. Without this, let me say one time cost, the comparable profitability was 364 million, 11.9%. Let me say 0.5 percentage points better than quarter one last year and plus 7% in value. To be noted that the improvement of the comparable margin came both from TOSEI, that was in Q1 creative for the group profitability, but also in the remaining part of the business, where despite the decline in sales, primarily in US and in London, profitability improved. Positive contributions continue to come from price, more than compensating the inflationary items like the labour cost, but also from a lower direct material cost. Customer care that grew significantly last year continues to grow also in the quarter. Also on the positive side, currency transactions that, if you remember, negatively affected the profit and the profitability of this group, in particular in the second part of last year, positively contributed this quarter. A few words then about the impact of TOSEI on the group. As I mentioned earlier, the contribution was positive and accretive in terms of margin in quarter one. To be said that historically, in terms of seasonality, mainly related to the business of laundry of TOSEI, quarter one and quarter three are the largest quarter in terms of sales and therefore the most profitable quarter within a year. But also I believe that is remarkable the rebalance of the group thanks to TOSEI from a geographical and business perspective. Meaning, if you look into the performance of the quarter in terms of sales, currently the dependence in Europe is below 60% and the remaining 40% are equally split between Americas and APAC and MEA. So definitely a much better balance from a geographical perspective. But also remarkable is the weight of laundry business that is now close to 40% of total group sales. Still in the quarter, despite the higher borrowing, we have been able to reduce the finance net to 32 million sec. 38 was spent last year, thanks to a reduced funding structure. Tax rate for the quarter was 28%, slightly above the historical average, mainly related to country mix. Earning per share reduces year on year, but this is only due to the one-time cost related to ZEI. As anticipated by Alberto and this graph is showing really the consistent delivery on the cash flow. Operating cash flow was over 180 million in the quarter and also to say acquired company contributed positively to the cash generation. When it comes to the balance sheet structure, first, all this data for this year include also TOSEI. Overall, starting from the operating working capital, the rolling 12-month operating working capital on sales reached 17.7% in the quarter, down to over 18% that was already at the end of last year. The major part of the improvement came from inventory where, as we anticipated during the previous call, the action we put in place to reduce inventory and the inventory weight on sales are really now paying off. Our finance position also after the acquisition today remains, I would say, pretty strong with a ratio net debt on EBITDA at 1.9 times and the group at the end of March had cash available close to 900 million SEC. Last event related to TOSEI acquisition on the funding side was the launch in March, the successful launch of an MTM program in the Swedish debt capital market. The overall frame was 5 billion SEC. We got a pretty good response from the market and we issued 900 million sacks part of three years and five years duration and this successful response was shown by an order book that was three times the available issuance we put in place. Definitely with this program, we provide an additional diversification of our funding sources. We increase our refinancing capacity, strengthening our credit profile. So overall, even after this recent acquisition, thanks to a pretty solid balance sheet, consistent cash generation, this diversified funding, we have the structure and the means to continue to support the organic and inorganic development of this group and with this back to you alberto thank you fabio few words about jose

As we have been saying since the beginning, the results that we have been reporting include TOSE. TOSE in Q1 had a positive contribution, obviously in sales, but also in terms of earnings and margin. At the same time we had the acquisition costs during the quarter, in particular what Fabio described as the step-up costs that are only in Q1. The other acquisition costs we will continue to have some way along the years, but not in a significant way as they've been in Q1. The comment I want to make is that, first, Q1, the seasonality for TOSE Japan is different compared to the remaining part of the group, and Q1 is historically the strongest quarter of the company. So what we are expecting in Q2 is not to repeat the same contribution from TOSE that we had in Q1. Secondly, the activities both to integrate the company, we reported all the data, so it seems that it's proven that they are going well, but also the activities to create value are proceeding very, very well. I've been there a couple of times during the quarter and I found the team engaged, enthusiastic and willing, really with the desire to work together. So we are still confident that As soon as this synergy will be generated, we will have to say contributing not only to achieve the 15% target but also above that one. The other thing, still in Asia, is that for the first time we presented the Electrolux Professional Group all together. So both the Electrolux Professional brand and the Witsom brand at the major exhibition in China, where we presented a lot of new things, a renovated dishwashing program that we sell under the Witsom brand in the Chinese market produced in China in our factory in Shanghai but even more important we presented the horizontal cooking range or as we call modular cooking XP range that is a product that we started to produce in our factory in Shanghai but it is the product that we sell basically all over the world. This is to further reinforce our leadership on the Western cooking product category in that part of the world. Very well accepted by the market and now we are ramping up production and improving and enlarging the range of product manufactured there. The other thing that I want to show is that because we have been always talking about digital tools or digitalization of the business that is creating competitive advantages. This is a tool that we have been developing together with the logistic provider. and I believe nothing new to see the different ships, container ships traveling around the different sea of the world but the difference of this tool is that independently from the ships the dots that you see in the map in reality are identifying where our product and the components that are being used or is going to be used in the factories in our product are loaded in the different containers in the different ships. So this is giving the possibility to our planning department and to our order processing department to better plan production and to better keep informed our customers about the delivery of the product. This has been very very helpful in particular on these days with all the trouble that we've been going through due to the Suez Canal crisis. With this said, I would come to the conclusion, trying to summarize in a few words, a quarter. A quarter where comparable profit increased, where sales were up roughly 3%, thanks to the acquired business, TOSE, sales that organically declined and I already commented, mainly because of the month of March, a quarter where we integrated at OSEI with a positive contribution both in terms of sales and in terms of margin, a quarter where comparable profitability as said beginning increase and got very close to 12%, 11.9% that is 0.5% better than last year. It is a quarter where we have a strong order intake in laundry and an improved one in food and beverage. including the United States where we saw signs of recovery in particular for what concerns the pipeline of chains business and the order intake. It is a quarter where also operationally in the basic things about being excellent in operation we improve reducing the inventory generating more than 100% cash conversion and where we launched the MTN program that improved our ability to finance additional activities, inorganic activities for this company. In some way, summarizing everything in one sentence, the improved comparable profit demonstrates that the quarter was another step in the right direction. With this said, Jacob, back to you and open to answer questions.

Thank you, Alberto. As I said, we're open for questions, so I leave it for the operator. Please go ahead.

We now begin the question and answer session. Anyone wish to ask a question, we'll press time one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use all the handsets while asking a question. Anyone who has a question, you may press star and 1 at this time. The first question is from Gustav Hagius with SEB. Please go ahead.

Thanks, operator, and thanks for taking my questions. If I may start on the order intake, you're right that I think the wording you used was significantly better in the laundry. Would you confirm that that would sort of resonate with a number of, say, 10% to 20%? Or what is the threshold for that sort of comment that would be helpful?

Thanks. Yes, I would say that it is a good double-digit order intake growth that is continuing in April.

Okay. And in terms of, because you had, I think, three quarters in a row now of quite negative growth in the U.S., is it, from what you can see now, is it a fair assumption that that should sort of fade to, say, flat-ish in Q2, and then if all goes well, then grow in H2? Or how do you see that phasing of the U.S., given that order intake?

We expect in Q2 to see additional steps, sequential improvement, let me say. Still, I believe Q2 will be... Fletish probably could be the worst, but I'm not so convinced that we will turn completely the curve in Q2. Very close to where they are at, more confident about Q3.

Yes. And then if I turn to cash flow then, it came in a little bit better at least than we internally here had expected and net data now below two times. So thinking about sort of M&A now again, do you think... Is that a priority now this year for additional M&A or do you feel that you have your hands full with TOSE and that should perhaps more be a focus point next year? How do you envision that both financially but I guess more with the management focus and so forth?

No, I think, again, we are already working on, or we have been working constantly to build a relation, to scout the market, to look for other acquisitions. We didn't stop with the acquisition of Tosei. You know that it is one of our priorities. Then we have to be ready. The point is that you cannot say, now pause and let's start next year, because these are things that are... that have to be cultivated day by day and the opportunity pops up and we have to find ourselves ready. I believe that financially and also management-wise, you touch a good point, but also management-wise we are in the condition eventually to be ready for additional acquisition.

And then finally for me, it's sort of another progression towards your margin target and the way you look at it now, if you sort of take away the integration cost of today and perhaps add on what you can see now in terms of synergies for next year, what additional steps do you feel that is necessary for you to take on top of those two items for you to reach that 15% target eventually?

You know that in the bridge that we have been presenting always when meeting 50% of the contribution to reach the 15% target comes from volume. So that is indeed the point where yeah if you want to finger point something in the quarter that's the point the volume so volume is the area where we are focusing to growth a volume of high margin product because it's not enough to grow volume generically the order intake that is growing in such a way is is a sign that we are in the right direction to get the volume back So volume is 50% of the contribution that we need to reach the 15% margin. The other 15% is coming from all the other elements and the fact that the comparable profit increase despite the decline of the volume is proving that at least that 15% of the target is, I don't mean given, But I mean, we are absolutely in the condition to manage that part of the contribution. Now is the volume, and we know about that. But that is the point. The other thing that I believe is important to underline is that the volume mixing up to have a customer care growing 4% in a quarter where we had the volume down or organic sales down minus four. So we have a gap of eight of a business.

that is i don't need to say so is a very high margin business and if i can sneak in one final question i believe you alerted to on the capital markets update that to say was sort of hurting from from the currency and so forth in q1 and that you had initiated cost or price measures that would kick in Q2, the Japanese gen obviously continues to deteriorate a bit. Could you give us an update if you see, I appreciate the seasonality, but underline that you see a margin improvement from, say, those price increases and if you think there's room or need for further price increases given the FX?

No, but the price increase that has been announced has been implemented.

And did that affect already Q1 or is that a Q2 and beyond?

No, no, no. It will have a positive contribution in Q2. I appreciate that. Remember, as I said, Q2, the seasonality is different. So while for all the other business Q2 is typically the strongest quarter, for Tosei Q2 is typically the weakest quarter.

I appreciate that. Thanks for taking those questions.

Thank you. The next question is from Johan Eliasson with Kepler Showroom. Please go ahead.

Yes, good morning. Thank you for taking my questions. I was wondering a little bit just your gross margin was down slightly. Was that mainly because of the laundry volumes or were there any of these to say costs in the gross margin as well.

Correct. I would say the gross margin, you see gross margin is somehow flattening year over year, but it includes the 32 million SEC step-up cost, meaning roughly 1%, like for like, in comparable terms, gross margin improved roughly 1 percentage point year over year. And the improvement, despite the lower volumes, came from the ingredient that I mentioned earlier, meaning good and solid price execution across the different categories. decrease material cost and also warehousing cost. Within the activities to deliver on the 15% EBITDA margin you can recognize these items and on top of it we started to have also positive and significant contribution from productivity in the major plants.

Excellent. While we are on the margin, you mentioned Tossa is secretive to your EBIT margin. Is that also in both of the divisions and is it also on the gross profit margin?

Overall, TOSAI was accretive on the performance of the group in Q1, excluding the acquisition cost. The underlying performance was accretive for the food and beverage business that we anticipate historically is above already the average of the group and closer to the financial target of the group, whilst the laundry one was somehow decreative for the margin of laundry in quarter one. but also here the initiative that we are putting in place to generate synergies are creating the means to that also the laundry business of today's will be in line with the financial target where by the way it was if we go back a few years to say laundry business was already on the financial target

Excellent. And then just finally trying to understand your comments about orders growing in Europe and the US in the quarter and also into April and then you have this working day seasonality this time around. Is it fair to assume that on the back of these comments we should expect a positive organic growth already in Q2 now on the sales line?

Let's say that then. We are talking about the 24th of April. So in the month of April and during Q1, we had a positive order intake. And the order intake is in value, clearly. But I would say that the order intake in value, considering that this year the price is not so different. So we had the contribution or the effect of price is not so significant as it was last year. You remember that last year, the difference between value and volume was pretty large. This year it is not. So this means having a positive order intake, we assume that we should grow the business. Now we are talking about 24 days into a quarter of three months.

Okay, thank you very much.

I have a question from the web here, from Karin at Handelsbanken. It sounds like your definition of comparable earnings include the revenue and EBITDA contribution from TOSE, but excludes the integration cost. Is this correct?

No, when we look at the... Exactly. So we include the contribution of Tosein, the quarter that we mentioned was a creative to the group performance and exclude specifically the 6 million acquisition cost and the 32 million inventory step up.

Any other questions from the phone operator? No more questions at this time. If no more questions, I would like to say thank you for today and speak to you next time. Thank you and goodbye.