Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Group Q2 presentation. My name is Jakob Rubai. I'm heading up investor relations. As always, I have Alberto Zanatta, CEO, and Fabio Salperon, CFO, with me. And as always, we start with Alberto. Please go ahead, Alberto.

Thank you, Jakob, and good morning to everybody. Pleased to report the Q2 results that are showing, as we said in the highlight, another step towards our margin target. It is a quarter where organically we declined, slightly declined 0.7, that if you compare with the first quarter is showing a a sequential improvement of the business across the different businesses. Total sales were up, thanks in particular to the acquisition of Tosei, even if the second quarter is the weakest quarter along the year, and slightly also thanks to the contribution of Adventis, the new company, the French company, technology company that we acquired in April this year. We improved in the sales, but we also improved in the profitability. I would say that this is even more remarkable because the EBITDA in absolute value increased, including also the acquisition cost, so moving from the 385 million to the 410 million Swedish krona. This is despite the acquisition-related cost for Adventis and Tosei that amounted to roughly 8 million SEK. This improvement connected with the development of sales is also resulting in improved EBITDA margins. EBITDA margins that move from 12.2% to 12.5% if I exclude the integration related cost is even close to 13%, so 12.8%. The other financial, important financial, obviously, that we follow up is the operating cash flow. Also, in this case, it's lower than what it was in the second quarter of last year, but in any case, it's a solid operating cash flow that is including the payout of the dividends and is including also significant investment that we are starting to do to prepare for the new lines that are going to be launched during the coming years. Last comment about the quarter is that we confirm an increasing order intake. So order intake, the collection of order is still growing compared to the same period of last year. Last comment on this first slide, the overall one, is that in the quarter we have been we deliver sales above the 3.2 billion SEC, that is the highest quarter that we reported. Indeed, if I go to the rolling 12 months, we are, for the first time, above the 12 billion SEC in sales. Geographically, you see that Europe is up, flattish in food and beverage growing in laundry america is just minus one percent with the with the laundry well up. Remember also that the laundry in the US, we have this large distributor, so it is more related also to the shipment that we are doing and the different dynamics, including the stocks. And in the APAC, we are down both in laundry and food and beverage, but we will comment later that it's mainly related to one distribution, region of the APAC or APACMEA region that is related to the Middle East and Africa in particular. If we go specifically to food and beverage, food and beverage Organically, we decreased by 4.3%, but it's important to see that the decline is limited to some specific area of business. Because in reality, we have been quite flat in Europe, and Europe had a super strong first half last year. To be on the same level, I would say that is a good achievement, also because the order intake is very strong in Europe, so quite promising. And Europe is our second largest business after the laundry. We have been growing the U.S. chains, and it is a sequential improvement because we have been growing... in the month, in the quarter, and in the first half of the year. So we see clearly, and we always said that the chains, we had a long pipeline of tests with the chains in the United States, and it seems that gradually they are now unlocking the orders, and we are starting to get the benefit. We have been growing also in Southeast Asia, in India, in beverage in general. the decline is limited basically to two areas, Middle East and Africa, and the US, the so-called general market or institutional market. So they are two areas. I don't want to neglect the importance, but they are two limited areas where we have a decline of the business. EBITDA we improved the margin from 12.2 to 12.3 without the integration related cost it moved to 12.7 so also in this case also EBITDA in absolute value was down compared to the same quarter of last year but without the integration related cost it present an improvement also in this area Last comment is that also in this case the order intake is up compared to the same period of last year. Let's move to laundry. I think also in laundry we have to underline because we have an organic growth of 6.7. Now laundry in the quarter is above 1.2 billion sec. That is 50% higher than what it was in the pre-COVID. And we know that in laundry we even suffer less than food during the COVID period. So laundry is really developing well. It's growing rapidly. in Europe, in the Americas, slightly declining in the APE region, as I said, specifically related to the situation that there is in the region of the Middle East and Africa. With the growth, we are also improving the EBITDA in absolute term. Also in this time, we are for the first time above the 200 million SEC in a quarter. So we are improving the EBITDA that is now at 16.5, but that is including the EBITDA the cost so excluding the the cost it would be above 17 percent for laundry Also, the order intake for laundry is higher. One comment about the order intake for both food and beverage and laundry. We are now at more or less two-thirds of July, and I can report that the trend of the order intake that we saw during Q2 is still positive. It's still holding also during the month of July. With this said, I believe we can enter the financial comment and I leave it to you, Fabio.

Thank you, Alberto, and good morning to everybody. As anticipated by Alberto, quarter two was another step toward our margin expansion. EBITDA margin moved from 12.2% to 12.5%. To be said that the underlying margin before the acquisition integration cost of TOSEI for roughly 8 million SEC reached the 12.8% close to the 13% plus 8% in value. The improved margin is came mainly from an increased gross margin thanks to the contribution from pricing, more than compensating inflationary items like the labor cost and lower material cost. Remarkable was in the quarter the contribution for laundry. Laundry business grew close to 7% organically compared to already a strong quarter of 2023 when, if you remember, laundry grew 28% compared to 2022. So the comparable was stronger and we delivered even higher sales, generating overall more than 80% in EBITDA compared to quarter to 2023. Overall currency transaction that was an offender for last year, overall positive contribute in the quarter. This margin expansion was delivered despite the fact that in the quarter the acquired companies had a dilutive effect of margin. TOSEI, as anticipated during the previous call, have in Q2 and Q4 the seasonally weakest quarter in terms of sales and therefore lower in margin. Adventis, the professional induction cooking company, was acquired in April and contributed in terms of sales and profit only two months in the quarterly data. The overall impact in terms of EBITDA was negative, and this because of the acquisition and integration cost. To be said and confirmed, the underlying profitability, meaning excluding the acquisition and setup cost, is confirmed very good and higher than the group margin. FinanceNet in the quarter was 40 million SEC higher than last year in quarter 1 and this is due to the additional borrowing we had for the acquisition. Few words about the tax rate. You see somehow an increase in the quarter to roughly 27%, and this is due to a country mix. Overall, the earning per share was 0.86 sec per share, somehow below last year, and this was driven by higher interest costs and taxes. When it comes to cash flow generation, we generate close to 400 million seconds operating cash flow, confirming somehow the strong cash generation power of this group. And this remarkable result has been delivered despite an increase of capital expenditure related to innovation projects scheduled to be launched in the incoming years. When it comes to the asset management, happy to report that the rolling 12-month operating working capital on sales is now reduced to 17.4% on sales, lower than December, lower than March this year. And improvement came mainly from inventory, where, as anticipated, the action we put in place to bring down the inventory value are definitely paying off we are very proud of this achievement because also in this area not only in terms of margin expansion but also in terms of asset management we are step by step moving our towards our financial target Our financial position, even after the acquisition of Tosei Adventis, remains strong, with a ratio net debt on EBITDA of 1.9 times. That is exactly in line also with the level we had at the end of March. I'm very proud also of this achievement because we were able to keep the ratio equal to March, despite in the quarter we paid the dividend for 230 million and we have 240 million payment related to advantage acquisition so overall also from a balance sheet perspective cash flow generation we are entering the second half of a year with a very solid situation with the means to support the sales and the margin expansion of this group and with that back to you alberto thank you fabio

And reconnected with what just Fabio mentioned about the acquisition of Adventis. A couple of words about this company. It's a small company, but it's a strategically important company. We have been talking about electrification of the kitchen and the big trend that is already ongoing in Europe and is starting also in the United States. for many, many reasons, clearly, that we all know, and I don't have to go back to that one. And we believe that the electrification of the kitchens will come or will be driven also by a change in the way of heating, of warming the pots in the horizontal cooking, and the induction will be instrumental to accelerate this growth. So this is the reason, the strategic reason to get into this company. We know these products are very good, highly performing, highly efficient, so wide range. We have been already working, evaluating to integrate these technologies in our product. We are already having, obviously we already have induction inside of our modular ranges where we have a leading position in the major markets and But with this one, we believe we can further improve our leadership in the category. What's important to say, and I think it has been underlined, is that these products are highly profitable. I would say they are what we call star products. So more we will see induction, let me say, penetrating into the the kitchen, the cooking blocks in the kitchen, more evidently there will be the possibility to do the mix-up to improve the profitability of an already profitable product line. Due to the fact that we have been talking about the acquired company and the activities that we are carrying on to to create value with the technology offered or with the opportunity offered by this company. I want to spend a couple of words also on the integration of TOSE that is proceeding very well. Again, the second quarter of TOSE is the weakest all along the year, so they have been dilutive to the group results. Nevertheless, the market is still relatively soft. But on the other side, we believe that already in Q3 we will start to have some of the value creation projects that we initiated just after the acquisition providing some value. So this is important and we see that the TOSE team is very eager to demonstrate what they can do and the value they can create. Other important thing that happened in during the second quarter, not only for the quarter, but I believe it is one of the things that will give us confidence that we can gain growth and accelerate this one, is that we finally introduced and made available in the market the autofill the autofill is a device that we have been testing with chains for months and months and months and finally we unlock this product for the market It is an important device that is opening many opportunities because when you get this one, the payback is in really few months. So it's very, very interesting for all these customers that are looking for a high-margin product to be sold to their customer with a device that is providing them automatic automatization of the operations availability of the product continuous availability of the product and with a very very short payback we already started the rollout with one change half in june half in july it's not a super big change but it is in any case an important american change and and i'm confident that many others will come With this said, in summary... So... We developed sales thanks to the acquisition, but we grew sales organically. We have been improving compared to the previous quarter where we were minus four. This quarter it was a minus 0.7. And the decline is mainly limited on these days to some specific regional business. I repeat, Middle East and Africa. And I would say that the Middle East is where the things remain because Africa, we already got some large projects that are going to deliver during the second half of the year. and in the United States for what concerns the institutional business. So it's a small portion of our business, but still remains the market and the demand very soft in that area. While in the other area, Europe, that is, I believe it is an outstanding performance, the one that the team provided in Q2, in particular in comparison with the previous year, The chains in North America and Southeast Asia, India, so these countries that are growing countries, we have been growing market share. I would say even above the market. With this developing sales, despite the organic decline, EBITDA improved. So this is confirming that all the activities that we are carrying on to have a profitable growth are working. So the EBITDA in value improved and the EBITDA in margin improved significantly. So the comparable in the meaning without the acquisition and integration related cost, we are very close to the 13%. We continue to see an order intake positive, growing, even during the first weeks of July. And this is across the different businesses, not in the Middle East, as I said, because of the specific situation. So all these comments, including the new product that we have been bringing, including the integration activities that will start to... to create value are confirming that we are making another step towards the financial targets that we have. With this said, Jacob, back to you and open to questions.

Thank you, Alberto. As said, we are open for questions. Please go ahead, operator.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Gustav Agius from SEB. Please go ahead.

Thanks. Good morning, guys. Thanks for taking my questions. I have a couple, if I may. Firstly, on your last comment there, Alberto, on the water intake growing in July, excluding the leaves, but do you see any relief also in the institutional, on the food and beverage side, in Europe, on the institutional side? Is that still weak going into Q3 as far as you can tell now and if you could elaborate a bit on the margin discrepancy in that US business between the institutional side and the chain side which seems to be developing a bit better.

We see a We see a sequential improvement also in the institutional side, but we still see the market that is relatively weak in the institutional side in the US. We are talking about US, obviously. So sequential improvement, yes. To say that the market is back, because I believe it is a market condition now, improving but not back to what it should be completely different story is the chains where we clearly see a sequential improvement not only in the order intake but also on the sales i told you that we are up in We are up here today, we are up in the month, we are up in the quarter. So it is clearly getting better. And the long list of tests or businesses that have been tested, under test you know the process for change is a long one where you have a long test and then it has to be released and becoming order it is still there so so some are unlocking and we are expecting hoping that many other will come and finally we'll move on about the margin the margin is the margin we always said that that In the margin, more we grow the chains, in some way better it is for the margin. And not because we are selling at higher price to chains, not at all. You know that chains are very good buyer, honestly. But when we have this volume, we are talking about hundreds of thousands of units, single product, thousands of units that can be delivered in batches.

Thanks, that's helpful. And in terms, you've had now a period of improving order books. Have you seen any cancellations or withdrawals from that order book, or is that order book just filling up? I know historically you haven't had much cancellations, but do you see any of that, or is that going to be a catch-up effect at some point?

No, we didn't see any cancellation. You know what? What we see happening more than in the past, more in the past, and sometimes it's creating some... in the result are postponement for many reasons because the site is not open because whatever recently in the month of June for instance China was slightly down but in reality it was not because just beginning of July we delivered large orders also in China and now China is significantly up so there are some postponements mainly are related to the fact that the site is not ready, plumbing whatever carpenters whatever but cancellation I don't recall any order cancellation

That's encouraging. If you could give us an update now on the integration costs versus synergy costs with those acquisitions. You have previously mentioned the margin target and so forth. If I recall correctly, you stated that you had 38 million or so in costs in Q1 related to integration costs for the acquisitions and another 8 million now in Q2. And now you seem a little bit more positive on synergies maybe feeding through already in H2. So could you help us with the dynamics in terms of integration costs? Will there be further costs in H2? What do you think is a reasonable estimate or guess on the synergy cost in next year maybe to understand the delta in the margin going into next year from these. That would be helpful.

I think Fabio will comment about that.

Please, Fabio. When it comes to acquisition and integration cost, you saw that we had the majority of the cost in quarter one that were related to the acquisition of TOSEI, where the majority of it was related to step-up inventory step-up cost. In Q2 the cost acquisition integration were roughly 8 million, majority of it related to step-up cost. What is the picture going forward? Somehow we expect still some integration costs. These are related to TOSEI for the second part of the year. And they are related mainly to alignment of process and IT infrastructure related to the structure that we want to bring this acquired company in line with the structure and the tools that we have at group level. At the same time, both on TOSEI and on Adventis, we already started to work on synergies. synergy that will come step by step. There are some areas, if I think about OSEI, that we may start to see already some effect in the second part of the year, mainly related to purchasing cost. We're bringing together the two organizations. We can leverage the purchasing power of OSEI professionals, but I would say that, let me say, the material impact is starting to be seen in 2025 for both acquisitions. This year is somehow a year of transition where we are facing somehow the acquisition, the integration cost, and the benefit will start to materialize next year.

Thank you. Could you address Any of those numbers, a little bit more hard numbers for H2, is that the delta is going to be still negative, I assume, for the integration cost?

Yes, the delta will be still negative in the second part of the year. Let me say the order of magnitude probably will be in roughly one fifth of what it was in the first part of this year. If you sum up the integration acquisition cost that we somehow announced the two quarters were close to 50 million, we may face less than one fifth in the second part of the year.

And what about synergies in 2025? Where do you think is a ballpark figure for those just to understand the delta in profitability year over year as we go into the next year?

First, we are not disclosing this part, but just to reconnect. First, Adventis, even small in size, is a creative for the group. So net of the synergy and of the acquisition cost also in quarter two, it was a creative. Yes, the size of the company is today small in the big picture of the number, but is a creative already and will be a creative for the remaining part of the year. When it comes to TOSEI, if you remember when we announced the acquisition, we said that TOSEI in 2023 delivered an EBITDA margin that was in line with the Group 1 of last year, above 11%. Let me say with the activities that we have put in place, we are moving towards the to align TOSEI with the group expectation in terms of margin into already 2025. And overall, we are confirming the long-term target to bring TOSE in line with the group financial target of 15%. I mean, the activity that we are working on, both on the cost synergies as well as on the sales synergies, are confirming the condition to bring TOSE in line with the group target in terms of margin.

And you think the main step will be already 2025 in that regard?

A first step will be already in 2025. Perfect.

I appreciate those answers. Thank you.

Any further questions, please press star and 1 on your telephone. Star and 1. There are no more questions at this time.

Thank you, operator. And thank you for all of you listening in to us. And we would like to wish you a great summer and hopefully some vacation too. Thank you and speak to you next time. Goodbye.