Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Group Q3 result presentation. My name is Jakob Rubai. I'm heading up investor relations and communication. With me today I have, as always, Alberto Zanatta, our CEO, and Fabio Sarpellon, our CFO. And I hand over to you to start. Alberto, please go ahead.

Thank you, Jakob. Morning to everybody. So Q3, as the headline says, in Q3 we're profitability so another step towards the achievement of our financial target and different from the previous quarter we also develop organically organic sales I would summarize the quarter as in the quarter where all the financial KPI has been improved we grew sales organic sales we improve the EVTA and we improve the EVTA margin. We also continue to generate strong cash flow, more than 100% cash conversion, taking down the operating working capital on sales and further improving also the order intake, so the collection of orders. So a positive quarter in the right direction despite the negative impact of the currency that was hitting us negatively in the quarter, in particular in the laundry business. If we look at the sales, the development of the sales by region, we have different dynamics in the meaning that overall sales were positively organically positively growing both in europe and in the americas while they've been declining both in food and beverage and laundry in the asia park middle eastern africa region I take also the opportunity to give some headlights about the market, because if this hour says, where is the market? Europe is still holding. In general, Europe is still holding, mainly driven by the South European markets that are or the Mediterranean region that have been performing extremely well during the summer thanks to the touristic season, but it seems to be holding well also during the fall. The Asia-Pac region, I'm talking about the market again, the by far largest market that is Japan is soft, still soft for different reasons because of the increasing interest rate that is in some ways slowing down the investment because of the inflation that for at least that market is high because of, let me say, the softening of the demand after the peak of the pre-COVID recovery. In the other countries of the of the Asian region, Southeast Asia in general, China, we see improving market condition. Still pretty tough the situation in Middle East. We have a big region, Middle East and Africa, but I would focus on Middle East mainly, where the situation is still pretty challenging, as I believe everybody can clearly understand. In America, we see an improvement of the situation. It is still not as good as obviously we would like to see the American market, but as we said also the other time, we are living on certain days, so days where many decisions are postponed because of what is going to happen during the coming weeks. If we go to the segment food and beverage, we have some words about the two segments, starting from the food and beverage asset. The first thing I want to say is that both segments have been improving the profitability and the margin. In the food and beverage, We did this despite an organic decline. And I think it's important to spend a little bit of time on this one because the decline, the organic decline of the sales is entirely due to the situation in the Middle East. If I would have excluded the Middle East and Africa, not Africa, only the Middle East, I would have delivered organic growth. And in this region, in particular in the Asia-Pac region, the Middle East is the most profitable, or at least it was the most profitable market. So the organic decline is coming from this specific region. An additional comment about the sales development in Asia. In food and beverage, I want to make it about an action that we consciously took. What I mean is that since the beginning of the year, or last year, we took the decision to phase out a product family that we call semi-pro with refrigerators. This is a sub-family in the cold line that we decided to phase out because the margin was very low. So we consciously decided to lose sales to improve the profitability. And indeed you see that despite the organic decline, the margin improved. And the other important thing is that the order intake is improving, and it is improving in particular in North America, because we already commented that the Asia-Pac region, Europe is doing well, continuing to do well, generating profitable growth, and Europe is the largest market that we have. But again, North America is still suffering. I have a specific comment about or deep dive in North America because we always had, at least I always receive a question about that. North America is improving. It's still negative. So we are still declining sales. but much less than in the previous quarter. And what we are doing is starting to provide the good result. You know that 50% of our business is chains and chains are growing 5%. So finally, chains are starting to... let me say to convert the test that we have been doing since the beginning of the year or better since last year into orders. And this is obviously very, very good. The other thing that I want to mention is that since September last year, we reviewed our or we relaunch revamped our go-to-market re-establishing all the processes i call them back to basic in the meaning demonstration training support and so on and the results are coming we started from the largest region that is Texas. And the results are very good because we collected orders for the combi oven that you know is being one of the most profitable line that we have. million dollar for the coming two quarters so very very good result that are giving confidence that finally the situation should turn into a positive for us food and beverage too If we move to the other segment, here the picture is quite different. I believe that in the laundry we are confirming our strong position in the market, our leading position in the market with a strong growth of the sales but also a strong organic growth. I would say that the market is not growing so much. You know that this is an industry where it's tough to have a hard number. We have them for US and Japan, typically these two markets, but not for the overall market. Nevertheless, for the information that we are able to collect from what has been in the past year, the market is not growing so much. Clearly our position is becoming even stronger and it is across the different regions, across the different markets. Also in this case, Asia-Pac, Middle East and Africa is the one suffering, so reflecting the same picture that we had for food and beverage and is mainly due to the situation in the Middle East. A couple of words about the profitability because I believe it has to be mentioned, this one. was slightly creative at group level. It has to be said that because in Q2 it was dilutive. So it is slightly creative. It is good despite the market conditions that are not so good. But thanks to the fact that in the two categories where we play laundry and vacuum, we are market leader. We have been able to hold the market share. And as a consequence, we have been able also to take action defend the profitability so slightly a creative group level but for the laundry business TOSE is dilutive so if i don't look the organic let me say profitability of our laundry business is one point more and again you know that we said it also when we acquired TOSE that TOSE would have been dilutive to laundry before synergies so we are still expecting synergies to kick in we started we started replacing the external supplier for the combo machine but that is just the first step of a long line of process that in some way will find the peak between the first and the second quarter of next year when all this project we should turn into actions and then starting to deliver the synergy. One point more, basically, in terms of organic. And when I mentioned at the beginning that our quarter was affected negatively by currency, I was mainly referring to laundry. Because in the case of laundry, the currency impact is a couple of points. So this means that the quarter of laundry would have been around 20%. So very, very good. In addition to that, laundry is giving us confidence that we will be able to continue to perform pretty well also the coming quarter because the order intakes continue to be strong. With this said, I believe I'll let you comment in detail the financial, Fabio.

Thank you, Alberto, and good morning to everybody. As Alberto anticipated, quarter three was another step toward our margin expansion. As you see, EBITDA moved from 10.5% of last year to 11.5% of this year, up in absolute value by 12%. Acquisition and integration cost for the advanced industry but the result for roughly 3 million SEC. When we look at the accumulated performance, meaning moving from the quarter to measure the performance of the three quarters together, EBITDA margin is currently 11.5%, up roughly 5% in value compared to the same period of last year. if we somehow for we do the exercise to exclude the acquisition cost and the integration cost that the burden the result of this year for roughly 50 million sec to be noted that the underlying business performance this year is already at 12 percent so let me say a remarkable step forward in the quarter We improve margin thanks to pricing, more than compensating inflationary items like the labor cost. We continue to enjoy lower material cost. And as Alberto just mentioned, we have a remarkable sales increase of the high margin laundry business that grew organically over 5%, generating more than 20% EBITDA value. and definitely also a very good performance of food and beverage in Europe. Currency negative affected the quarter. This quarter together was negative impact both in terms of translation and transaction. Currently translation reduced top line roughly a couple of points and somehow in the same order of magnitude for what concerns the EBITDA. but, let me say, with a neutral effect in terms of margin. Currency transactions instead had a minimal effect on the top line, but a significant burden on the bottom line, the EBITDA, with roughly 30 million second negative impact in the quarter, mainly in laundry. And this is specifically due to the, I would say, swift strengthening of the Thai Baht, that is our sourcing currency, versus Euro, US Dollar and SEC, combined with the continuing weakening of US Dollar, in particular versus SEC. As in the past, we are not still facing this situation, but we have already taken proactive action on price to compensate the weaknesses in particular of the Thai baht. Alberto mentioned that the acquired companies overall in the quarter had a reasonable good improvement in terms of margin. They are creative on a group perspective. And even if they were not part of the group, besides the softer development of the market, they were expanding the margin compared to the same period last year. Moving into the other part of the balance sheet, the final net was 29 million SEC lower than last year, despite roughly 1 billion SEC more in terms of borrowing. Borrowing that we have enlarged to support the acquisition of Tosei and Adventis. This, I would say, remarkable result has been achieved thanks to a well-structured funding structure. For example, in the quarter we have closed fully the bridge facility that we were activating for the acquisition today and replaced it with a medium-term loan. Currently, a large portion of the debt is in yen-based, let me say, currency, and also we enjoy the reduction of the interest cost in the market. Tax rate for the quarter was approximately 22%. It's somehow, let me say, a down weight in this quarter, but overall I give you a guidance that on a full year base, the expected guidance of 25-26% is still valid also going forward. EPS was 0.66 sec per share, up roughly 18% compared to the same period last year. As you see in the graph, we continue to deliver good cash flow performance. In the quarter, we delivered over 440 million, confirming somehow the consistent cash generation quarter on quarter that this group is able to provide. A note on CAPEX. Here you see in the quarter, CAPEX was somehow relatively low. lower than the same quarter of last year but somehow I want to give some sort of guidance going forward because of significant investment in particular on the product that we are doing both in laundry and in food and beverage we should expect somehow an increase of capex on sales compared to the historical average. In terms of asset management, we continue to improve. Operating working capital on sales was reduced to 16.8%. And you see, we are continuing to trend in the right direction. And with, let me say, the major improvement coming from the inventory that, as you know, was the area where we suffered the most, in particular during 2022 and 2023. Our financial position after the acquisition of Tosein Adventis remains strong and you see that we are continuing to improve also in terms of balance sheet solidity with the ratio net debt on EBITDA down. at 1.7 times so i would say that overall we are closing a quarter as about anticipated with all the financial kpi moving in the right direction a pretty solid balance sheet meaning with the right condition to deliver continue to deliver both in quarter four and in coming year and with that back to you alberto thank you fabio and uh

Fabio was mentioning about the investment. He was specifically referring to the CAPEX. I would extend this one also to the overall cost. If you look at our profit and loss, you will see that we have an increase of the operating cost. But the by far majority of this increase is due to the investment we are doing in R&D, in research and development and innovation. We said more than once that we are investing well above the average of the industry in R&D. Roughly 4% of our net sales are reinvested in research and development. And we do this because we want to continue bringing to market products that are innovative that they bring new features to the market in particular for what concerns the sustainability and i'm really proud to introduce the product that we launched in september and that we started in produce last week exactly last week we started up with low volume to ramp up gradually and it is the first product of a family of dishwashers. These are the high volume dishwashers, similar size to the ones that you have at home, if you want to say with a small difference that in one minute you have your dishes done, compared to the typical couple of hours that it takes a domestic dishwasher. But we do this with the first in the market machine, that is totally digital. Also from the picture you clearly see that there is no control panel. The control panel is on your mobile phone. So all the electronics is moved to the web and to the mobile phone that everybody has in his hands. electronics, obviously the control of the electronics, the user interface. And this is important because Gradle is giving us the possibility to develop a lot of services to our customers. Not only the possibility to remotely monitor the machine, operate the machine, change the program machine, but also this can be done both by the users and the service technicians. But not only. This is the first machine that we developed thinking about the aftermarket business, so the consumable in particular, because we are going to create the automatic reordering of detergent that is used by the machine through the app. This is additional business that we, in this case for the first time, introduce in the business plan to develop this product. So, totally digital. thinking about the aftermarket and last but not least this is the by far best machine for what sustainability is concerned in the market reducing the water consumption the energy consumption the detergent consumption and there's a consequence helping us to achieve our ambitious target to reduce the CO2 emissions also for the scope 3 that is the most challenging one but also the most impactful one because it relates to the product or the usage of our product done in the market so very proud very happy for that and with this said I believe we are at the end so back again to summarize a quarter a quarter where net sales improved both total net sales and organic net sales despite headwinds than in some markets, in particular Middle East, soft Japan, still uncertain United States. EBITDA, EBITDA margin improved. In this case, despite a pretty significant currency headwind, And despite the fact that the U.S. market that we all know being the most profitable market where we can grow the dividend margin and also Middle East that for us is a profitable market have not been performing as they're supposed to be. continue to generate a strong cash flow this is giving us to be strong financially but also to be strong in term of ability to reinvest and develop new product we improve the operating working capital finally i would say on this matter the order intake is still supporting our development not only in the quarter but i can also anticipate that the current trading is still in line with this with this message so the order intake in october is still supporting us in the development and and this means as a conclusion that despite the situation that we see in middle east in particular that it is clearly out of totally out of our control laundry is performing well It is performing well and is going to perform well. In food and beverage, in particular in Europe, we have a solid business, a solid and profitable business. And the recovery in the U.S. is clear. giving us hope that also in that market, that is very important in particular for the profitability, we are going to improve our performance. So the combination of all these things making us cautiously optimistic about the quarter to come. And now back to you, Jakob.

Thank you, Alberto. Thank you, Fabio. And with that, we open up for questions. Operator, please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 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. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone with a question may press star and 1 at this time. The first question comes from Gustav Hageus from SEB. Please go ahead.

Thank you, operator, and thanks for taking my question. I was going to ask you about the numbers so that I didn't get it wrong. Did you say, Alberto, that 50% of your U.S. sales in U.S. food and beverage sales related to chains and that those were growing? Was it 5% in the quarter? Can you repeat that? That would be helpful, thanks.

Everything is right, other than in the quarter. They are here today 5%, so there's been a recovery from being down at the beginning and coming up during the last month. So other than that, everything is okay.

And what about Q3? Could you help us figure out what that would mean for Q3, roughly?

We have... It is positive. Let's say that it is positive also in Q3. We are down the Q1 recovering Q2 and positive in Q3. So it is a constant improvement of the sales, in particular to the chains. They are showing a recovery much faster than the general market, what we call institutional market.

And if you look at the order intake that you have been referencing being in growth now for quite a few quarters in a row, what is it What's the split there in terms of change versus institution in that mix? And does that differ from how we've seen it in the past?

Look, for the order intake, I don't have exactly this one. I tell you something, that the beverage that is not the largest part, obviously, of the food and beverage business, but the beverage order intake is extremely strong in the United States, and 100% of the beverage is chains. So I'm expecting that chains will contribute positively also in Q4.

Perfect. And then given that interest rates now finally seem to be coming down a bit, do you have a view of the amount of sales from your end that is connected to some type of financing, debt financing in the other end as you sell them to franchisees and what have you?

Look, and again, but please take it really as a high-level view of the things. The interest rate is super important for the laundry coin business because these are investments. The opening of new shops because the replacement is replacement. You need to replace the product and that's it. the big thing is about the new investments. And when you talk about chains, when you talk about a laundry coin shop, in particular in the United States, this is influenced by the interest rate. So the interest rate is coming down and you see that both in laundry and in the chains, we are improving our performances.

That's great. I appreciate those answers. Thanks. Welcome.

I have several, sorry operator, I have several questions from the web, both from Henrik Kristiansson at Carnegie and from Stefan Schjernholm at Nordea, and they are all related to FX. So, some of the questions you already answered, I think Fabio, what was driving FX, you know, Thai button, US dollar, SEC, But the other questions are related to when do you expect the price action taken on Thai bat to come through and neutralize the negative effects impacting laundry? And also, are we thinking of any hedges to mitigate those impacts? So there are two questions.

Okay, let me take one by one. So, first of all, the sweep of the Thai baht has been, let me say, pretty strong in quarter three. So it has been a pretty swift move, and this is also the reason why we had the major impact, I would say, from currency in quarter three. Action on price are already in progress and we expect to start to have a mitigation effect somehow in the beginning of next year. When it comes to what concerns the hedging, for what concerns also our company policy, we are not active hedging future flows. We are not going to speculate around the currency development. At the same time, we have taken instead proactive action to hedge on the balance sheet items receivable and payable in order, let me say, to reduce short-term volatility and give us more time to secure the positive impact on price increase and heating the P&L.

Thank you. Please, operator, go ahead.

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Okay, with that, I think everything has been clarified, I hope. And I would like to say thank you for listening in and speak to you next time. Thank you and goodbye.