Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Group Q4 and full year result presentation. My name is Jakob Rybak. I'm heading up investor relations and communications. And as always with me, I have Alberto Zanatta, our CEO, and Fabio Sarpellon, our CFO. We start immediately and I hand over to you, Alberto.

Thank you, Jakob. Good morning to everybody. As it is in the highlight, we close the quarter with an additional improvement of our financial KPIs. And being the last quarter of the year also, we confirm the growth all along 2024. The highlights of the quarter. The highlights are that we grew sales overall but we increased also organically. The organic growth is coming from laundry that has been well performing all along the year. And that is the other good highlight of the quarter from US food and beverage. We will come back to the subject but during the past quarter we reported a continuous improvement, a sequential improvement of the performance of our operation food and beverage in the US. And we were predicting the change of the trend in Q4 and that is exactly what happened. In addition to the organic growth, we had also a margin improvement, a substantial margin improvement of close to 2 percentage points. And this one is coming from the good performance in laundry, the one in food and beverage in the United States, but I have to mention also the strong performance in terms of margin development that we had in food in Europe. So in food Europe we didn't grow organically, but we improved significantly the margin. The improvement of the margin is coming, and we will come back in detail about that, but it's coming from price, in general the efficiency in the operation and the reduction of the material cost from the volume growth in London and Food America. The other financials to be highlighted are the cash flow that has been strong during the quarter despite the increasing investments in CAPEX that we are doing to prepare for the launch of the product that will happen at the end of this year, beginning of the following one. This is important because as I said all the financial QPI have been improving in Q4 and along 2024 and this is despite the investment we are making both in terms of tools numbers to prepare for the new products but also the increasing R&D investments. In the quarter we have been around 5% of R&D cost versus on net sales. Last remark is about the order intake. Order intake was positive in both segments. if we go to the development of the sales also this picture is good to be compared to the ones that we had in the previous quarter so you see that laundry is positive all across the geographies very strong in north america in north america it has to be remarked the market is good for laundry at least, but I would say that our performance is clearly above the market trend. These are the sales that we are making to our partner, I would call partner more than distributor, the ones that we are working with in North America, but we know that also the external sales, the ones in the market are very strong and are giving us the possibility to gain market share. In food and beverage, we mentioned already the growth in North America. You see that also the one in Asia-Pac, Middle East and Africa is slightly negative. That is a positive signal. Still the negative contribution is coming from Middle East and Africa. Food and beverage is negative in Europe, still positive in the Mediterranean area, while negative in central North Europe related to the market conditions also that are more challenging or at least soft in that part of the continent. and you have to take account that inside of that one there is also the volume phase out of a line that helps us partially to improve the margin but has this effect on the business. Now, if we go into the detail of the food and beverage, food and beverage, we grew the business, but the growth is coming from the acquired businesses because organically we reported a decline. And the main decline is what I mentioned was mainly in Europe. What has to be noticed is that despite of the organic decline, we've been improving the margin. We've been improving the margin, in particular in Europe, the margin has been pretty strong. And this is coming from the continuous improvement that we are doing in the operations in this part of the organization. The challenging areas or the challenging markets are still the same and they are the central Nordic part of Europe and the Middle East and Africa, particularly the Middle East I would say. What is good to see is that even if uncertainty is still there, we see that the order intake is higher than a year ago. We have a particular comment about North America. We have been talking about the development of the business in the food and beverage business in North America and the sequential improvement is confirmed. It is mainly supported by a pretty good growth of chains still in a market that is softer. You know that North America is one of the few markets, Japan is the other one, but for sure not America, is one of the few markets where there are official statistics and that are not showing a market growing 2024, but they are predicting a growing 2025. So with this recovering of the situation, with this recovering also of our presence in North America that is becoming clearly stronger, not only the chains that have been growing healthily all along 2024 but also the institutional business that on the opposite have been declining during the past quarter but is showing sign of recovery, we believe that at least the situation that we've been experiencing at the end of 2023 and beginning of 2024 is in some way progressing towards a more positive situation. One word more about North America and also to preempt the possible question if you have clearly I'm here to answer about that I'm sure that everybody is talking about tariff or better what's possible impact of the tariff that the new administration is supposed to impose for the goods coming from outside North America, what's the possible impact on our business? The easy answer is that we don't know, in the meaning that we don't know yet which kind of tariff, which is the level of tariff that will be imposed and on the goods coming from which What we can say is that, at least listening to the first information that are mentioning tariff on product or components coming from Canada, Mexico and China, I would say that if this is confirmed, the impact on our business, overall business, would be not really material. We have to say that compared to eight years ago when a similar administration took over in the United States and they were claiming similar actions on the goods imported into the country, Now we have two manufacturing facilities. So yes, we are importing components from the three mentioned countries, but that is exactly the same situation of all the manufacturers that are operating in the United States. But at the same time, we have the possibility to assembly or five or performing final assembly of some products in the united states partially we are already doing on beverage products that are coming from thailand so we are in a situation that is putting us in a much better condition compared to eight years ago and and that is what we can say about the the subject of the tariff So if now move to laundry, again, another strong quarter for laundry. So when we were talking about the market development, all the geography developed very positively. In particular, Americas was very strong. Indeed, during Q4, even to say, had a good growth. TOSEI was a positive contribution to the result of the group of the overall group being a creative for the segment food and beverage in the case of laundry because of the very high profitability of the, let me say, organic business, clearly TOSE in this moment is still slightly below, but the contribution is coming. This year, 2025, will be the year of TOSE, in the meaning that... and now I'm not talking about only laundry but the coming week in Japan there is the large exhibition for food and beverage and during this exhibition we will start presenting all the products, Electrolux professional products that will be channeled through the TOSEI network in the food and beverage business in Japan. during the second quarter there will be a lot of activities to create value the famous integration of the laundry operation so important year where we should see we should start creating value delivery value from the acquisition that we completed in january 2024 margin improve again organically and not organically and the improvement of the margin is coming from price volume material all the elements that we can manage and control in the business good things as well as for food and beverage the order intake is still higher than the one we had at the end of 2023 With this said, I believe Fabio we can have a deep dive on the financials.

Thank you, Alberto, and good morning to everybody. As Alberto anticipated, Q4 was another step toward our margin expansion. EBITDA moved from 10% last year to 12%, up approximately 100 million SEC in value. So not only margin, but also important step forward in value. When we look at our cumulative performance for the full year, EBITDA margin increased from 11% in 2023 to 11.6%. But if we exclude the one-time cost related to the acquisition, the step-up cost, that are roughly 50 million second value, the underlying EBITDA margin performance of 2024 is already at 12%. As Alberto anticipated, in the quarter the improved EBITDA margin came from pricing across the two segments, both in food and beverage and in laundry. more than compensating for both the inflationary items, like, for example, the labor cost. We enjoy in both segments a reduced material cost. And in the, let me say, segment mix, remarkable was the increase of the laundry business, very profitable, who grew close to 12%, generating roughly plus of 45% in terms of EBITDA value. Despite the organic decline, and as Alberto mentioned, they are linked to specific geography, Central and North Europe, Middle East and Africa, also food and beverage strengthened the margin in the quarter. Thanks to remarkable recovery in food and beverage in the US, that was a creative also for the food segment margin, pricing and better product mix. And here let me say the phase out of the low margin product definitely is starting to step up and contributing positively to the margin expansion on top of the volumes expansion. When it comes to currency, both translation and transaction, they did not materially affect our performance in the quarter. Acquired companies overall contributed positively, with somehow a profitability altogether that was accretive at the group level. When we move to the other part of the P&L, finance net was 31.2 million in the quarter, higher in value than quarter for last year, because we have added additional borrowing required from the acquisition of Tosei and advantages. However, to be noted that the relative borrowing cost in percentage of the value decrease thanks to lower interest rate but also I would say a well-balanced funding structure. Tax rate for the quarter was higher than average, roughly 30% on income pre-taxes due to one-off tax costs. To give a sort of guidance going forward, we expect the tax rate to stabilize roughly around 26% on sales. APS overall thanks to the improvement in the EBITDA value increased to 0.75 sec per share, up 27% compared to last year. Cash flow, as Alberto anticipated, strong delivery in terms of operating cash flow, over 500 million SEC, showing, and you see in the graph, not only the high value in the quarter, but the consistent delivery of cash flow across the quarters. On a full year base, we deliver over 1.5 billion SEC in cash. That is the historical higher level of cash generation in this group, despite the increased investment in capital expenditure to support the innovation projects, product innovation projects, both in food and in beverage. To give you some guidance going forward, CAPEX will remain higher than the historical average in the incoming quarters, but at the same time I do not expect it will materially affect the cash generation power of this group. When it comes to asset efficiency, rolling 12 months operating working capital on sales has been reduced to 16.4%, roughly close to two points lower than December last year where we were north of 11%. The positive trend and the positive improvement came from a remarkable improvement in the inventory while with the stabilization of the supply chains we continue to drive improvement of the inventory turnover. When it comes to our financial position, as you see from the data and about anticipated, it remains strong with a ratio net debt on EBITDA at 1.4 times, driven by an EBITDA increase and combined with, let me say, a reduction of borrowing. In terms of overall summary, clearly we are entering 2025 with a pretty solid balance sheet, a consistent cash generation, a diversified funding structure, meaning with really the means to support the profitable growth of this group. Not only I would like also to bring to you to our attention also from let me say the fact that we are more and more well balanced from a geographical and business perspective. Europe today overall is below 60% of sales. America has reached 25% and Asia Park is at 17%. So more and more also from a geographical perspective we are well balanced towards also the attractive geography. And last but not least, the high margin laundry business reached 40% of sales. So I would say also from a market and product segment position perspective we are more and more well balanced to enjoy future development of this group and with that back to you alberto thank you fabio and

As you heard, the financial KPI has been improved and it is something that obviously we are happy about that. But what makes us very proud as an organization is that Is that something that is going beyond just the financial number? It's the fact that we are considered one of the best companies in the world for what consider the revenue growth, the financial stability and the environmental impact. So we have been listed among the 500 best companies in sustainable growth by the time. And it is an important thing, in my opinion, because we've been always talking about our leadership in sustainability and our ability to reduce the CO2 emissions. being a company that is very inclusive caring about the employee and the society where we are located but to be recognized as among the best in the combination of all these things so the real meaning of being sustainable I think is something that makes all of us very proud to be in a letterless professional So coming to the conclusion and the summary, a few bullet points to summarize the quarter. So a quarter where we deliver organic sales, we deliver close to 12% growth together with the acquired company, the two companies that we acquired along the year, but we also improve organically. we improved the margin close to two percentage points driven by the strong result of laundry and the positive one in food and beverage in the United States and in Europe that even if we did not develop organically we improved significantly the margin. Another quarter with a strong cash generation that is giving us the possibility to continue to invest to develop the new product, both in terms of CAPEX obviously, but also supporting the roughly 5% R&D spending to develop this new product. We improved the operating working capital making the best use of the assets that are made available to this organization. We closed the year collecting more orders than what we did a year ago and this happened on both segments in food and beverage in North America and in Laundrie. And again in the Q4 we finally came to positive also in the food and beverage business in North America completely in some way the sequential improvement that started a year ago. If I combine the market conditions that we see more positive than what they were a year ago in North America and also in Japan, still the uncertainty is there for the Central North European markets and Middle East. But if we combine all these things with increasing order intake, we are looking at the Q1 2025 or the full 2025 as a year where possibly we will continue our sequential improvement. Considering that Q4 is the last quarter of the year, a few comments also about the full year. I'm saying in some way repeating the same messages delivered for the quarter because we closed the full year with growth. Organically, we were flattish and this mainly related to the regions that I mentioned earlier and in general North America that was affected. clearly in a negative trend for the first part of the year. We closed the year with two acquisitions. You know that the inorganic growth was and is still one reason why we are here. We have our meaning to be an independent company with the ability to combine the organic with the inorganic growth and the acquisition have been strategically important because the one in japan gave us the access to the second slash third largest market in the world balancing as fabio said our presence in the asian continent towards the European and the America. The second one, even if tiny in term of volume, is strategically important because it's giving us access to a technology, a very important technology that we regard as the technology of the future cooking. Remember that cooking is the most profitable category that we have in our food and beverage segment. We improved the EBITDA, we improved it even more reaching the 12% if we exclude the acquisition and integration cost. So there is also in this case a sequential improvement. We have been delivering this result continuing to deliver cash flow that is again important to support our investments, improving the operating working capital, reinforcing our sustainability leadership with an additional reduction, a further reduction of the CO2 emission. And we continue, by the way, to reward the shareholders with an increase of dividend per share. So graphically I would in some way remind the steps, the sequential steps that we have been taking since we listed, since we started our our journey in the middle of the COVID. Yes, we have always to remember that 2020 was in some way a depressed year. That is the reason why we are still keeping at least as a reference the 2019 that was the pre-COVID year when we were a division, not an independent company. but you see that the sequential improvement is showing a growth of the sales close to 75% development of the top line 221% development of the earnings and the cash flow that is 172% higher than what it was since the first year of listing again another step towards our financial target, another step to confirm our leadership in sustainability, another improvement in our journey. With this said, back to you, Jakob.

Thank you, Alberto. And with that, we open up 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 1 on their 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 the question. Anyone who has a question may press Star and 1 at this time. The first question comes from the line of Gustav Egus from SEB. Please go ahead.

Thanks, operator, and thanks. Good morning, guys. Thanks for taking my questions. May I start with the food and beverage in the US, which was a bit of a relief, I guess, for everyone. You've now started to grow again there organically. Could you remind us a bit about the visibility you have now into 2025 and your confidence level that this is a bit of a change that will also trend into 2025? What's your visibility on that in terms of positive growth?

Good morning, Gustav. So the organic intake is higher than a year ago and the pipeline of chains is still strong i think i've been mentioning this for quite a while during the past quarters that even if the sales were declining the the pipeline of chains testing the product was good you saw that in particular during the past quarters many of these tests turn out to be to become business i would say that it's still a very strong pipeline of business with the chains and the order intake so this means in this case a test that been turning into order is good and it is higher than a year ago so that at least this is the visibility we have for the business in north america

And if we turn to Mia, you referenced that the Middle East is obviously strong. I think everyone can recognize the drivers of that. But the two other factors that you list out here, the northern central part of Europe being a bit weaker and the facing out of the semi-professional refrigerators for food and bed, could you give us some sense of how you think that will develop into 2025 for Mia?

So the semi-professional range of refrigerator as well as the drip coffee for coffee because these are the two lines that we've been phasing out now is over. The comparison I would say is irrelevant or not material in 2025. So the situation should be clean from that point of view. For what the market is concerned it has been all along the year the fact that Central and Nordic countries, they were developing weaker than the southern one. The market is soft in that part of the world, in that part of Europe, I'm sorry. So for what we see, there has not been changes at least at the beginning of the year. We see in any case that the Mediterranean area probably driven by the by the tourism so in those countries we are more towards the commercial restoration while in the nordic we are more towards institution is a is a characteristic of the market i would say they are still still pretty good For what concerns Middle East and Africa, in the text we have been mentioning mainly Middle East. So we see things moving in Africa. So again, that is a project business region. where we play a significant role. And we also see some things moving in Saudi Arabia, that is the new big, big market in the Middle East. So it's still very uncertain. In this case, clearly we all, as citizens of this world, we hope for a better situation in that region. They've been a good signal, but I still believe that the uncertainty remains pretty high in the Middle East. So let's see what is coming.

And on laundry then, congrats on a very solid set of numbers in Q4. I was a bit surprised about the extremely strong growth that you mentioned for US laundry. Was it up 35% versus a comp that was down six? Are there any effects of pre-buys or stock building effects or worries about tariffs or anything like that? Can you explain what the strong growth stems from there?

We have to remember that in North America we are operating with a company that has been partnering with us for over 60 years. That is the reason why we call it a partner more than anything else. and obviously the sales that you see are the sales to this company we are in close contact with this company because again is more a partner in relation than anything else and in this moment there is not a pre-buy for In order to mitigate the impact of tariffs, not at all. So we are working with them, together with them, or in particular in our case, we are planning all the possible actions that we could take in case of tariffs. tariffing pause on products that are coming from Europe and Thailand because laundry is Europe and Thailand these are the two sources of product that are going to into the United States for the time being we don't know if there will be an impact or not and that is the reason why we are always but these are good things to be done for every company we are We are having plans in the drawers that we are discussing also in close contact with our partners. But for the time being, we have not been taking actions in any case in the United States.

No, but I appreciate that. But the 35% organic growth for laundry in the States, surely there cannot be a run rate.

No, it cannot be around rate, even if I tell you that we are gaining market share in North America, it is the fluctuation of the stock that we are having in North America. This happens due to the fact that we have a large business with this partner in North America, it is enough the timing of the shipment of containers that have been beginning of the quarter end of the quarter that can screwing a little bit the comparison you should have look at this one always in a multi-quarter multi-quarter perspective so so this is absolutely okay but we know and through our partner that also the sellout has been so strong

but don't use that okay three percent as a the run rate that we are having in the coming quarter we would love but but is there sorry to dwell on this but uh as a multi-quarter i appreciate that but into q1 then should it be a reversal given the very high growth in q4 or is this uh

No, but the business is growing. Okay, the business is growing. Now, I don't have it in front of me, the Q1 results, but I'm not expecting a sharp drop of the sales. Eventually, we should be on the same level, slightly higher, but I'm not expecting a minus 33% if this is what you are asking or you're looking for, not at all.

Okay, great. Appreciate those answers. Thanks.

Welcome.

The next question comes from from DNB. Please go ahead.

Hi, good morning. Actually, all my questions were answered here previously, so I withdraw my questions. So thank you for giving very good answers.

OK, thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. And the next question comes from Erik Siderberg from Handelsbanken. Please go ahead.

Yes, good morning. And this is sort of a follow-up from Gustav's question. So regarding the development and the market conditions in Europe, can you elaborate on the dynamic where laundry showed such a Good organic growth, but food and beverage is down.

Yes, and it is the difference in the market in the meaning that 50% of our laundry sales are consumer operated machine or even slightly more than that. So while the other 50% is going to what we call OPL, so on-premises laundry that are the hotels, eventually the small restaurants, the ones that are washing and treating the linen towels in-house instead of outsourcing the business. A slight percentage is going even to the industrial, but you know that industrial for us is a tiny, tiny business. And the third segment or macro segment is the healthcare, the hospitals. So these segments are different. In food and beverage we are more exposed or clearly the majority of our business is in the commercial restaurants that is very good in the South Europe driven by the tourism. All the South European countries have been having very good tourist flow. If I think of a country like Greece, Italy, Turkey, France, Spain, Portugal, they all reported a pretty strong summer for what tourism is concerned. The big cities are the same. To our understanding also another big season that is the winter season with the Christmas days has been pretty strong. So the tourism is still a good engine, a good element to develop the business in that area. but is more critical in the regions where clearly there is less tourism than the ones along the coast of the Mediterranean seas. That is the dynamic that we see. Combined with the specific situations, the one in Central Europe is a specific situation that is clearly creating some problem also to the institutional business. So there are, let me say, uh customer segment dynamics that are pretty different from laundry and and food and beverage putting this phase out of low margin products in europe is this something that has occurred only for q4 or no no throughout the year and it was all along there so what

All right, and the strategy going forward, should we expect this to continue?

not for these two categories, so the drip coffee and the semi-professional refrigeration, but we are constantly looking at improving our product portfolio. It is a normal work that we have been doing and we will continue to do to make sure that we are focusing our marketing and sales efforts on the high margin product. This can be done when we are launching new lines. In Q3 we have been launching and in Q4 we started the production of the new undercounter dishwasher. Also that one is a completely new line and we will complete this next year, beginning of next year. We will complete this launch and we will have also in this case a new product that by the way is focusing our efforts in a more limited range of products, eliminating additional low-margin ones. So it is a continuous job that we have to perform within our business area to focus our resources to develop high-margin products, products that are driving customer care, products that are enhancing the digital capability, but at the same time products that are replacing ones with lower margins.

All right, perfect. And then just the final one, if I may. So, Fabio, you mentioned that we should expect higher CapEx going forward. Can you explain why that is? And also, is it possible to divide how much of this is growth investments?

Okay, so if we look at the historical level of CapEx of this group, it was, let me say, between 1.5% to 2%. Somehow, in the last quarter of last year, we reached 5%. That I would consider somehow a peak for the single quarters. But in terms of financial guidance, we should expect the capex to be, let me say, around 3% overall for the incoming quarters. Then we may have a peak and valley that will happen. This CAPEX is mainly related to product development, meaning we have in the pipeline important initiatives both in laundry and in food and beverage to bring to market innovative products. And this CAPEX is related to the product development itself as well as the preparation of our operations in order to allow the introduction of this product in the market. This is important to underline because when we look at our performance in terms of EBITDA improvement, in terms of cash generation reduction on debt, This is not done, let me say, squeezing the lemon, but is done whilst continue to create the conditions and product development is one example to create a sustainable, profitable growth going forward.

All right, perfect. Thank you very much. Those were all my questions.

The next question comes from Henrik Kristiansson from Carnegie. Please go ahead.

Thank you. Good morning, gentlemen. Question on the margin and the progress for 2025, if we ignore the volume component. You talk about material costs coming down and helping profitability here in this quarter. Is there more tailwind to go into 2025? And then also, what do you expect on price for 2025?

We expect that there has been a price increase already announced at the end of last year, but it's not on the same range of what it was in 2024. That was already lower than the one in 2023. So we are increasing price to compensate the inflation, in particular labor inflation items. For what material is concerned, I think We believe that we can have a positive impact from material also in 2025. It is still an area with a strong negotiation. I mean, probably the uncertain geopolitical situation is influencing this one. So we try to take advantage as much as possible of these things. But most probably there will be also in 2025 a limited positive contribution from material. We will clearly stretch as much as we can this possibility, but that is the point. So yes, price increase to compensate the labor inflation and some positive contribution from material.

We have a question from the web from Stefan Scharnholm at Nordea who asks about how do you see R&D costs in 2025 versus 2024, up or down as measured as percent of sales, R&D costs?

We see the R&D cost remaining stable in absolute value compared to what we have been reaching in 2024 is a peak value so we believe we will have stable value of our NND investment. You have also to consider that we are also utilizing what we call global engineering center, so common facility on that matter. But we are in a peak, we are working hardly to bring to market innovative solutions. We know that these are high investments, but we are also convinced that we will have the payback of bringing this new product to market that can make a difference. The example was the undercounter that I was talking about the previous quarter. It is a clear example of the kind of product we bring to the market.

Thank you. I don't know, operator, if we have any more questions. Is that the hug? Operator, do we have any more questions? Okay, thank you everyone. With this small technical error at the end, we would like to thank you for today and wish you a good weekend. Speak to you next time. Thank you and goodbye.