Electrolux Professional AB (publ)

Good morning and welcome to Electrax Professional Group, the result presentation of the third quarter of this year. My name is Jakob Ruba. I'm heading up Investor Relations. With me, as always, I have Fabio Saperland, the CFO, and Alberto Zanatta, CEO. And as always, also Alberto starts. Please go ahead, Alberto.

Thank you, Jakob. Morning to everybody. I would describe the third quarter of 2025 as a good quarter considering the contest. The contest is a contest where the market conditions are still not stabilised. There is still the uncertainty, in particular in the United States, and in particular after the tariff announcement in July. The market in the United States has... full of uncertainty and the decision, in particular, if we talk about chains rollout, a big project has been put on hold or postponed. It is an environment that is clearly marked by tariffs and currency that have been negatively impacting our business. Despite all these things, and that is the reason why I consider it a positive quarter, We perform delivering organic growth, delivering improved margin, delivering improved EBITDA. Currency impacted for 0.5 percentage point, so quite significant in the quarter. It is a quarter where we deliver solid cash flow, operating cash flow. Also in this case, continuing to invest. I mentioned more than once, perform while transforming. And these are the quarters where this company is going through a big transformation in terms of new product that we will finally start to bring to market from January 2026. But it's a transformation that is not only considering the investments and the new product, but it's considering also the organization. Beginning of the year, beginning of September, we launched a program that has the objective to streamline the operation, reducing the operating cost. but also has the objective to change the skills of the company. We launched this program that has an impact of roughly 85 million in terms of cost reduction already next year. It's a program that is impacting a quite significant number of employees, 350 employees. even if the net, as you can see, is not the total number of affected employees. And why is that? Because an objective of the program is also to transform our organization. Next year, we want to move on more resources after having invested so much in R&D, in developing product, in investing in the automatization of our factory, in the digitalization of our operation. Next year, we want also to invest to make use of these investments and to focus on the front end on the sales. The program, by the way, is progressing pretty well, is according to our expectations and we believe we will be able to deliver what we have been promising. If we move about the market, I think I already commented the US where you see that we are basically flat tissue on food and beverage with the food still growing, particularly the chains. Chain business is still growing and I believe it's a seven eight nine quarters in a row that we are growing chains they are not the big chains they are the mid small size chains they are not big rollouts but it is the replacement business new openings or as i said small chains but it's growing one comment is to laundry you see laundry here down But I'm repeating things that I said also in the past. Here you should read these numbers considering that in the US we have a large importer that is stocking the product and the fluctuation of the inventory and the shipment to this importer are clearly affecting the number that you see. The thing that I can say is that the external sales, because we have visibility on the external sales, of our distributor of our partner in the united states are healthy we have an order stock or our distributor has an order stock in the united states that is at the historical peak so there is good business and indeed the order intake during the month of october is basically on the double level of last year that was expected considering this number for q3 What is good and I'd like to underline is the trend in Europe. At the beginning of this year, we've been talking about Europe saying that we would have expected a slowdown after years of growth in particular in the South European markets in the Mediterranean region. Reality is that Europe is still holding very well. Both laundry and food are holding well. And we see also not only the Mediterranean region contributing, but also the Central and Nordic region doing positive. And I think this is important because despite the fact that we have a clearly global business, Europe still remains a very important part of our business with roughly 50% of the sales executed in this part of the world. A few words also about the two segments, food and beverage. So food and beverage delivered organic growth. Food and beverage delivered improved profitability and improved margin. Food and beverage is also partially affected by tariffs and currency, in particular for what the beverage business is concerned, that is produced in Thailand, most of the product in Thailand and Italy, and the main market is the United States. Nevertheless, despite these things, I repeat, organic growth improves earnings, EBITDA and improved margin. With Europe being the main market delivering the positive results, US food in particular, while we had a decline in Asia and Middle East and Africa, But these are regions with many projects and it is similar to the discussion we had even if not affecting the inventory but the fluctuation of the order that can change the number quite well. In that area we are sitting on a good order stock so we should be able to have the result done. Positive notice about this segment is that the order intake was positive for food and beverage. If we move to the laundry, That is the segment that is more impacted by tariffs and currency because a large portion of this laundry business is in the United States. Organic sales are unchanged. So we have basically a flat development with the order intake that was down, but Remember the comment I made earlier is mainly because of this fluctuation. We already see this in the month of October. We are close to the end of the month and the order intake is very good in laundry, in particular in the United States. Despite the significant impact close to one point of EBIT due to the currency, the margin in laundry in the quarter improved. EBITDA in absolute values was more or less flat, but the margin improved. And this is significant in relation to how healthy is the underlying business of this segment. With this said, I believe we can get a little bit more into the details, Fabio.

Thank you, Alberto, and good morning to everybody. As Alberto mentioned, in the quarter, we made an additional step in our profitable growth journey. Sales grew organically, we improved profitability before the provision for the structure and cost. Despite the headwinds we had to face, both from currency tariffs and, by the way, wise to continue to invest in product innovation and digitalization of our group. From a geographical perspective, we continue to have a pretty well balanced situation with the Americas contributing roughly 26% of the total sales, APAC 16% and now Europe below the 16%. When it looks to the margin development, in the quarter, we got a positive contribution from price, lower material costs, and the operational costs were more or less in line with last year, with a different mix, meaning we continue to increase the investment for innovation and digitalization of the group.

Thanks to this good price management,

say mainly US dollar and euro has reduced our let me say margin by 0.5 percentage point currency transaction that as we have reported previous quarter has not affected just this quarter but is somehow a negative contribution we face along this year and if I sum up the currency transaction effect on EBITDA In the year-to-date data, we are close to 60 million SEC, or 0.6 points in terms of margin. Few more words than on the program we have launched to streamline our operation and improve the profitability. Total cost, as you know, was 235 million SEC. We treat it as item affected comparability, partially booking gross margin, and this is the reason why you see a reported decline of gross margin and part in SG&A. The program is affecting both segments. Food and beverage represent roughly 70% of the cost and the remaining of laundry. So you see that it is more in line with the size of the two businesses. Execution started, is proceeding according to plan, and we expect to receive material saving out of it. Based on current sales development, already in 2026, about anticipated the 80 million, they are equivalent to 0.6 point in margin, and for 2027, where we are going to enjoy, I would say, the full contribution from the plan, we talk about 1.4 point of margin. So, execution according to plan, material contribution to our margin expansion. Few words then on the other component of our income. Finance net was 21 million SEC, significantly lower than last year, thanks to the fact that we continue to reduce our borrowing, thanks to the good cash generation. A peculiarity in the quarter, we have a positive contribution to income from tax. What happened? In the quarter the income before tax was pretty low due to the restructuring provision and we have some previous period adjustment that brought the overall tax. to positive. If we exclude this, let me say, one-off situation, then the underlying tax rate is in line with the guidance we gave in the past that is around 26%. EPS was pretty low in the quarter, 0.14 sec per share, and this is due to the restructuring provision. Without it, we are in line with the previous year earning per share. Our cash flow generation continues to be solid. Over 400 million was cash flow delivered in the quarter, somehow lower than last year due to lower contribution from working capital and higher capex. A few more words on CAPEX. We anticipated an increase of CAPEX. It is happening year to date. We are close to 2%. But I would say we will see more CAPEX in absolute term in percentage of sales coming in the coming quarters this year and next year due to the investment we are doing in product innovation. This said, it is something that we can manage and will not affect materially our capacity to generate cash quarter on quarter. A capacity that is supported by a positive development on operating working capital. We are definitely well below last year. We somehow temporarily stopped the decrease compared to June. This is a temporary effect due to some stock pile up due to production move, in particular in laundry. Last word, then our financial position that you see the graphs is strong and continue to be strong. So we continue to repay debt and our net debt to EBITDA is reduced now to 1.2 times. So solid group with solid performance and with ingredients to continue to profitable growth journey. And with that, back to you Alberto.

Thank you, Fabio. And as usual, some words about the quarter events. I'm very proud to report back or to inform you about the award, the Product Innovation Award that we won. It's not the first time, but this year is important because it is in the U.S. first, and secondly because we got this award thanks to the technology that we have been embedding in the Electrolux product, Electrolux professional product and presented in the US, but technology that we got from TOSEI. So from the Japanese company we acquired one and a half year ago, close to two years ago now. I think it is an example of how we have been able to leverage the acquisition. The Tozai business is not performing as we were expecting, in particular on the food area, I would say. And nevertheless, and it is not because of the performance of the company, it is because of the market conditions that have been deteriorated during the past 18 months. Nevertheless, we developed the laterless professional version of the combo machine. Combo machine is a peculiar technology where you combine in one machine the wash and drying cycle. You are probably used to have it at home in some situation. In the professional environment, it's only used in Japan because of the space constraint that you have there. And the big challenge is to have the two cycles combined. in a way that the time is not so long as you probably had experienced if you had been using this machine at home. The technology that we have in Japan is great. It works. And it was a great success also in the US because the reality space constraint you have also in country like US if you think about the big city. So we got the award as confirming our innovation. These are products that now we are marketing also outside the United States. In the synergy plan it was only supposed to replace the external supplier that we use in the In Japan, we did it. It's already done, this one. But now we are also marketing this product outside Japan. So great things. Even if it is not here, we are also using the technology of Adventis, the other company we acquired last year. We are embedding it in the cooking lines that we presented last week and we will start selling in January and we will talk about that next week during the Capital Market Day. With this said, If we have to summarize the quarter, as I said, I believe it's a quarter where we perform while transforming the organization. We perform because we improve our organic sales, growing organically. We improve the underlying profitability, the margin, and the EBITDA. It is another step. I consider this one an additional step in our journey towards the financial target that we have. It's mainly driven by the large businesses, so the food and beverage and laundry in Europe and the food in the United States. We ended the quarter with a positive order intake for food and beverage. I would consider positive also the laundry one if I look at the number month to day. So the order intake is still positive. It's still positive. despite the uncertainty that we have to recognize and acknowledge in the market. And exactly to face possible downturn, but not only for that, we launched the program that is in the execution phase to reduce our operating cost. And as I said, clearly it's giving us the possibility to be leaner, more flexible, agile, ready eventually for a situation that we don't see in front of us today, but we could and we should be prepared for. But it's also a program that is giving us the possibility to have a shift in competencies in our organization, to invest in resources that will make use of the product that we develop to further accelerate the growth of the sales. It is a quarter also where we have been working hard and we will talk more about that next week during the Capital Market Day, to prepare the launches of this product. We are in the middle of a peak of investment both in R&D and industrial investments, so tooling, factory lines. that obviously they have to bring the fruits, they have to generate something. And these are the products that we will start selling from January 1st, 2026. With this said, back to you, Jacob.

Thank you, Alberto. Thank you, Fabio. 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 one on their telephone. You will hear a tone to confirm that you have entered in the queue. If you wish to remove yourself from the question queue, you may press star and two. Questions on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of August Gustav from SEB. Please go ahead, sir.

Thank you. This is Gustav Haggis with SEB. Might I start with the comments on the R&D spend into the second half of next year? Could you remind us where you are at at the moment in terms of R&D to sales? And would you think this business commands, if not, where you've been historically in that relationship to get some sense of what the margin potential uplift could be here going into end of 26? Thanks.

Okay. Hi, Gustav. So the average R&D spending on net sales is 4.5. I mean average and underlining average because it is higher in particular for what the business area food and laundry are concerned. It is a peak as I said because we mentioned this more than once that we are renovating the complete platform of laundry and the platform of cooking in Europe. We expect that we will continue to spend this level slightly lower probably also during the first part of next year starting to bring it back to a We call it a normalized level that is still high for the average of the industry, but it's part of what we do always during the second part of the year and going on into 2027. What's the normalized level? It's roughly a point less than what I said.

Thanks, that's helpful. And if I can stay on that with the developments you're doing in the facilities and with the new product, Could you help us a bit understand, firstly, if there will be sort of the phasing of the new versus old products? Is there going to be a gap here of pre-buying, do you think, based from experience as you roll out the new platform? And secondly, in terms of margin and the mix from the new products versus the old, and if depreciations will be a factor here going in?

to as you roll these new products from the new facilities out to the new lineup that'd be helpful thanks okay so I I don't believe that there will be so much uh pre-buying of old product uh For several reasons. First, the first line coming to market is the cooking line that will come in Q1 next year, so from January on. And it is an important line because it's basically a third of the business in food Europe. It is the line with the highest margin. So we are relaunching it. and that we are expecting a push of sales, clearly, for the products that have the best margin in our European product portfolio. it is not only what we call horizontal cooking so the stoves but it is in addition to the stoves also a relaunch of the combi oven with new features and you know that the combi oven are high margin product and the table top cooking so it's all whatever is hot let me say in our portfolio so it's an important part and we We are expecting to have an impact all along the year. So to launch it in the beginning of the year is very, very important. And I repeat that these are the most profitable products in our European portfolio. They are a replacement. So they are going to replace the product that we today have in production. The launch that will happen during the second quarter, that is the first batch of laundry, is at 30% of the laundry sales, is also important. It's partially replacing something that we have in the portfolio today, but it's also giving us the possibility to be much more competitive, mainly in Europe again, with the small capacity washers. I don't have to say that laundry is high margin product category. The third The third line is the third product that we will bring during the summer is again in Europe and it is cooking. And this is a completely new product for new segments. So there are no replacement that will be only added the sales in an unsaturated segment of the market. But I think probably I'm talking too much about these things because there will be a lot to say next week during the capital market day.

Okay, but could you just remind us sort of what the delta will be from the potential gross margin uplift then from these products versus, I guess, more efficient productions with your new line versus higher depreciations from whatever you have invested in a new line? Is the delta positive as you see it on operating margins from this?

yes so this we expect this product to positive contribute to the margin expansion yes we are going to have additional depreciation due to the investment we are doing on this product at the same time this will be compensated by better other lower production cost in other items and better price and mix. So we expect a gross profit and margin expansion and EBITDA expansion all included.

Thanks, that's very clear. And if I can continue a little bit on an integrated with the cash flow, maybe you can help me sort out the discrepancy between the cash taxes and the Reported taxes, both quite big in the quarter and almost 300 million right in the year to date. It seems like you're paying more taxes than you account for. Will there be a reversal at some stage here, or is there anything...

Yes, this is mainly related to the provision for the restructuring. Somehow that has an impact on the tax and with no material yet on the cash flow. So temporarily we have been reducing the cash payment, but this one will come step by step. you should have a lower tax cash tax in q4 2006 or how do i read it no uh that all the rest equal the tax rate for a quarter for onwards is expected to be lined with the guidance i gave earlier of the 26 percent In the quarter, the tax rate was, let me say, even positive because, as I mentioned, due to the restructuring provision, the income before tax was pretty tiny. So we have a tax cost pretty small in the quarter and we have a couple of positive pre-usual period adjustments that brought the tax amount to a positive of roughly 25 million in the quarter. This was temporary related to the provision for restructuring this previous adjustment. The tax rate and tax impact going forward is confirmed in line with what I mentioned, the 26% guidance.

Okay. But in general, then, cash flow into Q4 seems like last year at least was quite strong. Can you comment on the seasonality as you see this year for the cash flow into Q4?

Seasonality. Seasonality of cash flow, yes. If we go through the different quarters, normally we have a relatively... Quarter one and quarter three are somehow the ones that, compared to EBITDA, they are lower in terms of seasonality. Normally stronger is quarter two and quarter four. And we expect also this year quarter four to be in that line.

Perfect. And that brings me to my last question. On capital prioritizations, 1.2 times the day now gearing, if I read correctly, target is 2.5. I appreciate that you're looking to buy companies, but it's been some time now. So how would you see that you prioritize between M&A, dividends, buybacks, further investment in organic growth?

We are still targeting to buy companies. So we are still targeting to make use of this cash to buy companies. So that is still our priorities. We have been working. I always said that it's hard to predict when it's going to happen. But still, this is a full-time activity, let me say, for some people, some resources in our organization.

To be added here, Alberto, if we look at the past, this group since COVID has been able to combine acquisitions, investment in product innovation, in organic growth, and pay dividend. So let me say, we have the strength in place to be able to act on these three dimensions. And somehow the trend of our net debt on EBITDA development is confirming that we have the ingredients to continue to perform on these three important aspects.

Okay, thank you. Those were all my questions.

Thank you, Gustav. I think I will take two questions from the web. One is from Stefan Schaunholm at Handelsbanken related to Tosei. If we can give an update on Tosei sales margin development and synergies. And also he had a question about R&D costs, but I think you answered that before, Alberto. So Tosei update, please.

So Tosei... We are experiencing two different dynamics. In London, the business has been weakening, but it seems to recover on a good level with that profitability more or less in line with what it was. A different situation in food, the vacuum business, due to the fact that The post-COVID was a season of large subsidies from the government and now the market stabilizes on a lower level. We know and we clearly see this because Japan is one of the few markets where there are statistics that we didn't lose market share. Remember that we have roughly 50% market share in vacuum and 50% in laundry. We didn't lose market share.

Nevertheless, the market in particular on the For our competitors, they are typically tested by the distributor.

In our case, we are adding a brand or a brand, sorry, a mark where it's tested by TOSE that is in some way giving trust to the customer that this is exactly the product fitting the request of the market in Japan. So we launch the food preparation. a lot of activities over there with the distributors. And these days we are also introducing the combi oven. So from the business synergy point of view, we are doing the things that we said. Yeah, it's not super fast, but the Japanese market is progressing much slower than other regions. On the laundry side, I think I mentioned earlier, when I was commenting the award that we got in the United States, we already replaced the external supplier that we had for the combo machine with a combo machine produced in Tosei and branded the latter as professional. We are also selling that product in the Asian market. in other Asian markets under the Electrolux Professional brand. And we also, at least a couple of weeks ago when I was there, I saw the Tosei dryers that have been produced in the Thai factory and that should be sold in Japan and replaced in the local production with clearly higher margins and higher performances. From the cost point of view, TOSE is also part of our program because now we merge the two organizations. We have one office, so we close one office. We have only one office, one legal entity, one system, sharing all the showrooms around the country. There are many, by the way, in Japan. And so we are starting to see the benefit also from the cost point of view.

Thank you. Then I have two more questions related to the efficiency programme. One was from Rudolf Sidra at Paradigm Capital. What was the impact on the gross margin of the 235 million in items effort and comparability? And how much... of this amount was below the gross profit line. And then there is another question from Henry Christiansen at Dimby Carnegie. The underlying gross margin, what was that margin? Those were the questions.

Fabio. So, overall, the provision was 235 million, roughly. 135 was included into the gross profit. So the underlying gross profit margin excluding this provision was in line with last year, meaning the 34.5%. To be said that when we talk about the currency impact, currency transaction impact of 0.5 points, the tariffs impact, these are affecting the gross profit. So the underlying gross profit excluding this provision let me say, items is expanding, is expanding thanks to what I mentioned earlier, good pricing, reduction of product cost mainly in the area of material. Yes, we are not yet able in the quarter to compensate fully the tariffs and the currency, but we have put in place action in term of pricing to

be able to do so over time in the incoming quarters thank you operator please go ahead if there are any other questions from the phone as a reminder if you wish to register for a question please press star and one on your telephone the next question comes from the line of christiansen eric from carnage please go ahead sir

Yes, good morning. So a follow-up on that, because I noticed there on the slides that you said that you've taken action on pricing to offset FX. And I think you said, Fabio, that there was a 60 million negative currency impact year to date, and you now said you have announced price increases as well. When do you expect that to go into effect?

The price has been already announced. They will take effect January 1st in some for some product categories, the last ones will be March the 1st. It's a matter of timing, seasonality, habits, let me say, in the different region. But during the first two, three months, all the price will be effective. As I said, already announced. And we know that with this one, We will cover the gap that this year we were not able to cover because of the combination of the negative impact of tariff and currency.

And a follow up on that. So what is the total gap? So the 60 million negative currency and then is there tariffs on top? And do you expect to close that fully next year?

Yes, the tariffs is on top of it. And with the action that Alberto mentioned regarding price, we expect in 2026 to compensate both.

And how much is the tariffs impact? But they haven't been able to close.

The tariffs, if the order of magnitude, just to give a sort of guidance, in the quarter, meaning quarter three is in the area of roughly 10 million SEC. So it is negative. This 10 million SEC is net of the price increase. So this is somehow the net. It is there, not negative. negative effective but not really material when you think that we deliver over 300 million in a bit in a quarter excellent thank you the next question comes from the line of ellison johan from sb1 please go ahead sir yes good morning thank you for taking my questions i have just a minor follow-up

You mentioned in Food & Bev that beverage declined in the US. How big is beverage of Food & Bev in the US today and what was the reason for the decline?

okay uh we go by memories uh because uh uh half of it half of the food and beverage business is uh i would say less than a third is beverage and it's 100 imported majority from thailand and some from from italy the frozen from italy the cold from thailand The reason is that it is the beverage business, because I said the food we grew while the beverage was declining, is that because it's 100% a chain business. The beverage business in US is chain business. It is a chain business, and as I mentioned, most of the rollout has been put on hold. So it is a peculiar situation, the one that we are facing in the United States with the beverage business.

And is this... I remember you had... this big contract some years ago, is that one big chain that is sort of behind most of the beverage business in the US.

Okay, that was, but it is already five years ago. So I have to say that eventually I can expect that we are going to replace this product relatively soon. But beside that, now the beverage business we have today in the beverage business, in particular the business we are having are many mid-size chains. So some hundreds of restaurants, not the, As it was in that case, the 17,000-18,000 restaurant chain. But the United States is full of regional restaurants, regional chains with some hundred outlets. So it is still a profitable, healthy business. Beginning of the year, it was good, beverage. It was good until the spring, I would say. And then suddenly everything was on hold.

And we discussed Jose and how the integration and work on that is ongoing. How would you characterize the unified brands business today in the US? Is it where you wanted it to be? Because you had some some issues obviously in the initial year.

Yes, okay. US, we had the record year in US was 2022. I tell you that this is a year where we will do probably better. So we are improving. All the issues that we have been addressing have been addressed. We opened several places where we can host reps, dealers, customers. We have our own new place in Mississippi, that is a brand new one that we opened in March. I think we are doing well, honestly. We are re-establishing the position that we have in this country, growing both the imported and non-imported products, so the locally manufactured, building around some strong brands. So Grone, Randall, Electros Professional and Cracco. Cracco is the beverage. These are the four pillars of our strategy that is driven by brand and product. hot for the for growing uh technology uh in electrons professional the beverage a leading market leading brand in cold and randall that is the preferred choice for blue chips chains for what the prep tables are concerned. So I would say that now is clear the strategy, the way to go, and we have the setup that is able to support these things. We went through some years of difficulty, as you said, but I believe they are behind us right now.

Hey, excellent. Thank you very much. Welcome.

Ladies and gentlemen, There are no more questions. I would like now to turn the conference back over to Jakob Broberg. Please go ahead, sir.

Thank you very much for listening in. And hopefully I will meet all of you next week on our Investor Day here in Stockholm on November 6. Thank you and goodbye.