Electrolux Professional AB (publ)

Good morning and welcome to Electrolux Professional Q2 Report Result. My name is Jakob Ruba. I'm heading up Corporate Communication and Investor Relations. We may have Paolo Schira, our new CEO, and also Fabio Sarpadon, our CFO. And I leave the floor to you, Paolo. Please go ahead.

Thank you, Jacob. Good morning, everybody. And I think probably since I started two months ago in my role, it could be good to give a few words, a little bit about my agenda. The last couple of months I've been using to travel across the different countries, meeting many of the colleagues. And I'm very happy and energized after this interaction because I saw a lot of energy, a lot of passion. and willingness from the different colleagues to move Electros Professional to the new heights. So very, very energizing. And I took the chance of this interaction with the colleagues also to share a little bit what is my agenda moving forward. Now, we are a company with a very long legacy, more than 100 years. And as every established companies, we've been expanding work in many areas. And that's why I want to bring forward what I call the Accelerate and Simplify Mantra. So the idea is fundamentally to refocus on fewer things, significantly fewer things, but then secure the magnitude, the impact and the speed that we execute on those fewer priorities are amplified. And of course, this has to come strategically from the areas where we are stronger, where we have more chances to win and where also our margins are higher. So The first element is really about defining sharp and better the core and then double down on this in this initiative. Now, having outstanding solution as we have, having a strong value proposition as we have, is not enough then if you don't reinforce the front end, if you don't work in what I call the commercial excellence and the customer proximity. We have already an advantage that we are present in many countries, close to many customers, but clearly we can make a major impact over there. Now, these things will call for investments, and I want to advocate early that we want to fund this investment, these double downs, by subtraction So fundamentally to redistribute, refocus the investment we do in these fewer bets we want to work on. And this also requires that we work in a more disciplined way in our portfolio and in our cost management overall. So that's a little bit, Jakob, the first introduction. And of course, I will show more of my vision and the next steps as we move forward. But I think it's the right time to get to the quarter two results. The picture on quarter two is a little bit mixed. So top line has been decreasing 3.8%, mainly driven by U.S. and Middle East, Africa and Asia. With different dynamics in Middle East, Africa and Asia, the main reason of the decrease of the top line has been some postponed projects. We count to invoice now in quarter three. Still on the top line projection, I think it's good to mention that we have a positive order intake overall for the group as well as an healthy order stock entering quarter three. Now, the positive part, I said mixed picture on Q2, is about the overall profitability. So, EBITDA has been slightly improving compared to prior year, Q2. In full transparency, a contributor to the profitability increase has been tariff refund in North America. But even if we were to remove this 21 million SEC of contribution, the overall underlying profitability has been robust, which is positive. This is despite the overall situation of what we call inflationary item, being the input material, being the logistic cost, have seen an increase in trend. Now, to be reported in this quarter also that the currency that in the previous quarter had a negative effect has been neutral. Since I mentioned about inflationary items or somehow inbound rising costs, I also want to mention clearly we've been very disciplined in the price increases and we expect with the price increases and with in some part of the business surcharges that we are introducing as we speak, we come to cover all this negative effect throughout the full year 2026. The other element I'm very keen to mention, and as announced previously, we have been launching last year an efficiency program impacting resources, impacting manufacturing footprint, and this is progressing according to plan. So year-to-date, we can declare saving up to $45 million, $25 million in the quarter, and the full year projection of $80 million SACs is confirmed and this is going to grow also in 2027. So also this part is contributing positively to keep the robustness of the business. Now giving a perspective on the different regions in the different businesses, you see here as well somehow a mixed picture, probably started from US, a decrease overall in the US business, probably with different driver and different dynamics. Maybe a touch of color on the part of the laundry business. Last year in Q2, we were anticipating some deliveries to U.S. in anticipation of the U.S. tariffs. So this decrease somehow is related to this effect. If you were to look on the units delivered to the market, actually it is growing. So the overall situation there is in a good place. On Asia, I think I mentioned earlier, there are somehow a couple of components contributing to the lower net sales. Part of it is the known geopolitical situation in the Middle East, but we don't have canceled orders there. For sure, there are some logistic challenges to get to the different locations. The other one is some major project in the Asian region where from the customer side there has been a request to postpone the delivery and the invoicing. So this we count to invoice in quarter three. Overall Europe, and I remind you, Europe represents 60% of the total business for Letros Professional. There's been a moderate growth driven mostly by laundry that is continuing delivering very well in the European region. Food and beverage in Europe, after several quarters of growth, we had a stabilization, but we expect then to continue in the trajectory we have seen previously. Giving then a bit more perspective, Jakob, on the different business segments. So food and beverage is the area where we saw softer growth, so with a decrease of almost 6%. I think I mentioned already the contributors being mainly U.S. and, to a smaller extent, APACMEA. What is, I believe, very important to acknowledge is here the performance of the profitability. In the case of food and beverage, there is only 3 million sacks of contribution for tariffs found in U.S., so the overall business is defending very well. despite some of the rising costs I mentioned earlier. Here to mention among the different activities done well by the team to deliver this profitability has been a normalization of R&D costs. I think this you have been hearing in the past, we reach a peak in the past, now is no more normalizing, but normalizing doesn't mean that we decelerate our agenda, the opposite. We have really exciting products coming to market beginning next year and we are really keen to see the benefits out of this introduction. Overall in the food and beverage the order stock is healthy so we start quarter three with a good amount of orders we are very keen to invoice throughout the quarter three. Last but not least is about the laundry situation, moderate growing laundry driven a lot by Europe. I mentioned about the US situation in Asia almost stable. Good profitability development. Here is where actually we see most of the contribution of the tariff refund. But overall, the underlying margin, the situation seems to be positive. And London is the area, not the only area, but the main area where introducing surcharges So on top of the price increase we introduced beginning of the year, in London we introduced now in the summer months the surcharges in the different markets. The reason why surcharges are mainly introduced in London are very simple. It's the business where most of these rising costs are impacting right now the logistic, the input cost, etc. And that's why we are implementing them. Overall, the reaction from the customer has been accepting. So it's been a fairly positive or not negative reaction

Overall, in laundry, we do see a strong order intake and order stock.

So overall, a positive situation. I think with that said, it's probably the time for you, Fabio, to give us more color on the detail of the numbers.

Thank you, Paolo, and good morning to everybody. As Paolo previously mentioned, Q2 profit was negatively affected by lower volumes as the main offender, particularly in the US, as well as material, tariffs, and higher logistic costs. However, and I believe it is a good achievement, we were able to maintain the beta margin. Now, let me elaborate around the different components that sustain the profitability in the quarter. Currency translation was still a negative effect in our top and bottom line, but no material impact in terms of look at the currency translation effect in EBITDA value was reduced to roughly 10 million SEC for the quarter. The currency transactions instead finally turned positive. We have a few million positive impact on the EBITDA in the quarter. Tariff costs are higher than last year, but we were able to fully compensate them in the quarter with the price increase. Not only as Paolo anticipated, we got this 21 million sec of tariffs refund in the quarter. The quarter as such has been also positively impacted by the benefit from the execution of our restructuring program. In quarter two, the gross margin and EBITDA was positively impacted by overall 25 million SEC in cost savings. and the program as anticipated by Paolo is proceeding according to plan and the contribution for the overall year is confirmed in the area of 80 million SEC or roughly 0.6 points in margin. Going forward, moving into 2027, the guidance we have given earlier of cost saving is confirmed. So the expectation is next year we will further increase the benefit to 175 million SEC or 1.4 points in margin. In the quarter, we continued to invest in R&D, but the spending was somehow reduced compared to the high level we have reached in Q2 last year. Going through the remaining of the P&L, finance net was 16 million sec lower than last year, thanks to reduced overall average borrowing and a cost-efficient funding structure. The tax rate in the quarter, no surprise, was 25% in line with the guidance. Let me say, lower cost of funding, lower tax cost allow us to increase the APS to 0.8 SEC per share compared to 0.75 SEC per share despite lower EBITDA and EBITDA. Positive cash flow generation in the quarter. but lower than last year. This comes definitely from lower EBITDA, increased inventory and the payment related to the execution of our restructuring program. Now let me give you more flavor in particular when we move into the asset part. This picture shows somehow a still good asset management for the group and the solid balance sheet. Rolling 12 months operating working capital increased to 17% compared to 60.3% of December last year. Here, let me say two major offenders that I see them definitely as a temporary one. One is inventory and the second is AR. A partial inventory increase in the last two quarters due to delay in project sales deliveries. We have the goods in-house ready to be shipped. We need the green light from the customers. and what I see a temporary stock increase due to production transfer from the facility that we have closing to the existing one so both let me say are Temporary increase in working capital requirements are expected somehow to reduce and come to the end of the year. The increase of receivables is mainly related to country mix. We have grown the quarter in country with a longer payment term. I have no concern on the quality of receivables. Overall, as you see in the ratio net debt on EBITDA, our financial position is strong. We have an increase of the net debt in the quarter too, but this is due to large specific payment we had in the quarter. In the quarter, we have roughly 400 million SEC of cash out. 270, if you remember, are related to payment of dividend. We have roughly 60 million related to final purchase in price payment for earlier range and similar amount for a refund of a medium term loan. So overall, a solid company with a robust P&L and a strong balance sheet. And with that, back to you, Paolo.

Thank you, Fabio. And probably before going to the conclusion and then open up for the Q&A, just one comment on an initiative I'm very proud of. that we recently introduced in the laundry segment that is called Ervive. And it is, I think, representing the essence of Electros Professional Group. As you all know, Electros Professional is proud to be a leader in innovation, but also a leader in what we call the sustainability. So what is this Ervive all about? This is about the initiative of Electros Professional in laundry to... a remanufactured machine. So the word remanufactured is taken intentionally. So it's not refurbished. It's not just cleaning and make some fix. It's really to take machine out of the market and machines that can have more than 10 years and to replace visual parts whenever they are damaged as well as functional parts. Now, why I'm proud of this initiative? First, because thanks to the modular platform introducing laundry years back, it is possible actually to do this work of remanufacturing in a seamless and smooth way. It is possible to reutilize more than 60% of the weight of the machine. So the overall environmental impact of our machine in terms of the components of the material is significantly reduced. But even more important is by remanufacturing the machines, we are able to introduce all the energy devices, all the innovation we've been developing in the last years. So in terms of greenhouse emissions of the scope, the famous scope tree, these machines are actually as good as a completely new machine with amazing savings for the customer and for the planet. So we just introduced this initiative, starting from some markets, and the idea is to make a real business out of it. So very excited, looking forward to see it as one of the pillars for our future development. Now, with that said, probably is the time to go on in the summary. So I think I repeat myself and what Fabio said, a little bit of a mixed picture. So decrease of top line driven by U.S. and to a smaller extent to Asia-Pacific. But the positive part is the profitability that remains very solid. Partially supported by a tariff refund, but even without a tariff refund, I think the underlying business is positive. Specifically, some parts of the business have been growing. We mentioned laundry. I'm also keen to mention that on our Japanese business with Tozai, we had the second quarter in a row with the growth and also bottom line development, so positive. In the overall, looking forward, the positive situation is that the order stock is in a good level. And of course, it is our task with our teams to make sure we invoice it in quarter three. And there is no order cancellation, which is also very positive. So it is a good order stock. Having said so, Jakob, I give back the word to you.

Thank you, Paolo. Thank you, Fabio. With that, we open up for questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. We have the first question from Fred Johan, SEB. Please go ahead.

Yes, good morning guys. Thank you for taking my questions. Starting off with a question on the US tariff refund. Is there any remaining refund to be recognized in H2 as well or was this solely a Q2 refund?

We have a submitted request for additional fund. This will go through the scrutiny of the US government authorities. But the expectation is that there will be some more positive refund also in the second part of the year.

Okay, got it. And in terms of magnitude, it's the level You recognize 21 million here in Q2. Is this in line with what you expect if we see it in Q3 or Q4 as well? How should we think about the magnitude?

What I can say is that we have submitted additional requests. So far, our requests have been positively scrutinized, but we are not going to give an order of magnitude for the remaining part of the year.

Okay, got it, got it. And the second question on the sales decline in APAC EMEA. This was, as I interpreted, attributed to postpone project deliveries. Could you give any more color on the size of this backlog and the time of delivery? You mentioned Q3. Is that sort of confirmed or is that your best estimate currently?

So, yes. So, I think I alluded to it earlier. So, there are two somehow components to the slippage to quarter three. One of it is the known Middle East situation. The other one is some major project we had. Roughly, we estimate in the surrounding of the 30 million SAC the amount of orders we have not been able to invoice and ship during the quarter. And we count to ship them and invoice them in the coming months. The positive, as I mentioned earlier, is we don't have any Any relevance on about order cancellation or other things? So it is as it is now a good order stock and we count to invoice it now in quarter three mostly.

Got it. Thank you. Very clear. And if I may continue. So the US food and beverage business has been in weak since essentially last summer. What specifically is driving the prolonged weakness here? Is it end market demand, competitive dynamics, inventory or something else? What are some of the leading indicators that you are watching for a recovery here?

Sure. So I think, Johan, what you're reporting is factual. And we already started seeing it last year with a kind of two gears, two steps, two speed pattern. First half rather strong, then second half weak. And this weakness has been prolonged now in the first half of 26 weeks. Now, no wonder that I've been in one of my first trips in the new role visiting U.S., working with the team, and I see there are a lot of good activities happening. So, a bit of weakness on our side. We believe the market probably is not a booming market, but it is a positive market. I think in both the kind of market segments we identify that are called the chains and the general market, I think we have opportunity to capture better growth than what we have been doing. So I think it's up to us. You want your question to revert this trend. And I think we have the means to do it. It is a lot about hard work. It's a lot about execution and the like. Specifically on your question on the leading indicators. Now they vary depending on the part of the market as I described general chains. if I were to pick one for illustration purposes the chain market is typically based on rollouts so it's about delivering units in a test for some of the big chains the American chains and then once you are approved then you can move on to the next phase that is about So delivering many units of first test and then rollout. So here the leading indicator is we are doing several tests with several of the big groups. Probably in the first half we've seen some of the big groups on the test they were doing with us because of the instability, geopolitics, etc. to probably wait a little longer. But that's the kind of work we're doing. So continue filling this funnel, this pipeline. And there are several tests ongoing and accounted some of them will be converted into sales in the second half.

Okay, got it. Very clear. Thank you. And a final one, maybe from my side here. So again, on food and beverage. So order intake, you described as decreased somewhat while the order stock is higher. Could you give a more precise indication of the order intake sort of growth slash decline year on year here in Food & Bev? And yeah, that is my final question. Thank you.

So the overall order intake has, even within the food and beverage, a kind of a mixed picture. So in some areas improving, in some areas a little bit lower. But it's not materially very negative. The positive thing is it has been higher than our invoicing. So the reason of our significantly higher order stock entering the quarter three is the fact that actually we got more orders than what we've been able to ship and invoice. So despite the nuanced picture between territories and other things, broadly across the different businesses, the order stock is in an healthy situation. Order stock, again, very basically is the orders we have in-house qualified that are not yet being shipped and invoiced. So I think the start for quarter three has this significant order stock that we are keen now to invoice in the coming months.

Got it. Very clear. Maybe if I can squeeze in one final, maybe just clarifying question. You stated, of course, price increases and surcharges are expected to offset the currency tariff and sort of logistics headwind into H2. I interpret this as predominantly relating to laundry, but are you implementing similar surcharges in food and BEV as well?

So the biggest part of surcharges is going to be in laundry, though there are some part of surcharges in also some areas in food and beverage, but not in a broader scale as it is in laundry. And somehow the reason is what we discussed earlier. So laundry is somehow the most impacted by the tariffs and some of the logistic and inbound cost. On the other side, in the food and beverage, this has been managed. It is possible to mitigate this rising cost. Because the price increase we did at the beginning of the year, which is now fully rolling out as we speak, is creating the result to compensate. So different dynamics between the reported business segment, but the net effect is the same on both. So the good price and overall also cost management is helping them to mitigate or to compensate these headwinds.

Perfect, very clear. Those were all my questions for now. Thank you so much for taking the time. Thank you, Johan.

Thank you, Johan and Jakob here. I have one before going back to the operator. I have one question or two questions from the web. That's from Stefan at Handelsbanken. The first question is R&D costs are lower year over year in Q2. Can we expect a further year over year decrease in the second half? And the second question is, given your positive comments on order intake order stock, is it fair to assume at least flat organic sales growth in the second half? So we start with the question on R&D.

Okay, as we have discussed also during the previous call, during 2025 we have reached somehow an historical peak for what concerns the R&D cost, in absolute terms but also in percentage of sale, to support some major product launches, one in laundry and the other one in food, in particular in the cooking area. We were anticipating a resize of the R&D spending in the second part of this year. As anticipated earlier, we start to see already the positive impact in Q2. and this is related to the food and beverage segment whilst in the laundry one we are still on pair with last year in preparation of the product launch that will be finalized and executed at the end of the summer. When I look into the second part of the year, I can confirm the previous given guidance of a resize of the R&D spending both in absolute term and in percentage for both segments.

Thank you, Fabio. Paolo, the question on... if we should assume flat organic sales throws in H2 or not.

So Stefano, as you well know, we don't provide the forward-looking statement on the quarter. So we'll probably try to stick a little bit more on where we sit. So we start the quarter with a strong organic order stock. And I think it is in our hands now to secure that we convert it to sales. And I add on this one that clearly it is my priority as a new CEO really to work with the different teams to work on the top line development. I think it's an area where we can make an impact. And I think we have amazing solution that we can market to the different customer groups. So I think that we have all the elements to work and improve. And the starting point of this quarter is in the right foot, if you may allow me to say that.

Thank you. Please, I move back to you, operator, if there are further questions.

The next question from Emanuel Jansson, Danske Bank. Please go ahead.

Questions from my side as well, and I hope you can hear me.

Regarding sales growth in the quarter, could you perhaps also give us some on the sales momentum that you experienced during the quarter? Do you see an acceleration or deacceleration throughout the quarter, i.e. stronger in the beginning or vice versa, or stronger at the end of the quarter?

Thank you, Manuel. If I got to write your question about what is the short-term trend we see now in the beginning of quarter three.

Sorry, I think it was more during the quarter.

During the quarter, sorry. Okay, sorry, sorry, I missed that. So... Somehow we saw an incremental improvement during quarter two. So probably the quarter started a little bit weaker. And then we had a pattern towards the end in June with a stronger pattern. And that's why we ended the quarter with Thank you very much.

Perfect, thank you. That's very clear. And could you also perhaps give us some colors on where is that improvement mainly coming from? Is it APEC, EMEA, Europe or the US?

So the overall, I would call it sequential improvement of the business as well as the order stock development has been, I would say, a common pattern across Europe. the reported business segment and across the different geographies. Of course, there are areas where it is more clear, more visible, but overall is a broader pattern we have been seeing.

Thank you very much.

And on perhaps price versus volume in the quarter, you said the price contribution was positive in quarter two. Is it possible to quantify that?

So, yes, the price contribution was positive, and thanks to the price contribution, as we anticipated, we were able to compensate the tariffs and the inflationary items we faced in the quarter, in particular the increase of transportation costs, where the major offender in terms of INFLATIONARY ITEM. CLEAR IN THE PICTURE WHEN WE DO THE BRIDGE BETWEEN QUARTER 2 LAST YEAR AND QUARTER 2 THIS YEAR, THE VOLUMES HAD THE LARGEST IMPACT IN TERMS OF ABSOLUTE VALUE AND LET ME SAY THE CREATION EFFECT ON THE EBITDA OF THE GROUP.

Thank you very much. And looking at the gross margin, it looks like a quite good improvement. That's primarily driven by the price increase and the cost saving program, or is it anything else?

It's exactly the area that you mentioned, meaning price management and being able to compensate tariffs, inflationary items is about cost benefit that we have in our operation because part of the 24 million benefits are into the operation and into the gross margin. but ABUDED also a positive mix-up that we have seen in both segments grow on the high margin machine in laundry as well as in the food and beverages so the focus of the organization in towards the high-margin product categories and segments starts to pay off, even in a situation where we decline sales volumes.

Very much. Any last questions from my side? On the product side, could you give us an update on the new platform and product launches more broadly? And are you seeing any earlier early customer response or order intake contribution, and is there basically any new data that you can share with us on the new product development?

Sure, Emanuele, I can give you some updates on the subject. So, behind the significant investment that we did in R&D in the last several quarters, there are some exciting product introductions that we are planning to make. We will start after summer with the first part of the range of the line 7,000, so the line of laundry machines. So we start with the small chassis and then follow in 27 by the bigger capacity. So now it's not yet started the production, so there is obviously not yet sales data on it. The overall early signal from customer who got exposed in the internal launches and the testing phase is positive. So we have a leading position in technology and we want to further reinforce it and deploy it further. So I think the early signs are positive, and then as soon as we will have data from financials, I will be very keen to share with all of you. And that's some part on the laundry. Then also on the food and beverage, we have a very exciting pipeline. We did some introduction this year, but there are exciting introductions starting from the beginning of next year, so in the food side. As well there, the work is progressing well. and also here the feedback we are getting from the commercial teams and the external customer are encouraging. So we will start seeing the impact with a bit of impact in laundry end of this year and then in food next year and the early signs are encouraging.

Perfect. Thank you very much, Paolo, for that. I think that was all my questions now. So thank you very much.

As a reminder, if you wish to register for questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at the moment.

Sorry, we just have a registration from Igor Tovich, DNB Carnegie. Please go ahead.

Thank you. I just have a couple of more questions. I maybe missed this, but should we expect further price increases going forward as well in the coming quarters?

So, Igor, what we are planning to do is to introduce, and we already did it in reality, some surcharges. This has a broader extent in laundry, main reason because laundry is the most impacted by what we call the inflationary items, but also selectively in some areas in the food and beverage we have introduced them. So the answer is yes. Additional price impact expected to come on top of the compounded effect from the price increase introduced on beginning of the year. And the expectation is to have this to offset the headwinds we have coming from the different dimensions we described.

Okay. And are your competitors doing the same or are you the leaders, let's say, with those surcharges?

So the feeling is that overall also the rest of the market is going to do it because factually the logistic costs are increasing, plastic costs are increasing, steel costs are increasing. So I would expect some of them announce them and I would expect many others to follow given the macroeconomical situation. Regardless of what the other are doing, I think we are very analytical and thorough in the work on pricing and we do our assessment and I can give you a feedback specifically from the laundry part of the surcharge, the overall reaction of the market has not been negative. I think people see what's happening and they are somehow expecting this to happen.

Okay, that's clear. Thank you. And just a final one. On the back of these surcharges, have you experienced that you have lost any market share due to that if you are the first mover, so to say?

I don't think so. At least my experience is not in this way. Also, we do it in a good way, in a commercially sound way. So we don't expect this overall price dynamic approach to have an impact of volume. And in parallel, as I mentioned, I think we have a duty as an organization to accelerate on our top line work in our commercial activities. So this is a clear priority in my agenda.

Perfect. Thank you very much.

There are no more questions registered.

Okay, then I would say thank you everyone for having listened in. Thank you to Paolo and Fabio and I wish you all a great summer. Thank you and goodbye.