De'Longhi S.p.A. (DLG) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the De'Longhi Full Year 2024 Consolidated Results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio De'Longhi, Chief Executive Officer of De'Longhi. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group Full Year 2024 Results Conference Call. Today, together with me are Nicola Serafin, Group General Manager; Marco Cenci, Chief Planning and Control Officer; Stefano Biella, Chief Financial Officer; Samuele Chiodetto, Investor Relations Director and M&A Manager; and Sara Mazzocato, IR specialist. I'm extremely pleased with the group 2024 results, which show a significant improvement in all the financial key performance indicators. These results reflect consistent organic growth combined with an acquisition-driven turnover expansion, a record EBITDA level, more than EUR 400 million in free cash flow before dividends, M&A, the establishment of a professional coffee hub and a strengthened market position. As can be observed on Slide 5, the group revenue growth has been consistent and solid throughout the year, with the household business experiencing robust organic expansion for the sixth consecutive quarter, thanks primarily to the structural trend in coffee and the renewed consumer focus on nutrition driven by consumer changing habits. These trends, combined with La Marzocco consolidation has supported a 14% turnover increase, which accelerated to 18% in the fourth quarter, equal to 11% on a like-for-like basis. We have sustained this upward trend over the years by investing continuously in innovation and communication, resulting in market leadership and growth. Specifically, in 2024, we spent more than EUR 430 million in A&P, EUR 40 million above previous year, backing new product launches and established brand awareness across regions and categories. Furthermore, in the recent months, we've been working on the new Perfecto campaign, which will once again feature Brad Pitt as a coffee ambassador in the global advertising campaign. Looking ahead to 2025, these investments, combined with the new product introduced in recent years are critical for driving categories expansion and capitalizing on market opportunities, giving us confidence in a growth year. In terms of profitability, as shown on Slide 6, we were able to significantly improve the level of EBITDA margin over the last two years, thanks to volume growth, stabilization of production costs and a positive product mix effect, indicating that consumers' interest in the premium segments of our product portfolio keeps increasing. In particular, when considering the last 12 months, the like-for-like margin enhancement and accretive professional coffee consolidation has allowed the group to target a record EBITDA. Looking ahead to '25, we believe that expected volume growth and improved product mix will offset the impact of current tariffs regarding goods produced for the U.S. market as well as ordinary investments in organizational structure, resulting in an increase in EBITDA. Finally, Slide 7, the group ended 2024 with a positive net financial position of more than EUR 600 million, roughly equivalent to the previous year, but after funding approximately EUR 100 million in dividends and more than EUR 300 million for the business combination of La Marzocco and Eversys. This solid financial position enables us to maintain full flexibility on capital allocation for potential external growth opportunities as well as shareholder remuneration as demonstrated by a substantial increase in the proposed dividend for 2025. The past 12 months have been extremely fruitful for us in terms of the accomplishments made. Consumer preferences and awards for distinctive design and innovation have been rewarded, our products in the key areas, reinforcing our position as an industry leader in our core categories. Sustainability remains a fundamental element of our company's strategic vision. And in recent months, we have been working on a number of initiatives, including pioneering eco design guidelines for coffee makers and original product refurbishment project and commitment to science-based target initiative. Lastly, let me remind you that the business combination between La Marzocco and Eversys has accelerated the group growth rate, strengthened its margin profile and increased business diversification. This has reaffirmed the group's capacity to identify successful companies in the market for innovation and brand, which is consistent with the strategy implemented in recent years. After less than a year, we began putting in place a strong governance system with a goal of further leveraging the market leadership and superior technological innovation capabilities of Eversys and La Marzocco. This will be done by making the most of shared resources and exchanging best practices and knowledge to enhance value creation. Now let me focus on the quarterly and full year results. The group achieved a robust increase in turnover of 14% in the 12 months due to a considerable 6.6% growth on a like-for-like basis as well as the consolidation of La Marzocco. Specifically in 2024, the group recorded a positive trend in all geographical areas, with Europe experiencing significant growth in all the quarters under analysis and the America accelerating in the second part of the year. In more details, in Western Europe, the turnover grew 10.4% over the year and 6.8% on a like-for-like basis, accelerating to 10.5% in the quarter with countries such as Germany, the Peninsula, Austria and Switzerland leading the pack. The solid expansion of Northeast Europe persists in the fourth quarter, recording an increase of 14.1% on a like-for-like basis, thanks to considerable contribution of markets such as United Kingdom and Czech Republic, Slovakia, Hungary area with experience a like-for-like growth at around mid-teen rate. MEIA achieved a significant recovery in the fourth quarter with a performance of 47.3%, 38.1% at constant perimeter, resulting in a 12-month growth of 9.2% despite the geopolitical tensions and macroeconomic uncertainty. The Americas recorded growth of 19.2% in the 12 months, equal to 5.9% at constant perimeter, accelerating to 14.3% in the fourth quarter, benefiting from the double-digit progression of fully automatic coffee machines and the Nutribullet personal blenders. Finally, the Asia Pacific region benefited from the consolidation of La Marzocco, achieving a 10% increase of turnover compared to quarter 4, 2023. However, like-for-like revenues show a partial decline in both periods analyzed. In both periods under analysis, all key categories, except comfort showed a positive trend with the nutrition and food preparation sector accelerating in the second half of the year. In details at the end of 2024, the overall incidence of the coffee area on the group turnover was approximately 62%, also thanks to the consolidation of La Marzocco. The significant increase of the home coffee was driven by the growth of fully automatic coffee machines. Regarding the professional sector, we know the continued progression of La Marzocco that consolidates the strength of its brand, both in the semi-automatic professional coffee machines and in the home premium segment. Nutrition & Food preparation segment recorded a major acceleration in quarter 4 at a rate higher than high teens. We emphasize the evolution of the blender category, personal blenders, hand blenders and blenders through the year, together with the return to growth of the more traditional products such as kitchen machines. Concerning the home care sector, let me highlight the significant expansion of Braun brand ironing products, which experienced a double-digit growth in the 12 months, while unfavorable weather condition in both summer and winter as well as the tail end of the discontinuity of the mobile air conditioning in American market affected the comfort sector in 2024. Looking now at the evolution of the operating margins. The net industrial margin stood at 50.6% of revenues compared to 48.9% in 2023, benefiting from volumes and mix increase and the easing of inflationary pressures on product costs. EBITDA adjusted was EUR 559.8 million in the year or 16% of revenues compared to last year's 14.4% with a quarter 4 highlighting margin of 17.7% versus 16.6% in 2023. Aside from La Marzocco consolidation, profitability has been enhanced by a significant volume effect, cost stabilization and a positive price/mix contribution. I'd like to point out that the margin improvement occurred despite a 42% increase in investments in Media and Communication, A&P, which accelerated in the second half of the year to support the launch of the new products and Nutribullet geographical expansion in Europe. As to balance sheet, the group ended the quarter with a positive net financial position of EUR 643 million, following the distribution of more than EUR 100 million in dividend to shareholders and EUR 327 million of net absorption in relation to the closing of the business combination between La Marzocco and Eversys. Four, free cash flow before dividends and acquisitions amounted to EUR 416 million for the year, demonstrating the group's exceptional ability to maintain a high cash conversion rate, which in the last 12 months was around 74% on adjusted EBITDA. This enables us to be more flexible in terms of capital allocation, resulting in a significant higher dividend proposal for 2025. The proposal implies a distribution of a dividend of EUR 1.25 per share, an 87% increase over the previous year, resulting in a payout ratio of around 60% compared to the standard 40% defined by dividend policy. Summary, we're extremely satisfied with the latest achievements, which underline the group's ability to deliver results. The market has shown positive dynamics across the quarters with our categories benefiting especially from the structural trend in coffee and a renewed focus on nutrition. These consistent growth trends, combined with industrial, cost stabilization and the mix improvement have enabled us to significantly improve the group profitability, which combined with the expansion of the perimeter in professional coffee has resulted in a record EBITDA level. Thanks to these results, we were able to generate important cash flow once again, allowing the group to maintain full flexibility on the capital allocation to promptly exploit potential external growth opportunities as well as in terms of shareholder remuneration. During -- despite the increased volatility that characterizes the current geopolitical backdrop, we believe that the overall outlook for our key sectors and markets remains favorable. We expect a turnover increase between 5% and 7% for the new perimeter in 2025 based on the recent growth trends in the market and product launches supported by communication investments. In terms of margins, we anticipate an adjusted EBITDA in the range of EUR 550 million, EUR 600 million new perimeter, given the current situation with tariffs on new products inbound for the American market. Now we can open the floor to Q&A.

[Operator Instructions] The first question is from Niccolò Storer, Kepler.

Three. The first one is on your EBITDA guidance. I was wondering how big is the impact of tariffs? And where are you in the process of moving sourcing to Indonesia? The second question is on working capital evolution. Also this year, you ended with negative working capital broadly in line with previous year. Should we expect this to continue in the future? Or also this year -- or I mean, this year, we had some exceptional positive impacts, which will not be recurring. Last question is on cash flow. If we go to presentation, Slide 18, if you comment on what is the other for positive EUR 57 million?

First question, Niccolò, was on EBITDA guidance. Yes, EBITDA consider the tariffs that have been announced. We think the impact would be between EUR 15 million and EUR 20 million net of actions, which means that in the plan, we have some price mix effect as well as volume effect, but the net impact, which will be offset would be around EUR 15 million and EUR 20 million. We're moving, yes, indeed. So the plan is still in place. We're moving to Indonesia and Southeast Asia. And we think by September, we will have about 80% of the Nutribullet production moved to Southeast Asia. Second question is about net working capital. It's negative. It's a number of years that we end the year with a negative working capital. I think this is, I would say, a new normal. So you can expect working capital to be around this level as a percentage of sales in the next year or years. Third question was about the cash flow for -- yes. Maybe, Nicola, you want to?

Exchange rate is more related to exchange rate effect on balance sheet.

The next question is from Natasha Brilliant, UBS.

Three as well, please. So the first one is just on current trading. We've seen some negative signals from other consumer companies in the last couple of weeks. So can you just give us an update on current trading so far this year? And any changes, particularly to the sellout rates that you might be seeing? Second question is on capital allocation. Obviously, a higher dividend with the strong cash flow. Is this a signal together with the small buyback about higher ongoing shareholder returns? Or is M&A still the top priority? And any update on the pipeline there? And then question number three is around the overseas contract with Starbucks. If you could just give us an update as to where we are with the trial and the rollout?

Nicola, maybe you can handle current trade.

I can take the question on current trading. So for the time being, on the first 2.5 months, we see a positive -- still a positive momentum in this moment. Yes, yes. That is in line with the forecast and in line with the guidance that we have provided. Market is positive in this moment. So we do not have a major concern. It's not the impact that we have spoken before about the tariffs in the U.S. But in general, in all the other geographies is a positive trend.

Good. Thank you, Nicola. Yes, so second question is on capital allocation. No, M&A is still a priority, still our top priority for the year. I'd say the new or extra initiatives that we have announced, which are the buyback and increased dividend are just a consequence of the superior cash generation that we experienced in the final part of the year, which is, in the end, leaving unchanged our firepower with regards to our position with a cash position of net financial position of EUR 640 million, even if we have announced EUR 60 million increased dividend, the firepower remains almost unchanged. And the third one is on Eversys. Yes, we are moving on with good news. I mean the Starbucks is extremely committed, and we have maybe slightly accelerated the plan. 30 units will be invoiced in the month of March, which is good news. This is, say, the final test, and we are now discussing the 400 units that we were -- we had already announced and will be invoiced before year-end, so in the second part of the year. But Starbucks has confirmed that Cold Brew is at the top of their priorities, and they are pleased with the project, and we are moving on.

The next question is from Isacco Brambilla, Mediobanca.

I have two. The first one is on A&P. Fabio, you mentioned briefly the commitment to work on a new perfect campaign. How should we figure out the impact on A&P on sales this year compared to last year, if we have any specific impact meaningful for that? Second question is on the Americas region. Many concerns over the past weeks over a deterioration of U.S. consumer environment. Actually, the final quarter of the year for you was very positive. Could you just comment on the approach both by consumers and distributors you are seeing over the past weeks amid growing tariff news flow?

So first question is about A&P. Maybe I will leave the -- Nicola, just a minor view that the marketing team just returned from New Zealand, where we have shot the new infomercial with Brad Pitt starring. So we will kick in by midyear with the new campaign. We're very excited about that and the continued relationship with Brad, which has been very effective in the past years and have the company to have more visibility globally and improve its positioning in the marketplace, exploit good share performance. Having said so, maybe, Nicola, you can handle what are the investments that we expect for the year.

Thank you, Fabio. Yes, as you have seen, we have invested more in 2024 compared with 2023. And then we have the plan also going on growing the investment also in 2025, supporting also the new campaign that will be launched soon. Obviously, we will -- A&P is a growth driver for us. We build to grow on this. And so we want to support this, keeping more or less the same incidence on revenue. We need to consider that now that we are consolidating the professional business, you can see a bit of dilution. But if we look the incidents on the household business, we are keeping the same level of incidents. So A&P will grow with the growth of the business.

Okay. Nicola, you can also elaborate a bit about North America. Well, sales, Nicola, you said are in line with our guidance.

In this moment, yes, overall in the geographies. Obviously, in the U.S. for the time being, we didn't have major effect. Obviously, we are managing duty in terms of impact in P&L. We are in strict contact with all the retailers and customers to minimize and keep momentum with consumer. Obviously, we could expect a bit of softening in the market, but we will put all the necessary action to keep especially it's not a penetrated -- highly penetrated category. So it could be even not that effect. So we want to be still positive, and we will work to have all possible actions within that.

The next question is from Alessandro Cecchini, Equita.

The first one actually is on the pipeline of new products -- product launches. In particular, we saw last year, so 2024, that manual machines were actually down year-on-year. So just to understand if you expect 2025 to be good year in terms of product launches, in particular, in the coffee business and the manual machines business in order to support the top line expansion? This is my first question. My second question is instead on the professional business. I mean last year was all in all, probably up versus down, La Marzocco up, but it's larger. So overall, probably was up. What are your expectations for this year for the Professional business, considering that probably overseas is turning around? So if you can elaborate a little bit more on this? And finally, on the net income, we saw that you had a very small negative financial expenses. Probably there are some one-off ForEx, something negative to smooth the total figures. So...

Maybe, Nicola, you want to comment on the launch?

Yes. So on the new product launches, pump machine had, let's say, had overall a slightly negative year, but there was a fourth quarter very strong, double digit. So this is already giving a signal of the momentum that is already there also in the current trading. And this is on the back of a couple of important launches that we had on the specialist range. We have launched a digital machine. And also in the pump range, we had a mainstream product that is very successful in this moment. So it's keeping momentum. Then we had a robust pipeline of launches also in -- we have some [indiscernible] coming fully auto machine in Nutribullet and Braun and also in premium kitchen machine. So we are quite positive and optimistic in the contribution of the new launches for the next month.

Professional business, no, we are very positive for professional business. Last year was a very good year for La Marzocco. Unfortunately, it was a weak year as anticipated for Eversys, in particular, with suffering from weakness in Asia, in particular in China. But this year, we have expectation to see both companies positive, in particular, with a bounce back at Eversys, also on the back of a significant contract in China and continued positive performance in the key markets, namely North America, United States and U.K. and Ireland. So positive on both businesses. And with regards to the final expenses, you want to handle that?

The next question is from Luca Bacoccoli, Intesa Sanpaolo.

Can you hear me?

Yes. Sorry, if you can hold on for the moment, we have to comment on the financial -- on the financial expenses. Mr. Biella will handle this question -- sorry, Mr. Biella will handle this question.

It Will be interest income deriving from the cash that we have on hand. Therefore, if we continue to have positive cash, we have also positive income from the investment.

Can you hear me?

Yes, you can go ahead.

Okay. Because a follow-up for this. In particular, I would like to be back a little bit on the U.S. coffee. So probably you will launch Rivella also in the U.S. You are addressing manual machines. So can you provide maybe more granularity what you are seeing now in this moment in the coffee business in U.S. market? Because actually, you said that is not so well penetrated. So I would like to understand if actually the momentum that you had in the fourth quarter is continuing in the U.S. also driven by this kind of products in this market.

Okay. Yes, we are launching Rivella, fully auto has good momentum in this moment. So -- and they are not affected by any tariffs. So this is definitely a good potential growth pillar for us. And then the capsule machine are going still pretty well. The major area of attention in this moment can be eventually other categories. But for the time being, we are positive on coffee in the U.S.

The next question is from Luca Bacoccoli, Intesa Sanpaolo.