Elica S.p.A. (ELC.MI) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Elica First Half 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giulio Cocci, CEO of Elica. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining our call. Let's go quickly through the agenda, the highlights of the quarter and of the first half, what are the trends of our industry and then some focus on sales dynamics, financials with some final comments to better understand the situation, what we see about the outlook, the main risks, opportunities and focus. If we quickly move to Slide #3, we can say that this is a positive quarter from a revenue growth perspective with the second semester in a row of growth, both for the Cooking and the Motor division. We see encouraging dynamics despite the business environment from whatever perspective remains, I would say, strongly uncertain. Positive signals in the Cooking division as coming from the constant growth in North America, where the strategy is paying back. But also -- and we'll discuss about it in the later part of the presentation, I would say, month after month most relevant effect of new cooking products. And I would say, the complete built-in range overall, our Cooking brand revenues. While on the other side, we start to see the first effect of all of the projects that we won last year with our OEM customers. Motor division, again, a quarter in which 3% growth of the first 3 months is confirmed, is even stronger, where it's the heating segment that drives the growth. Going to the EBIT adjusted, EUR 2.1 million, meaning a 1.8% of revenues short versus last year. Here, I would say that it's -- we are in control of the number. The intensified investment in Cooking transformation is for sure putting strongly under pressure our margins. In this first 6 months, and especially in the last 3 months of the first half of this year, we have increased our efforts in the launch of LHOV in increasing the display in our customers. In training our customers, we have opened with a specific event our new Elica Netherlands offices after the acquisition of aXiair that we did at the very end of 2024. And we have overall increased our trade marketing activities. We have implemented our North-East U.S. distribution organization, meaning that we started to pay the salaries but sales are still not there. At the same time, from whatever perspective and whatever front line, if we look especially at Europe, the promotional environment is strongly, strongly, strongly promotional as I have heard in other peers' conference call. The debt profile remain, I would say, completely under control, meaning that of the EUR 9 million difference, if we compare our net financial position in June 2025 versus June 2024, there are EUR 5 million of buyback, especially what we did in the earlier part of 2024. And then there are EUR 4 million that are inventories growth. Why? Why? Because we see some positive signals in the market, and we want to be ready with the stock in there in order to serve our customers and to be the first choice in case of any kind of product demand. We know that in case we will see that in the second part of the year, there is somehow a decrease in the market demand, we are very flexible from an industrial perspective, and we are very skilled from a managerial perspective to bring back the inventories where they were last year. If we move to the following slide, this is just a trend view of the last 6 quarters, 2 quarters of growth in 2025, and it is valid for the sales. It's also valid for margins where we are growing since the very last part, so quarter 4 of 2024. Here, again, what is driving is the investment. So we will discuss again at the very end, but we do not expect any upside versus the current consensus. If we move to Slide #5, we would like to drill down a bit our strategy in North America because we believe it's important and also justifies what we have announced today, so the equity agreement with the 28% share purchase in Steel S.R.L. In North America, we have opened at this moment, 3 companies, AG that is following the whole of Canada. Southeast Appliance is the first one at the end of 2023, that is following the southeast state of the East Coast of the United States. And in April, Northeast appliances. Both of them are specific distributors under the cap of Elica North America. The remaining part of the United States, we are serving with distributors, Milestone, which is the biggest one, is the one that covers, I would say, the belly of U.S. This strategy is a winning strategy because together with Elica and Arietta that are our own brands, we distribute ILVE from 2023, Steel starting basically a few months ago, but also Kobe and Tulip Cooking that offer a complete range of premium appliances to our customers, which are the big, premium stores. The more brand and the more products you offer, the more you have an opportunity to be interesting and to grow. We have seen in the last 2 years that range cooker product within our distributors have basically doubled. 2023, we just launched this direct distribution. By 2024, EUR 1.3 million, within 2025, we foresee at least to arrive to EUR 2.2 million. At the same time, we have more than doubled our organization versus 2023. So today, we can count on almost 20 placement and we have a forecast, an estimate of revenue coming from our direct distributors of EUR 26 million. Why the strategy is winning? It is winning because together with our products with Elica range, so mainly aspiration in the U.S., which is positioned as a very premium aspiration choice, we have included the range cookers. This is why today we announced the entering into Steel S.R.L. Slide 6 is a beautiful picture of a black steel range cookers. But if we move to Slide 7, I can briefly discuss what is Steel about. It's a typical Italian hand-crafted premium appliances, so domestic use, professional performance. It's based is Carpi. The founders are relatives of the famous Angelo Po, which were experts in a commercial cooking. They built this small company, EUR 7 million annual sales, with more than 11% EBITDA, delivering 4,000 range cookers a year, but with an important investment in industrial capacity because we can arrive to produce 10,000 units without spending a penny. The company is small, 35 employees, including the current shareholders and have sales in Benelux, in Italy, in France, Australia and a small bit also in North America, 15% of sales. The big part is Benelux and Italy. This is an opportunity for us. Why? Because we have instead the big distribution in North America, direct and indirect. And they have the right product, so it's a perfect match. A product that works domestic from an indoor perspective, mainly range cookers because the built-in oven range is still limited, but also from an outdoor perspective, barbecue the bottom right side of the slide is a product that has an important market in the U.S. and it's a product that may come inside the proposal of our distribution company. So again, there is an immediate commercial synergy. The following slide, Slide #8 is just a snapshot of the, let's say, marketing perspective of the kind of products and ambience in which we may imagine them. The focus, again, is range cookers, multi-doors, multi-ovens and it's outdoor. So Steel, Steel is absolutely representative of the main competencies of this company. So Slide #8, what is the strategic rationale of this project? First of all, the 70% of what any premium distributor sales to its customers is range cookers. So the deal with Steel gives us the control on the most important products that the U.S. premium distributor must have, full stop. And also this product fits with our strategy because if I have a range cooker, I can sell also aspiration. Vice versa, it's not possible. So to have this kind of products, and I would say, very good and comparable brand in my portfolio makes it stronger also in selling Elica. I would also add that we have a huge network also in our indirect distribution. So having -- collaborating with Steel in defining the product development priorities, we have a kind of [indiscernible] in understanding what is important from our customers, so to create additional growth opportunities outside of our direct distribution. The positioning perfectly matched with our product and brand positioning. So if we divide the range cooker market, it's the third column of Slide #9, into 3 blocks Steel range is positioned above the USD 9,000 per unit, have the right specs, have the right measures and have the right positioning to enter in our distribution. And we'll enforce also our offer. Out of America, there is also additional opportunities. But for sure, in our perspective is priority #2. But it's, in any case, important to keep into consideration in the 3-year plan that we see us becoming the major shareholder of the company. The range cooker market in Europe are mainly Benelux. We see also from the revenue share, U.K., France and Italy. In all of these markets, we have our organization, our distributor and a big knowledge of the customers. So this is an opportunity for us to increase also the penetration of this product where we have already our boots on the ground. If we move to Slide #10, briefly the numbers to start and the restructure. As we mentioned at the beginning of the presentation, Steel in 2024 core revenues for EUR 7 million with an EBITDA of EUR 11 million and a net financial position of EUR 3 million debt, which represents the investment that they did in preparing their production capacity for the future. Their stand-alone plan, so the pre-transaction plan, is foreseeing doubling the revenues by 2027 with a stable EBITDA and with a 50% improvement in the net financial position, numbers that we have absolutely controlled 3 times but that seems reasonable. If we see their performance in the first 6 months of 2024, they are growing 30% -- sorry, 2025, they're growing 30% versus last year. So the trend is exactly correspondent with their future plan based mainly on distribution agreements. So on the contracts that are in place and production orders that are running. The transaction is organized in 3 steps. The first one that we have announced now see Elica entering with a 28% share at a price of EUR 2.5 million. That, of course, is based on a prospective evaluation of the company. The Wave 2 will be at the closure of 2027 figures. So 2028, where we will purchase, there is a put and call option, an additional 57%, increasing our sales to 85%. After 2 years, we will have the possibility to buy up to 100% current Steel shareholders will have the possibility to retain maximum 10%. So it may remain a joint company because we have imagined a very smooth transition process. We have defined a MAC, a material adverse change clause in our contract. So if in the first 3 years of the plan, their EBITDA, without considering in the calculations, what comes from the integration with Elica distribution falls below the 24% of the target, we stop here. So there is not put and call obligation. We sit down and we decide how to move on. So Elica will not be required to purchase the second 57%. There is, on the other side, an earn-out infrastructure. So the more the company will perform versus the plan, the more there will be an increase of the price that Elica will pay for the 100%. No, of course, it's not a huge transaction. So it's a transaction that we can finance through our current debt. In terms of multiples and synergies, the big part of the value creation, at least in the first 3 years of the project is based on commercial synergies. Their cost structure is very simple, their cost structure is very small, but the more we sell through our distribution, the less the operation costs. We foresee in the first 3 years to arrive to a ratio of 2.5x versus 2024 revenue. In terms of enterprise value, there is a range from EUR 8.5 million to EUR 10.5 million in terms of 100% share price based on achievement of certain targets of 2027 EBITDA and of course, net financial position. This implies a multiple of 6x EBITDA, just considering the Steel progression that becomes lower than 4x EBITDA, if we consider also our direct and indirect synergies, so the ones coming from the margin of our distributor companies. We believe that this is a project that speeds up our growth in America and gives us a lot of opportunity also in Europe. So we start small, we think big, and we will scale fast.

Good afternoon, everybody. We will continue with the presentation. We come back to comment the results of the Q2 starting from the industry trend. So going to Slide #12. Here, you have the Europe industry shipment. The cooker hoods, in terms of market demand, cooker hoods no change in respect to the previous quarter, still weak respect the previous year without recovery. And also -- and for the aspiration hobs, even if we see a confirmation of positive trend driven by the conversion factor, we cannot say that there is an improvement in terms of medium price. In fact, going to Slide #13, we can see the level how much is still present under pressure in terms of promotional activity. It's still high for our aspiration hobs and the same for cooker hoods. Since it's mainly a market driven by replacement demand where generally promotional lower price are the main factor of this market. Going to Slide #14. In terms of North America industry trend, the industry trends show cooker hoods with a slight increase versus the last year plus 2.5%, that is mainly related to our performance since the coverage of this category is low. And this is the reason why we prefer to compare the market. So with the cooking segment, where you can see in the right box that in this segment, the trend in the current quarter is the opposite of the previous quarter where the world effects of the China rebuying products due to the tariff effect. Going forward to the same dynamics, Slide #16. Q2 in terms of sales, EUR 121 million, improving in terms of organic growth versus the previous quarter, 1.7% is the organic growth. And then there is also the negative impact of the currency mainly related to the U.S. dollar for EUR 0.9 million, but that is completely offset in terms of P&L. In terms of H1 results with EUR 240 million of revenue. It means the plus EUR 2.6 million of revenue growth versus the previous year, out of which EUR 3.3 million are related to the organic growth. In terms of performance between the 2 divisions, Slide #17, sorry, both the division are positive versus the last year. Motor, despite a softening market that is still weak without recovering is performing a positive result, plus 4% versus the previous quarter, thanks to the product mix, thanks to the new project, and thanks also to the market share that we gained against the competitors. The Cooking division is positive versus the previous quarter for 1%. Going forward to the performance by region, the Cooking geographic performance confirm the contribution from North America, plus EUR 3.5 million in terms of organic growth versus the previous year. And also a positive contribution that from Asia, that is called Ariafina. So a good performance from our joint venture in Japan and also through the launch of a new product. The EMEA performance is mainly related to the weak of the demand and the market performance and some also OEM customer in EMEA that is performing worse versus the previous year. The dynamics in H1 is quite similar to the current quarter. In terms of performance between OEM and own brand, Slide #19, both have positive channel distribution, so both positive versus the previous year. OEM, thanks also to the business win and some customer is positive for 0.9% versus the previous quarter. And our brand is very positive, 1.2% versus the previous year, thanks to the launch of the new products, so the contribution of the new products, not only in North America but also in Europe. And also for sure, as we shared before, thanks to the contribution of Ariafina. Slide #20. In terms of tariff effect, so versus the previous -- for services used, up to date there is no major effect overall. Start from the China duty that for the moment -- for the current moment, the tariff is 55%, out of which the 25% was already in place in the past, so the incremental value is 30%. And this affects the wine coolers, but in this case, if the customer, in our case, it's the customer that is in charge for duty obligation, and is offset by a price increase that has been already executed equal to 10%. In case of fridge, since the main volume are delivered in Canada, there is no impact. For the moment, in the U.S. are not material so no price increase has been applied by our supplier. If you move in Mexico, we know that for Mexico production is still valid the exemption that is coming from the U.S., Mexico and Canada agreement, and the new tariffs related to the steel component is not material for the moment. Tariff from Europe, that is for our case is involved with our production in Italy and in Poland. The tariff now moved from 10% to 15%. In our case, since the volume of the cooker hoods and aspiration hobs from Europe to Mexico -- to America, sorry, are not material and are only relating to the OEM customer, for which the duties are in charge of them. And by the way, in case our product will be not competitive, we are ready to offer to our customers the Mexican production in order to be competitive in case we -- it is needed. Last for the range cooker, in case for the range cooker, the impact in term of price increase, we estimated that it will be not more than 5%, considering the level of the transfer price that we have in place. And considering that it is a product inside the medium band, installed by the way, inside the cooker furniture with higher price, we think that the [ prices and the process ] that it's not representing a risk. Going forward to the P&L, Slide #22. In terms of revenue, we have already shared the impact and the driver, EUR 120 million of revenue. In terms of EBITDA or EBIT, we saw -- we are recording an improvement versus the last 2 quarters, and it is in line with our expectation. EBITDA, EUR 7.9 million, equal to 6.5% on revenue, EBIT EUR 2.1 million equal to 1.8% million of revenue. The profitability is below 100 basis points, but let's say, it is mainly due to the level of investment that is still high to support, to sustain the launch of the new product to the investment that we are doing for expansion of our direct distribution in North America. And by the way, we are continuing to be focused on this on containment of SG&A. In fact, if we see the reported EBITDA equals to EUR 0.9 million. There is an impact between the adjusted EBITDA of the EBITDA for the restructuring cost like China, part of the China restructuring cost to optimize the organization in China and some additional SG&A optimization and also the last activity related to the acquisition of M&A. In terms of financial changes, we are aligned with the last year. In terms of net profit is negative for EUR 1.9 million with a group net profit of negative EUR 2.2 million. Going forward to the net financial position, EUR 45 million of net financial position this means a gap versus the previous year of EUR 9 million, but out of which EUR 5.5 million are relating to the coming from the opening balance for the impact of buy back that we did during the last part of the year. And then after the first quarter where the net financial position was at put -- substantially in line with the last year. During the current quarter, we added with the level of the stock in line with the trend of the sales that -- so the increasing of the stock is also a consequence, of course, of increasing of the enlargement of distribution of the new products but we are keeping -- and so we are managing this part, keeping focus that in case we need to stretch again the inventory, we are ready as usual with our flexibility. In terms of operating cash flow, we are keeping the CapEx under control, EUR 2.5 million versus the previous year. That is balanced partially the cash-out effect for EUR 1.4 million relating to the leaseback agreement that we set for the -- our Poland Motor division. In terms of covenants, we are under -- the leverage is under our covenant of EUR 1.8 million debt to EBITDA.

So going to the closing remarks. I believe this slide is very important for us because this slide show the brand sales variance H1 2025 versus the first 6 months of 2024. What we see? We see that the cooker hoods, let's say, the aspiration, ventilation part of our business is decreasing. Cooker hoods is decreasing of an absolute value of EUR 2.5 million. This is just brand sales, I want to be clear. Why? We didn't lose any share. This is a market. This is pure mix market. Aspiration hobs is flat. But this flat means that we are growing in the region of 10% from a volume perspective, but from a revenue perspective, we had to play the game. So to go especially in France, especially in -- with some customers in Italy with promotion or changing the [ specs ]. So adding new products with the same percentage margin but with a lower price. So this is what we saw in the previous slide about the pricing trend of the market. But the big jump versus last year, it's all coming from new products, this is the delta. So EUR 5 million came from induction hobs that we produced in Poland, Elica branded. From LHOV, that is starting very well, I would say, meaning that we had an estimate considering that the product is brand-new, to sell between EUR 800,000, EUR 900,000 of LHOV in the world 2025, we did in 6 months. So the trend is the right one. In range cookers with the first sales of Steel, but also the growth within that, we distribute only in the Southeast part of the U.S. But it's also fridges that we sell in Canada, Elica branded. It's also wine cooler. It's also ovens. So this means that the strategy of adding products is the right one. If we remain just ventilation, we will go with the wind, okay? Another important topic of this slide is that EUR 5 million of a total of EUR 7 million of, let's say, nonventilation product sales is buy-to-sell products. So with the exclusion of induction hobs and LHOV, the rest of the products we buy and we sell. So this makes consistent the choice that we made also for profitability reasons, of course, but to change -- to close, to put a point on our strategy in China. So China is the sourcing up. It needs to buy the best product in terms of quality, in terms of supplier chain, in terms of price, of course, and give to Europe and mainly to U.S. in order to be more competitive, more complete in terms of product range, so to get additional opportunities. But I would say that this first 6 months are fully representative of what we are saying and saying since months. So that the change is arriving. And the important thing of this slide, important message of this slide as Luca Barboni, the Managing Director of the Cooking division was saying today during the Board of Directors is that this slide means that our customers are believing in the projects and also ourselves. So this is an important milestone. This is really what will generate a different Elica in the midterm. If we move to Slide #26, we go to the final comments. So what we take away from H1, dynamics are positive. The growth is solid and the growth comes from new products. The growth come from operations, the growth come from distribution, not absolutely from market trends, so this is good. This is what we mentioned when we planned the year. There are still 6 months ahead of us. We see a lot of opportunities. We see also some risks. In the last 2 years, the second part of the year has always been adjusted. Why? Because the demand was low. Why? Because the focus of some of our customers became their inventories. So we see, I would say, a healthy third quarter, but let's discuss in October and let's say, some days of holidays in the coming weeks. We see -- we just command a significant contribution coming from new cooking and built-in range. This is a good sign, this is a milestone, and we see a big opportunity as we commented in the partnership with Steel because it makes us stronger, because it makes us -- driving a product which in some geographies, mainly in the U.S. is a key product to help selling all of the others. So the takeaway, the main takeaway is that the transformation is following its path. We know, we see, we commend that there is an impact on the margin, but we know that this is the price to pay to become something different, to become something stronger, to become a different company. What do we expect from 2025? We expect an industry that, in the best case will be flat. I have seen Whirlpool, Electrolux presentation. Everybody is between 0 and minus something, not double digit, nobody is expecting a disaster like 2 years ago, but we do not expect our market to become healthy overnight. So that's the rule of the game. The geopolitical scenario that is what at the end makes a normal person like Giulio Cocci believe that it's the moment to buy a new house and maybe also Elica appliance will remain uncertain. On the other side, all of the opportunities that we've been discussing in terms of market development, in terms of undersupply of new housing, and this is valid for Europe and for U.S., this is our championship are still there. So sooner or later it will come and will meet an Elica, which is a full range product Elica instead of just a ventilation expert. So our guidance is positive in terms of revenues. We foresee a small growth, 0.5% versus 2024. I would say 1% if we do not consider the fact that we are now stopping to sell Elica and -- in China, that have 0.5% effect. So organically, if we consider this operation not organic, a 1% growth year-on-year. Margins at consensus, whatever penny comes because we sell more, because we sell better, we are going to invest in our transformation project because it will come back earlier. So that's a decision. We foresee instead an improvement in net financial position because the dynamics are positive because in case something bad happens to the demand, we are very much fast in reducing our stock. But if things goes better, our stock is already there to sell the customers. So it will become a lever now considering that we pay our supplier 100 days, and we collect our money at 60. Thank you. We are looking forward to answer your questions.

[Operator Instructions] First question is from Emanuele Negri, Mediobanca.

I have a couple which are actually a clarification on the guidance. The first one is on the revenue guidance. you mentioned to expect a 0.5% growth compared to '24. Could you please quantify the impact of ForEx in this number? And the second one is, again, on the guidance. It is on margins. You said to expect margins in line with consensus. Could you please give us an idea of which consensus are you looking at in terms of adjusted EBIT margin?

Okay. So before [ I comment on EBIT ] question #1, so 0.5% means starting from the current situation. So ForEx effect is included in the whole number. So we expect that if we take the full revenues 2024, and you have a 0.5%, that's what we see. That 0.5% would be 1%, but we have an effect coming from the consolidation, the stopping sales in China, which is in the region of EUR 1.5 million, EUR 2 million. So this should be added on top to have an organic view or a constant perimeter view of our sales projection. As I mentioned, we see some opportunities, but we want to be prudent because, again, there is a big investment ongoing. So to be too much optimistic on revenues means that you may be too much flexible on cost. We know that we have to spend a lot of money but we want to base our strategy on -- I'm going to say, the worst-case scenario even in terms of revenue. So I would say that this is a -- there are more opportunities at risk in this number. For what concern the second point, there was a problem with the audio so we missed that, sorry. If you can repeat the second question, Emanuele, I would appreciate.

Yes, sure, no problem. You mentioned the guidance to expect margins in line with consensus. Can you please give us an idea of which kind of consensus you're looking at in terms of adjusted EBIT margin?

In terms of consensus for EBIT margin, we are referring to around EUR 6 million of EBIT adjusted. So this is the reference that we are taking. That is the average of the consensus that we receive it from [indiscernible].

[Operator Instructions] Next question is from Carlo Maritano, Intermonte.

I just have a quick question, it's a clarification on guidance as well. It is on the net financial position guidance. I was wondering if your expectation include the cash out for the first tranche from the Steel acquisition. And if you expect a reversal of net working capital next quarter to explain the big improvement implied in the guidance.