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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the first half 2021 financial results conference call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giulio Cocci, CEO of Elica. Please go ahead, sir.

Good afternoon. Good afternoon, everyone. Thanks for joining our call. Let's go immediately through the agenda. So 5 points. We will start with a summary of what happened in the first half of the year. And then Stefania Santarelli, our CFO, will take you through the industry trend, the dynamics that we show in our net sales, the economics and financials of the period. Finally, we would like to give you an update of our full year 2021 guidance, highlighting the opportunities that we see but also the risk that we have hoped to manage. Very good. If you move to Slide #4, a very positive quarter where fourth quarter in a row that we see a growing market, that we see an important reaction from our side. Industry is growing all over the world with some ups and downs that Stefania will explain, but the overall trend is absolutely positive after the first few months of 2020. Our revenues are growing above market, so 80% versus the same quarter of 2020, which is an easy job considering that we had the path of the production lockdown for 1 month and the Mexican plant lockdown for a couple of months. But if we measure ourselves against 2019, the business is growing 12%. And what we see, looking to our market shares, the shares are growing. That means that we are growing above the market. Our products -- our -- the demand of our products is more and more driven versus the high range that brings not only sales but also margins. NikolaTesla family keeps running, scoring a plus 85% versus 2019. So with the enlargement of our offer with the NikolaTesla Fit, so the smaller one, we see an important increase in penetration and in revenues. The margins are good for 2 reasons: growing revenues and tight control over every line of cost. So the stress over the SG&A hit like we were at the mid of 2020. At the same time, last year, we were able to cover, I would say, the 70% of our commodities needs for 2021. So we have only partially suffered despite of the raw material price increase in these 6 months. This allowed us to manage a progressive price increase without having a serious effect on our sales and on the negotiation with our customers. Moreover, differently from other businesses, we were able to manage our production without any interruption. So granted it continues very much working supply chain and a stable level of service to our customers. This is making our margin -- EBIT margin at 6.2% on net sales, so with the significant increase not only versus 2020 but moreover, versus what was Elica before. In the first 6 months of 2021, we basically achieved the total adjusted EBIT margin of the full 2020. With this margin dynamics continuing to put under stress the net working capital and the use of CapEx despite the EUR 4 million paid for the signing of the acquisition we made in the Motor division segment, our net financial position is improving. So delivering a leverage ratio that goes below 1 against, as you know, a covenant that is at 3. So there is space for growing when there will be the opportunity to do another operation. Stefania, please go ahead.

Okay. Good afternoon to everybody also from my side. Moving to Slide #6, the industry trend. Here, you have the industry unit trend according with our estimates. Basically, the Q2 confirms the positive trend starting in the second half of 2020, with an important recovery versus the quarter most affected by the pandemic. Both the EMEA and the America region had a progression of -- by a double-digit growth. EMEA, strongly driven by Western Europe countries like Italy, France and U.K., where our presence are more strategic. So Thank you to the rebound of the demand in this country, we were able to reinforce our market share. Basically, the demand in EMEA and the America come back to the pre-pandemic scenario. Positive demand also for the Asia, even if with a less acceleration versus the last quarter or versus the other region to the comparison with a quarter where demand has been really started a low recovery last year. In additional, there was the impact of the India new second wave of the pandemic that affects a little bit the demand in the Asia market in the second quarter. Moving to Slide #8, sales key drivers. So we have already sharing, during the highlights with our CEO, the net sales results with an important growth of 80% that has become 85% without net of FX. That is a stronger growth above the loss that we recorded during the Q2 of the last year because I remind you that the last year, we lost around 40% in terms of demand. So we have a growth that is above the loss of the last year. And this rebound of sales is also better than other peers of the sector that have communicated their results during the last weeks. And if you look at the result also versus the 2019, we can notice that is another very solid organic growth that reinforce the topic related to the gain of the market share because we grew plus 17% versus the H1 of 2019, without net of FX. If you look at the impact of the net of FX, that is EUR 2.8 million for the Q2 and EUR 6.8 million for this H1, we can say that are mostly balances the -- at margin level. Going on to Slide #9, so regional sales distribution and dynamics. Also in this case, starting from the Q2 figures, all regions show a double-digit growth versus the last quarter affected by the COVID. But America, still that is growing faster than the EMEA region, but it's mainly due to the 2 months of lockdown restriction that we saw last year in the America region. And if you look, in fact, the H1 results versus the last quarter, we can see a normalization of the growth rate among the region EMEA and the America. Going on to Slide #10, sales by business and brand. With regards to the performance by division, also in this case, the different dynamics of growth among them is justified by the different performance of Q2 2020. In fact, the Cooking seems that is gaining more than the Motors division versus the last year, plus 83%. That is mainly due to the fact that the Cooking last year lost more than Motors division. Cooking recorded a loss of minus 42% versus the Motors division that lost around 80%, thank you to the fact that we were able to minimize the sales -- drop of the sales in the Motors division, thank you to continuity of the production in our factory. Also in this case, if you look at the progression versus the H1, both of them are growing double-digit growth above 40%. What is important also in this case, to highlight the growth versus the 2019, Cooking grew plus 12% versus the 2019 without net of FX; and Motor, plus 33%, strongly driven by the heating segment that is growing more than the average of the Motors.

Products. September will be the right moment to launch a couple of products that we already highlighted in the previous call. Open Suite, first of all, which is not a brand new product in the market. There are a couple of competitors having this kind of product but with different feature, with a less aesthetic advantage and with not this kind of modularity. The peculiarity of this product is that you can do it yourself, not -- starting from an extension of 80 centimeters up to 2.4 meters, so covering all of the island; with integrating the LED lighting with connectivity, so it's product that directly speaks -- talks with Alexa or whatever kind of connectivity systems you have at home; and with a very important positioning in terms of price band because we are talking depending on the configuration on a product range between EUR 2,500 and EUR 4,000 retail price. It's a niche, but it's a niche that helps us from a brand perspective because it defines the value of Elica brand within the sector. And it's a very high-value niche, so you don't need to sell a lot of products to make good money. The second product that is very much important from our side because it means more than a new hood is the IKONA MAXXI PURE that basically, it's 2 products within 1 appliance. A classical hood, very much featured, very much functional, again, connected with a linear, minimal design and at the same time, an air purifier. If you move to the following slide, there is a snapshot of what is inside of the product. You can see that with this product, we enter in a segment, in a concept that especially in this moment is very much important to communicate and to value for ourselves and for our customers. That means the trade. That means the kitchen makers. These products gives you the possibility with a stylish feature, of course, towards [ high-end ] hood, but at the same time to purify independently the air of the whole house. Again, its a flagship product. It's something that we count on a lot, not only for its content of innovation, of sales, but also for the brand that this product and the one that will follow will give to our brand and to our market reputation.

Going ahead with the presentation, now we are in the Slide #14. So we can see the contribution of our high-end products to help us out to improve our price mix. So in Q2, all the high-end products had a positive impact versus the 2020 but also versus the 2019. In the blue box, you have the progression versus the 2020. In the gray box, you have the progression versus the 2019. So we have already mentioned it about the impact in terms of net sales of the NikolaTesla range that now is reaching the 12% of our Cooking sales, thanks also to the extension of the range of the NikolaTesla Fit that in the first 6 months has already reached a 1% of the total Cooking net sales. But it's not a [ material ] of aspiration hobs, that is for sure. And our top seller followed, but also the other categories like ceiling, and built-in high-end family is growing double-digit growth also versus the last year in 2029 (sic) [ 2019 ]. Moving on to the financial result, and now we are in the Slide #16. Here, you have the P&L side, so P&L for Q2 and P&L for the H1. The comparison for both versus the previous year is absolutely positive for each P&L line considering that the last year, we closed Q2 with a negative result of EBIT, minus EUR 4.2 million of adjusted EBIT; and the full year, we closed at the breakeven level. So starting for the Q2 -- to comment in Q2, we have already commented the top line sales results versus the previous year, plus 80%. In terms of adjusted EBITDA, we reached EUR 14.2 million, equal to 10.7% versus the net sales. Same time, the adjusted EBIT, EUR 8.2 million, equal to 6.2%. So more quite aligned to the profitability that we recorded also in the Q1 2021. Following down in the P&L, we arrive to the profit before tax of EUR 7.3 million, with an important job in term of financial cost reduction versus the same period of the last year and with a group net profit of EUR 3.3 million after the deduction of the minorities. Going to the H1 result, we can see that in 2 quarters, we performed and we reached the same EBIT adjusted of the last year -- already higher than last year and above EUR 7 million respect to the same period of 2019, with an increase of profitability of [ 2.5 ] versus the H1 2019. In terms of group net profit, finally, we can see value result that is above the value of our minority, and this is the confirmation that the effect of our turnaround process required to sustain our profitability started to work. To summarize, the positive overall result again is strongly driven by the positive volume price mix, with a slight impact for the current H1 where start of the raw material impact, thank you to the coverage of our -- of the main commodities that we've done the last year to cover this part of the current year. And also thank you to our good negotiation with the major supplier of our components of our product, with a combination also of SG&A cost containment. In term of net profit results, we can see a positive effect of the financial cost reduction versus the previous period. Going ahead, Slide #17, we have a detailed deep dive on nonrecurring costs. We are already showing the P&L, the impact of nonrecurring costs in the H1 which is equal to EUR 3 million, out of which EUR 1.6 million is relating to the -- an asset write-off of the China market without financial effect. So it was a [ phase ] of a portion of the land of our China factory. And the second part of the remaining amount of the restructuring costs are relating to corporate SG&A resizing and the amount related to the former CEO for the noncompetition agreement. Moving to the minorities result. As you can see, the total H1 result of the minority is equal EUR 2.8 million with a strong result of the -- our joint venture of our Indian JV equal to EUR 1.8 million but despite -- with a slowdown our start in Q2 due to the new wave of the COVID restriction that starting from April. Ariafina and other JV, Airforce, in Japan are quite aligned with the results of the last year. Moving to Slide #18, we have the net financial position. We already commented the result of net financial position in the highlights, equals to EUR 46.5 million, improving versus the same in Q2 of the last year for EUR 28 million. The positive result is carrying on by the operating cash flow due to a stronger result on EBITDA, positive trend of the net working capital and CapEx containment. The value of the CapEx now is below the 3% versus the net sales. Additional positive effects are relating to less dividend and financial items reduction versus the same period of previous year, mainly due to the cash out of Ariafina dividend and also positive effect of exchange rate conversion. There is also a positive effect of -- in nonrecurring cost relating to the cash-in of the non-strategic assets of China. That has been partially offset of the cash out of the restructuring cost, but it brings a positive result of EUR 1.2 million. This result is even positive versus the last quarter because if you remind, the last quarter, we closed our net financial position with EUR 51 million, so there is an improvement of EUR 5 million versus the Q1 2021 and even better than the results of the Q2 2019 for EUR 15 million. With this amount, we came back to the same value of net financial position of the end year of the 2019. So we come back to the pre-COVID situation. All of this despite the cash out of the EUR 4 million related to the M&A deal for the Motor acquisition. Moving to the full year guidelines, and I'll leave the stage to our CEO, Giulio Cocci, Slide #20.

Okay, so 2 scenario highlights. We expect the market to remain positive. Now we are very prudential in evaluating the second half of the year. We see a positive trend in July, which is basically closing today and also what we can see from our other portfolio in August and partially in September. So we have set, in any case, volumes to remain above 2019, which we consider the last year without rebounds or pandemic influence to the market trends. We know that the challenge will be mainly on managing the raw material line component scenario that remains critical, both from an availability, the supply chain constraint perspective, but also from an inflation perspective. We have started -- in the first part of the year, we are continuing and we will go live with another step in September, October to increase our prices in order to face a scenario that seems not having an end at least looking to this year. What does this mean for our size? If we look to the full year value, we expect net sales 2021 to be in the region of 15% above 2020. What does this mean? It means a number in the region of EUR 520 million, which is, for sure, an Elica record. But that represents also for our size, an opportunity to do better because we see the opportunities to do better if the market is better than we expected to be. This 15% is based on an extension of sooner or later deconsolidating our Indian joint venture. You know because we discussed that there is a process ongoing. You remember that the original contract expired at the 31st of March and was supporting Whirlpool to execute the call option over the remaining part of the shares of the venture. We expect this to happen within the year. And this number includes some of our assumptions about. Margins. Margins are expected to be more or less where they are today. Now we are going to face attention coming mainly -- exclusively from raw material prices in the second half of the year, but we are going to close the year with a net and adjusted EBIT margin that this company has never seen. For what instead concerned the operating cash flow, so at the end, our net financial position with the numbers that we have saw with the levers and the projects that we have in our hand. Despite we will need to build up some stock in order to manage next year the movement of a big part of the Italian production into Poland, we expect the net financial position at the end of the year to begin finally with the 3. That's all from our side. We will be happy to answer your questions.

[Operator Instructions] The first question is from Mr. Andrea Randone with Intermonte.

I have a few questions, if I may. The first one is about the outlook on the U.S., specifically on the B2C channel that was indicated as one of the most promising segment. So if you can comment on this particular topic. The second question is on the B2B channel. If you can provide more color about what is going on with your clients and in particular, with the clients with which you are expecting a reduction in orders. And the third question is, if you can comment the recent acquisition, how it is part of your strategy. And how did you select this target? And okay, these 3 questions. Last question was about the joint venture in India. But you already commented, and I don't know if you can add something about this point. It is, for sure, interesting, but maybe you already commented.

Thank you, Andrea. So question number one, U.S. outlook. U.S. outlook is very good. So our B2C this year will go above EUR 10 million, which is [ enough ]. We are talking about the biggest market into the -- our industry, but not only our industry in the world. But starting from a bit more than EUR 5 million 2 years ago, it means that we are growing very fast. The whole U.S. geography is going very well. We see that in the macro data of the economies, and we see also in our sector that U.S. is growing and is supposed to grow. This is also why we have done a first intervention in increasing our production capacity of the Mexican factory at the beginning of this quarter, but we are planning to invest in the last 18 -- in the next 18 months, additional money in order to get ready to market that will be at least in our sector growing faster than others. The distribution structure that we have is working well. We are [indiscernible] to discussing the B2C. Moreover, we see an opportunity that we are evaluating of launching the NikolaTesla range, not only the induction products, but also the Flame one, so the gas one into the U.S. market in a, let's say, more visible way because the demand, especially on the East and West Coast is growing a lot. It's not that kind of products that have the same recognition that we see, that we have experienced in Europe. But we are understanding that being there with these kind of products -- being the first one to be there with this kind of product is an advantage that we need to deploy as maximum as we can. B2B, we have up and down dynamics. We know because it was part of the fact that they bought [indiscernible] a few kilometers from where we are calling now that they would have been, let's say, making some of the products range that we are offering them so that we would have lost the turnover from their side. But there are 2 factors. First one is that this exit of our products is going slower because, as we commented in many occasion, it's very difficult to get rid of a supplier like Elica considering the wide range that we produce, so from the very cheap hoods to the -- up to the NikolaTesla. There is a progressive phaseout of part of their production. They will never go to zero. They will just produce internally some range. What we see now is that the very good performance that we are having with Whirlpool, which is coming back to growth into Europe and which is dominant in the U.S.; with Samsung, that instead is growing dramatically, both in Europe than in U.S.; and also with IKEA that is performing very well despite was one of the customer more suffering because of their retail stores. The COVID effect is more than balancing the negative side coming from the [ BLS Group's ] production progressive phaseout. The Motor acquisition, I think it's an important step. This acquisition, we need to do properly, I said many times. There are the margin. There is a complementarity, if it is the right word, in terms of product. We are already in the takeoff of control phase. So fortunately, the 2 headquarters are 1 at the side of the other. So that is 50 meters distance between Elica, FIME and E.M.C. So basically, we are already operationally working as one company. At the same time, we are managing the same customers. We are managing, despite we play with different systems, the same supply chain methodology and processes. The integration in terms of FIME is going on. Of course, all of the customers have reacted very positively, even those ones that could have been -- could have represented a risk from our side. E.M.C. is a supplier of fiber, which is one of our, let's say, worst competitors. But what we understand is that managing the business in a separate way, there is a big opportunity from our side, but there is a big opportunity from their side also because we are more structured and because from a level of service, we can offer our expertise and our capacity to supply to their needs. So the -- after 3 weeks -- 4 weeks from the acquisition, despite we are going to manage a project that will make of a division and of a single company, a bigger company, independent company, we can say that things are moving well. We are managing the sales forecast. We see the same dynamics that we see in our business are represented in their forecast. So we are really looking forward to see the first quarter that we will be managing with the E.M.C. within inside our numbers. What else? India. India, basically, I said everything, explaining the assumptions that are above our full year view on the net sales. What I can add is that this is a process that we expect to close, let's say, within quarter 3 and quarter 4. This is why also the EUR 520 million, the plus 15% doesn't include India at least for the quarter. But this means also that the cash-in of the total or partial liquidation of our current shares in India will be an additional positive to add on to our net financial position. But with this operating cash flow trend could be also an additional opportunity to invest this money as we need with E.M.C. if we found a sustainable and strategic opportunity to grow our business from a product perspective or moreover, from a geographical perspective. We talk -- we often talk about the U.S. We are doing very well. But EUR 10 million over the U.S. market is really the chip to play. We are looking the market in order to found a sustainable acquisition that can boost our brand, our sales, but moreover, the opportunity that we have having a fantastic and very cost-efficient factory just below the United States, which is our Mexican facility.

[Operator Instructions] The next question comes from Domenico Ghilotti with Equita.

I have just a question or a clarification on the guidance, just to be sure that I understood properly. So you are saying that the guidance that would imply some kind -- something like 10% decline in sales in the second half is in reality, taking into account the consolidation of India for at least 1 quarter or 2 quarters, something like that. And on the other hand, on the cash flow, so on the net financial position, you are not taking into account the contribution of India potential deconsolidation, correct?

Absolutely, yes. Yes, it's correct. So we are not accounting for the cash from a net financial position, and of course, we made an estimation of how we can close the process for what concern our possibility to consolidate the joint venture -- Indian joint ventures into our numbers. So we are imagining a quarter 4 without India in our numbers.

Well, just as an additional color, in terms of organic performance, you were commenting that July is still positive, and also, the backlog is providing some support also for August and part of September.

Yes, we see a July -- we see -- we almost saw July that is, let's say, basically in line with the dynamics for all the segments and all the channels that we have experienced so far. August is a mid-seasonality month for us. But again, considering also the planning to close the factories for the holidays, we have a reliable portfolio both for the Motor division and for E.M.C. then for the Cooking division. September, we just see, let's say, a couple of weeks planning, which is not complete. But substantially, there are no reason to imagine a negative September versus what we see. This is why I was highlighting that, of course, we are always very prudent in giving estimates, and we have been prudent also in this case. But we imagine a market to be in line with what we show that basically needs to be in line with the market performance and our performance in 2020, plus or minus, depending maybe on what will be happening in India or some minor effects.

Okay. Just could you remind me if say the -- because you had a, say, a pickup in the second part of the year, mostly in Q4, can you remind me if the initial part of -- so July and August last year were, say, still softer compared to the remaining part? So just to understand if the strongest -- you're saying, okay, July is basically in line with the first semester. I'm trying to understand there is a comparison that is also similar, let's say, to the first semester, or you were already seeing some pickup in the performance.

Let me check because I do not remember exactly. What I'm sure is that -- while we are checking the numbers is that July is in line with last year, 100 more or 100 less, considering also that last year, July was a month really under pressure now because we were in lockdown up to the end of April in Italy and also May in Mexico. And then coming back to a normal production with a huge back order was putting seriously under stress our operations. So we're more or less there, yes, with [indiscernible] that is, yes, absolutely solid.

Okay. Sorry, but I'm not so familiar with the company. I have to be sure that I am...

No, no. It's also slightly better than last year.

The next question is from Andrea Randone with Intermonte.

Just a quick follow-up on raw material. That is, for sure, a critical issue for all the industrial sector. Some players have commented sort of deceleration in price increases in the recent weeks. I wonder if you can remind us what are your key raw materials and your recent experience in terms of price direction.

Okay. About the raw material, that's for sure for us has been more critical in this period. We are speaking about copper because we are seeing that we -- the price of the copper versus the last year rate is still $10,000 per tonne. Stainless steel, carbon steel are the major commodities that we are taking under control because we have set our number in the next half. But it's not a material of the commodity because all the components like electronic boards, like also components for paper, also for the packaging of our products, every kind of product or component is recording the price increase versus the last year.

To offset during the year now this growing effect that sometimes is also not related to the commodity prices that we see on the stock exchange, we have started with a progressive price increase basically from March, starting with Motors that were the most -- the more effective, especially from copper prices, but then covering all over the world and channel of appliances. In the meantime, whatever ratio we were selling to our customers after 1 month, it was not enough. So it's a project that is continuing. In October, we will be performing an additional round of price increase in order to, let's say, offset within -- between October and January, what we see now as risk or already as consolidated prices. So unless until the market doesn't stop, it will be, let's say, a continuous work, working on new catalogs or maybe in the case of distributors, sending a letter which is not negotiable. Of course, sooner or later, all the raw material or the markets will stop. There's no alternative. In this case, if the raw material inflation trend embrace all this price increase, it will become an opportunity maybe to push on sales in order to keep shares or to gain additional shares for who will be doing this kind of operation latest.

Mr. Cocci, Ms. Santarelli, there are no more questions registered at this time.

Very good. Thank you very much for joining the call, and I hope you will enjoy your next holidays. Thank you. Bye-bye.

Thank you. Bye.