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 Elica Group First Half 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giulio Cocci, CEO. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining our call. Briefly, we will see some highlights of the first half of 2024, the trend of the industry, our sales dynamics in order to arrive to the financial review and to get some conclusions together. If we move to Slide #4, EUR 120 million sales, quarter 2, with the sequential revenue increase versus the previous quarter. So in line with our expectation in a market that remains weak, remains weak in North America, remains weak in Europe, remains weak for what concern the model division, despite we see some positive signals from our OEM accounts, which are growing after years, thanks to market share, thanks to new customers, thanks to new products. And we see, again, the positive dynamics coming from our North America brand distribution, where our Canadian company, our Southeast Appliances are performing well. Margins are better than the previous quarter of 130 basis points if we look to the operating margin despite, as you know, quarter 2 has been a quarter of massive investment, the Salone del Mobile, the progression of the investment in our Cooking transformation, which remains a priority. On the other side, very good management of OpEx, very good management of our labor cost, very good negotiation from a procurement perspective. So EUR 3.3 million adjusted EBITDA, which is 2.8% of revenues. For what concerned the net financial position, mainly thanks to a very good management of the net working capital, the situation despite, as you see, EBITDA under pressure. The financial position remains basically flat quarter-on-quarter and also with no significant variation since quarter 3 last year. If we see the first half results, here, you may better understand the dynamics. So the lowest quarter has been quarter 3 2023, EUR 106 million revenues. From that date, million after million, quarter after quarter, we see an incremental increase of our performance, both in Cooking and in Motor divisions. Margins, as mentioned, has been affected by many factors: volumes, price-mix, investment, improving transformation. So we know that there is some investment to be done and the volume and price to be recovered. What we saw in quarter 2 2024 is a positive signal despite we expect, how can I say, the visible Stage 2 mainly for mix and pricing more in the field. Net financial position, as I anticipated, it's basically there since quarter 3 2023. So EBITDA under pressure, dividend distribution and so on and so forth didn't have a real effect on our financial position, which is remain solid.

Going forward to Slide #7 relating to the industry trend, starting from cooker hoods. The picture is relating to the European market. And the data for April and May that we got from GFK is showing a still negative market demand despite this comparables with several negative quarters. And the data is minus 2%. But if you take in consideration some important markets like France and Italy, the gap versus the previous quarter is higher than the average. Italy is minus 4%. France is minus 7%. Moving to the aspiration hob. Overall, the year-to-date market is flattish compared to the 2023 when the market doesn't show a growth. Q2 show a positive market, even if it is driven by some market -- some important markets for the aspiration hobs like Netherlands and France. But if you look at the trend in terms of value and not in terms of units, the trend in value is absolutely flat versus the previous year. That has confirmed that the -- how the market of the aspiration hob is affected by a promotional activity and a medium going price that is not recovering versus the previous year. And it's confirmed by Slide #8, where in the right box, there is the trend of the medium going price for the aspiration hobs that in the 2024 that will show our recovery of the medium going price versus the previous year. The same we can say also for the cooker hoods in the last part where you can see that also during the current year, there is no improvement in terms of price and not in term of mix. Moving forward to Slide #9 regarding the America market. The data that we are gathering from the AHAM is showing for the Q2 like recovery versus the previous quarter. What is important to highlight is that Q2 2023 was the worst quarter in terms of performance, minus 30%. By the way, the source is showing that also the market overall is not recovering versus the previous year because the cooking product line is still negative versus the previous year, minus 6%. The ventilation categories is something that -- is a category that is carried on by the Cooking segment. So even if the trend of ventilation is positive, it doesn't appear as a full recovery of the market. Moving to Slide #11 regarding the heating market. The data for the Q2 is not available, but our expectation is to see a not significant change from the previous quarter. So not recovery from the market, in line with what we saw in the Q1, and by the way, something that cannot return at the level of the 2022. Moving forward to our performance in terms of sales. We have already said the quarter 2 show a sequential improvement versus the previous quarter. Q1 versus the previous year was minus 8.5%. Now the quarter is minus 4% organic. And each one is minus 6.3% with a recovery of sales, thanks to the North America performance in the market that we can go and deep dive in the next slide. Start from Slide #15 regarding the performance across countries. As you can see, Americas in Q2 is positive, while the other countries is negative. But what is very important to highlight is that the American H1 is positive for 5% versus the previous year. Regarding the performance between our division, Motor in Q2 is negative for minus 11.5% with a recovery versus the previous quarter. Q1 was at minus 18%. The same we can say for the Cooking division because the last quarter Q1 versus the previous quarter was minus 5%. Now it's minus 1.7%. Moving to Slide #17 regarding the performance of between OEM and own brand. We have already said a very good performance in the OEM division. In this quarter, flat 8.2%, thanks to the overall recovery for the OEM division both for European and America. Tenfold to the new project, new customer. And the part relating to the own brand is minus 8%, affected by the trend of the market, affected by the negative price-mix and the impact of the promotional activity for the aspiration hob. Moving to Slide #20 and going forward to the financial. We have already commented in the past relating to the net sales. In terms of EBITDA margin and EBIT margin, there is a sequential improvement in this quarter, about 1 point for EBITDA and 1.3 for EBIT margin. So EBITDA adjusted, EUR 9.1 million, equal to 7.6% versus net sales. And EBIT adjusted, EUR 3.3 million, equal to 2.8% versus the net sales. The main factor on margins that are in the box -- in the right box that are positive volume, thank you to the increase -- the recovery of the volume for the OEM division and negative price and negative mix, the impact of our strategy of investment to support the Cooking transformation or branding. This positive impact offset -- partially offset part of the investment from a positive action in cost. So we are continuing to have focus on our cost takeout. But also, we finally see also some positive effects from the raw material inflation that now is starting to recover versus the previous year. Overall, in the quarter, we closed with a net profit of EUR 0.7 million. And if you can see, we had group net profit of EUR 0.4 million. In terms of results of H1, the EUR 16.7 million of EBITDA adjusted equals 7% versus net sales, EBIT for EUR 5 million considering the impact of financial items and a positive impact of tax rate, thanks to the fact that we can add brands on some deferred stocks for some statutory reporting. We have a net profit for the H1 of EUR 1.1 million considering minorities of EUR 0.5 million as group net profit. Going forward to Slide #21 related to the net financial position. Giulio has already said, so we have a stable net financial position quarter-on-quarter despite accretion of our EBITDA margin. We saw in previous slides that the gap in H1 of EBITDA is around EUR 10 million. Despite this gap, we are able to defend our operating cash flow versus the previous year, thanks to our optimized working capital and management, as we will show in the next slide. And overall, we are able to keep the same gap of the opening balance of our net financial position, keeping a level that is around EUR 1.2 million, monitoring also CapEx that are aligned with the previous year and the Cooking business transformation priority. Regarding the net financial -- the net working capital, you can see in Slide #23 that despite an increase of receivables versus the previous quarter, that is well balanced by trade payable. What is very good management is the level of the inventory. So level of inventory is aligned with the previous -- with the end of the previous year, with December. Partially, it's due to the cost reduction of the raw material, but is also partially due to the focus of our -- good level of management of the stock without penalizing the level of service of our customers. I leave that to Giulio, this page, to comment on our closing remarks and outlook.

So we have briefly discussed this first 6 months of 2024. Very difficult from an industry perspective. Positive if we see the first half initiatives are working, North America but also some OEM customers and new OEM projects that are working well. Significant in terms of the progression in our Extraordinary Cooking transformation, the feedback that we got at the Salone del Mobile and also all of the initiatives that here and there we are playing all over the geographies in which we play and which we believe to be transformation of this, and moreover, will be important. The focus on cost takeout, as just said by Stefania, will remain. But again, without affecting the long term, that means transforming Elica in something different, in something more and more effective, in something more complete because we believe that as we commented together in the first quarter results, there will be, in months, hopefully not years, a market that change finally this time. If we look to 2024, once we gave our guidance in commenting on the first quarter results, we imagine an H2 with an industry between negative but hopefully [indiscernible]. What we see now is an industry that we have been and will remain negative in terms of demand, so in terms of units, but also moreover, in terms of price and mix. What we see, what we are to hoping in markets, and I'm talking mainly about Europe, in which we play is that the price work is a communication work, is a mix which is very, very weak compared to the previous year but also compared to the 2022 and 2021. It's the thing that we need to take into consideration in our strategy and also in our pricing and our promotional strategies. We cannot run to get taken out of important customers or to delay to getting the benefit of market dynamics when there would be a trending measure. So what we see in terms of guidance is revenue expectation in the region of EUR 460 million, EUR 465 million. That means in any case, the possibility to have a slight growth versus last year in the second part of the year in Motor division. For sure in Motor division despite we know that Cooking brand sales are the ones which are under attack now and which we have to invest and defend our shares. Pressure margin for this -- that I'm just saying it will continue. It's a priority to go on with our transformation plan in our branded Cooking business. It's a priority, again, to have the proper pricing and the proper product offer, which we are working to because it's not only a matter of pricing. It was a matter of developing and putting on the market those products that have good marginality with the steps that allow us to compete also in the, let's say, mid to low part of the market. We don't see any tension in terms of net financial position, the figures around the control of the financial position just mentioned. The dynamics success in terms of DPO, DSO are absolutely healthy. And what we have seen is that they are also very quickly responding to the dynamic of our sales and of our investments. So overall, a year of transformation, a year in which we believe we can set that slight growth in the second half. But we're -- in my point of view, in our perspective, the most important thing is to do the first important step in a complete transformation of our business model. Thank you.

[Operator Instructions] The first question is from Alessandro Cecchini of Equita.

My first question is about the pricing that we saw still negative in aspiration, which while it seems from your chart that also in the -- sorry, hobs, aspiration hobs are still -- so the path is very similar to the first quarter while kitchen hood seems worsening in April, May. If you can elaborate a little bit more on this. My second question is that about your short-term expectation for this quarter, third quarter, just if we needed to account some seasonality in terms of sales. So just if you better understand what kind of range in absolute revenues and margins you expect. And finally, if -- your project within North America with the new OEMs, if you can elaborate a little bit more on this.

Thank you. Thank you, Alessandro. So if I got the first question, it's trend and pricing between demand in the hoods and aspiration hobs. Let's say that cooker hoods market, if we consider the gap there in terms of units versus, let's say, 2021, it's basically down in the region of 20%, 25%. Where? Mainly in those geographic dimension where the market is down. I mean Germany. I mean France. I mean Italy. Italy has been the last market to start dropping in terms of demand. We are talking mainly about, let's say, the end of quarter 4 2023 but the first 6 months of 2024. Consider that Germany is a big part of the market. Germany, if we take the volume of the first 5 months of the year in Europe, there has been almost 2,500,000 units that we sold, of which 500,000 in Germany, 400,000 in France and 300,000 in Italy. Now the rest is Poland, the U.K., but I would say [indiscernible]. Of course, a big part of our revenues are in this market. And in Italy as well as in France, we are market leaders. So despite our shares are there in both in terms of units and in terms of value, we are getting at ease. We are getting at ease because we have the one that gets the major benefit where the market goes up. In terms of pricing, in quarter 1 2023, the average price of the cooker hood -- market price, I mean, was in the range of EUR 300. Today, the average price is EUR 280. So there has been a slight decrease, which we can easily manage through promotion but also through mix because we have a range that historically covers all of the latitudes of the market. If we instead talk about activation of year, the situation is different. The market is smaller. Now we are talking about less than 200,000 units sold January to May 2023. With the market that has been moving in 2022 versus 2021 plus 30% but -- which has been basically flattish between 2023 and in the first 5 months of 2024. Here, 1/3 of the market in Germany. Nevertheless, where we do not operate directly is, let's say, out of Germany. And then there is Nordics, France and Italy. Both in France and Italy, we are market leaders. So those markets have been slightly growing, but the growth that we have in these 2 markets in which we are leaders is not comparable to what is happening in those markets where we are not leaders or where we are not present. Here, there is also a matter pricing and of mix more than pricing because at the beginning of 2023, aspiration hob average retail price was EUR 2,400. Today, it's EUR 2,100 with a continuous entrance in the lowest part of the market by new competitors, [indiscernible], another minor brand but also with a huge pressure on pricing from mainly the big names of appliances [indiscernible] which has been changing the balance in Germany but also France and is approaching also Sweden. We have the strategy from our side -- 2 sides. First of all, Netherlands, we are not directly in Netherlands. So as we mentioned at the beginning of the year, if the strategy of going direct is paying off in the U.S., it should be paying off also in Europe, especially in a market which represents a big part of the aspiration hobs market. So we are working in order to grow direct within the year in this geographical region. Secondly, to be more effective, we need to move from a size on the price point. So we know that if we don't want to lose our share in France and the current promotion is minus 20, we need to play with the minus 20. Otherwise, we are out of the game. We do not arrive even to the trade-offs. On the other side, we are working with our suppliers and with our R&D and some products are already being sold and is being displayed in the market to have, let's say, our offer with lower specs. So defending our margin, entering in some price points in which we were mainly present but, let's say, losing money or not making the money that we should make with an aspiration hob in order to have a more complete offer like we have in the cooker hoods and to defend that price point but also those price points that are high. It's -- how can I say? It's a tough challenge. Why? Because we have been among the first ones to enter in this bracket. So there was BORA and then there was Elica. So today, it's a very crowdy market. And for [indiscernible], for a BSH, that is already producing hundreds of thousands of induction hobs, to do an aspiration hob is easy. There is not a real, how can I say, barrier in terms of CapEx, in terms of test, like there is in hoods where you really need to know the job right. Nobody wants to do it. So again, it's a matter of getting the challenge, getting the proper prices and then working on the cost in order to recover profitability. For what you can said, the second point was on the seasonality. For sure, there will be a seasonality effect in the second half of the year related to the market seasonality related to that. Moreover, the 75% of our branded Cooking business is going through the kitchen items. And considering that the sector is under stress, so it's not only our product, it's a problem of the world sector. What we know now is that there will be some lockdowns also from their side. They're prepared to close 3 weeks instead of 2 in August instead then closing every Friday or Saturday. It's more effective. It reduces the cost. It's more economically. It works more from that perspective also from their side. So we know that there will be a seasonal effect in quarter 3. We also know if we look on the other side, on the Motor division, that versus last year where after the sudden pull-down of the market really in between July and August, we didn't know what to do. This year, we will have less than 2 weeks of closure because the size of the market is still not comparable overall to what was at the beginning of 2023. We see positive dynamics. So our Italian and Polish factory will be working. For Q1, there will be a seasonality balance in the third quarter, probably more evident than it was in the previous year where the seasonality was not the difference. Let's say it was not a 25% each quarter, last quarter, quarter 3, if I remember, it was in return. Now it may be less. This was the question. The next question, I do not remember.

Home Depot, I mean, project in the U.S.

So U.S., Home Depot started very well in quarter 2 last year. This is why we -- let's say we didn't see specific in quarter 2 this year the gas vessels last year. They did it. How can I say? We have a business which is growing with them. We have the possibility because we are also working with Home Depot. We are a big brand to understand how to play an additional brand within there [indiscernible]. Let's say it's a midterm project. So we will start to see additional benefit in the second half of the year. What we see is that Home Depot is working well. We don't get Whirlpool, Electrolux, BSH, LG, Samsung can the same idea. We are, let's say, getting the leadership in the U.S. market. There are some product phase-out, but there are an important chain of products that are going to phase in. So if I have to look to the geographies, I'm positive on the overall OEM B2B business prospects and development of opportunities, both in the -- both Europe, then in U.S., but mainly U.S. because you really see that we are really leading all of the supply chain or whoever is not producing internally. Moreover, we are starting and considering that we have a production line to produce aspiration hob in the U.S. to contract and staff the first shipment to OEM customers that want to approach the induction business despite [indiscernible] also in the U.S. So in the midterm, we see more opportunities than risk. The risk is only one. The risk is the moment in which there will be a real structural trend investment in the industry. In terms of projects, the situation is absolutely healthy. So more healthy than it was even when, let's say, the market was moving.

[Operator Instructions] The next question is from Emanuele Negri of Mediobanca.

The first one is on the profitability trend that you expect for the second half. You said to expect basically a negative effect from price-mix and the positive impact from raw materials and cost takeout. How does this effects balance on the margin? Do you expect profitability to go down in the second half or to be close to the second half of last year? And the second one is again on pricing. Do you have any details on the pricing in the Motor division beyond the Cooking one?

Regarding the second question, Emanuele, could you repeat? Because we didn't catch you.

Yes. The second one was on the price in the Motor division.

Pricing, you mean?

Yes, yes, yes.

Okay. I'll start from the second one. There is a real method of pricing in the Motor division for being component, being also the raw material, built in the components, the 85%, 89% of the cost. The main commodities are, how can I say written in the contract. So more than pricing, it's a matter of timing. The game is if there is an increase in copper, for example, the soon you approach your customers and you ask for price increase, the better it is. If there is a decrease of copper, the more you fight with your customer in order to give the price decrease. The latest possible, the better it is. We are playing with big corporations, with the pure B2B businesses. It's a very, very flexible division. We saw last year that the size was an important industry drop. We didn't have the worsening of the profitability. So this allow us, let's say, to play aggressively with the pricing because we need to be aggressive but at the same time to keep a level of profitability which in this moment is better than the Cooking division, also because there is not all those investments to rebrand the whole business. For sure, there is a competition also in there. It is being very aggressive. There is always a Chinese that wants to take place. But at the same time, in terms of product development, in terms of being present in those customers that are leading the sectors and also in terms of the length of time that it takes to take out a Supplier A and to homologate, to design, develop and then finally buy from Supplier B, we feel our position is safe. You always have the time that to align the price but keeping the customer. But in this moment, frankly, it's [indiscernible] which is grabbing share from the other customers because of our vertical business model. Because everything is built up in Europe, so it's safe from the ups and downs of the Chinese supply chain. Because we are efficient and because in terms of technology and development, our product is, in this moment, in the specific championship in which we play, how can I say, top of the range.

Regarding the second question relating to the -- our expectation about the profitability for the H2, maybe we can start from -- to comment better and would deep dive around the profitability in Q2 to just understand which kind of deviation we can find in H2 with respect to Q2. In Q2, we closed the quarter with a gap to that of the previous year of 3 points, out of which with a negative contribution of price-mix for more than EUR 2 million. That is around more than 2 points of impact. Then with a slightly positive impact of volume and negative impact related to the investment strategy in the quarter also where there was the cost related to the [indiscernible] that we offset partially, thanks to the inflation in the cost management. So what will change in the second half? In terms of price-mix, we don't expect any improvement. So respect to the same scenario today. In terms of investment strategy, as you know, in our plan, there is also in the second half an important investment to support the launch of the new products, support the launch of [indiscernible]. Also, there will be also a [indiscernible] campaign in the last part of the year. That -- so this kind of 2 effects will not change in the second half. What we can see, probably a slight improvement in terms of cost effect because in the Q2, we start to see a positive impact for 0.5 points. What we do expect is a slight improvement upon these in effect even if we still have to face promotional activity and also negative impact of foreign exchange. So by the way, just to summarize, not to come back to the same profitability of H2 of the last year, a less improvement versus the last quarter even if the big effect will remain. So something that would be like 0.5, 0.6 improvement versus the previous quarter.

What will drive will be the investment. We believe that is to shout whatever it costs because there is the launch of [indiscernible]. That means that we will be installing the product to each and every display. Now we believe it will be important where the product is shown. There will be the installation support, the promotional loan, which is already running, of the ovens. We are the new guys in town for what concerns this kind of business, so we need to be effective. We need to do it as soon as possible in order to have the product starting to be seen and then bought and then rotating for our customers. That we see that there is a deal inside. So we know that this is, let's say, spending the same money that we spent for [indiscernible], the initial show, but just in order to start the rest. We will be -- we will be all over the social media. And the schedule, the opportunity to communicate from September up to the final part of the year. And we will be also present in all the most relevant fairs, meaning in Spain, meaning in Paris, meaning in Germany. So in those markets where we don't only want to be noticed with our new value proposition but want really be seen by any value, which we believe is interesting to see us. So that's the plan. If the market supports a bit more than in this so far ourselves or if this promotional work comes to an end, for sure, there will be a better balancing between cost and -- cost to sustain investments and operating margin targets. Otherwise, as I mentioned many, many times, this is a year in which we really need to see the net financial position and maybe the net profit and just run with our plan because the benefit in the midterm matters. If we never start or we start with delay, we will see the final effect with more delays.

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

Just a quick question on your geographical breakdown. So it seems that in Asia, there is a sequential slowdown in the second quarter. I was wondering, what are the reasons behind this decline? And if I look at the Americas, it seems that the growth has stabilized compared to the first quarter that was quite strong. So if you could provide some more color also on this.

Regarding your last question, the slowdown of Q2 of America is mainly related to the fact that in the first quarter, there was a carryover of the positive effect of the new customer like Home Depot. In the second quarter last year, it was already in our numbers. So we have started the relation with the Home Depot in the second quarter of 2023. This is the main explanation. In consideration that's also for the Americas, the results had negative impact of exchange rates versus the previous year.

I'll also add to that. In the second quarter, there is OEM [indiscernible]. As Stefania just mentioned, that was, let's say, running at trade. So phasing that from quarter 2 last year, and phasing quarter 2 means that the order -- in order to build the display and to build their stock in quarter 2 last year. So more than the, how can I say, ordinary ramping rate of a common month of September, for example. On the other side, there was a slight decrease in Whirlpool and [indiscernible]. The rest is all rapidly growing form the previous year considering that's, again, talking about operation, the market is still absolutely suffering. So the overall balance that we see also in order to probably organize faster the end of the supply chain is [indiscernible].

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

Thank you. So thanks again for joining our call, and have a nice rest of the day. Bye-bye.