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 Third Quarter and 9 Months 2025 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.

Thank you. Good afternoon, everyone, and thanks for joining our call. Apologies for the small delay. So let's go straight to the agenda and the context to recover time. We will be focusing on the third quarter from many perspective, industry trend, sales dynamics, financial review. And then we will give you a -- let's say, a brief description of the competition and overall dynamics our sector is leading in the last 3 years, I would say, but with a focus on the moment and how Elica as a group is answering to this challenge. If we move to Slide #3, let's go directly to the highlights of the third quarter. In the third quarter that we see a growth -- acceleration growth in our revenues. It means that we are doing the right things in the right geographies and business lines. We see a growth of EUR 5 million, meaning a 6.3% organic, 5% if we consider the negative effect of the U.S. dollar mainly. Positive Dynamics I said, in both of the divisions. So Cooking Division is growing at 4%, thanks to brand sales growth in North America, but also Europe and thanks also to a positive contribution of our 40% OEM business. Motor Division grew 8% in the quarter. And in the same quarter of 2024, there was a growth, if I will remember, the same rate, mainly thanks to market share gain and mainly thanks to the ventilation part of the Motor business. Margins remains low, I would say, so 1.3% of revenues with a gap of 0.9 percentage points versus last year. But this is exactly what we were expecting considering from a side, the very high promotional environment in which we are playing. On the other side, the relevance of the investment, and we will discuss them later on in the presentation that we are placing in North America to enhance our distribution project but also in Europe to push on the new range distribution to make our love more and more visible to play together with our trade partners in terms of enforcing their displays, building up new activities and visibility for their shops, together with empowering our new entity in Holland, in the Netherlands and opening new sales office in Germany. We are trying to cover even if it costs a lot, I would say, also in this specific moment in time of our industry, all the relevant geographies that we believe have opportunity for us to grow. We are doing this with a solid debt profile. So without waking up every morning thinking how do we pay back the debt. Leverage are strongly below covenant and the variance that we see versus the same period of last year is mainly these of -- 2 things. First of all, the relevant share buyback that we did between the last quarter of 2024 and today, we reached the level of 7% of treasury shares and EUR 4 million cash out related to, I would say, strategic projects. So the partnership with Steel, the turnaround -- the second turnaround of our presence in China and the new motor plant leaseback in the first half of this year. If we move to the following slide, this is just a trend slide. So -- the comment I would say is that we are seeing growth since, I would say, quarters. It's a growth we will see later on in the presentation made of new building blocks. So whatever we do, whatever we are putting in place that adds up on top of our traditional business is generating revenue. It's not yet second line generating margins, but we know because this is the investment side of the story. So we are putting costs and things in place in order to generate future growth with corresponded margin growth. Stefania?

Good afternoon to everybody. Going forward to the part related to the industry trend. Slide #6. Here, we are the market relating to the European market for kitchen hoods for the first part that is still a weak market. Substantially is market flat if we considering the first 9 months. But with a weak market for what is concerning the West Europe, where we are present for the major part of our volume. For some example, we are referring to Italy where the market now is minus 6%, France minus 4% and Germany minus 3%. If you look the part related to the aspiration hobs continues the progression versus the last year. The first 9 months is plus 14%, but this growth is driven mainly by the switch and the shift between the industrial hobs versus the aspiration hobs but also is driven by the promotional activity that all the producers are doing in this category. But taking consideration that we are speaking about very small market, 0.5 million of units that means a growth by quarter for 15,000, 14,000 of units. And as I said, if you go to the next slide, the promotional scenario has not changed versus the last 2 years. Here, you have the kitchen hoods, but also the aspiration hobs where the decline of the average price is more intensive than the kitchen hoods. Changing the geographic area, we're going to the American market, where we see according to the data that we got from AHAM, the market is still negative. Cooking market in the first -- in the second and third quarter is still negative, the same for the ventilation in the last quarter. And this means that the market is still driven by the replacement and not by the real estate. In fact, if you look at some other categories that are more related to the replacement of the domestic appliances like washing or laundry, they are recording a slight improvement versus the last year. Moving to the sector motor. Here you have the data relating to the last quarter. And as you can see, the scenario in this case, the market has not changed. It is related to the gas boiler that the second quarter of the current year is still recorded a minus 14% compared to the quarter that was a very poor quarter. But by the way, if you're going to the next slide, Slide #10, we are seeing some slight signal from the heat pump category that is the category that is recorded a very aggressive drop of the market. In the first half of the year, we saw a plus 9% that is all more senior considering that the drop that this category recorded during the last 2 years. But by the way, it could be an opportunity for the future, even if it is too early to understand if it is a trend also if it is some specific trend for this quarter. Moving forward to the sales dynamic for our group. Slide #12. There is an acceleration this quarter in terms of progression versus the last year, plus 5.1% comparing to the last year, out of which 6.3% is organic growth, 1.3% is a loss related to the exchange rate, mainly to the U.S. dollar. Going to the next slide, #13. Here, you have -- as you can see in this quarter, both divisions are very positive compared to the last year, Motor plus 8%. In the 9 months, our growth versus the last year is plus around 5%. In Cooking Division, 5.8% compared to the last year organic and year-to-date 9 months is 2.3%. Going forward to the performance in sales for the Cooking Division by region, we recorded for all our region a positive trend, very strong growth in America, 8.7% compared to the last year, and that's without the exchange rate, it's plus 15%. Thank you all the activity that we are doing in this market. But also EMEA come back to became positive during the current quarter, plus 2% compared to the last year. In Asia, thanks to the performance of our joint venture, Ariafina is 16%. Thank you also to the introduction of new products. In terms of performance between channel, the OEM brand is plus 4%. But if you look organic, it's plus 6%. The part of OEM is mainly relating with growth to the Americas, so plus 6% without the effect of U.S. dollar. And also our brand is plus 5.7%, thank you to the introduction and the performance of our products that we will see later on in a specific slide. I leave the stage to Giulio.

So this is a slide that we presented also last time, but we wanted to give an update also on a dynamic perspective. In this -- so far, so in the 9 months, what we see the dynamics of our growth are represented in the top part of the slide. I would say that all of our growth is coming in the Cooking Division on -- thanks to the new Cooking and built-in range. This covers all the geographies. But what we are seeing is that this growth is made of EUR 6.5 million more than the previous year coming from induction hobs, LHOV, range cookers, wine coolers and the other products that we are selling, in Europe, of course, and in North America mainly. Another positive signal coming from this slide is the plus 0.7% that all happened in the quarter 3 of aspiration hobs. We have introduced new range the specified in order to be more aggressive on costs and consequently on pricing. We have repositioned because it was the right thing to do some of our product offer, mainly in France, in Italy and in Germany in order to fight against our competitors, and we started to grow also in the aspiration hobs segment. The takeaway of this slide for us means that the direction of becoming a brand cooking company is the right one. The minus EUR 3 million in cookers is mainly, I would say, only dependent on the market size that is shrinking and shrinking year after year. What we are saying is that of -- so far in 9 months, EUR 10.6 million revenues are coming from the new products. That means almost 7% of our total cooking sales. The ratio that we are seeing year after year is doubling. So the expectations that we have in this transformation despite the cost of this transformation, especially in this specific moment are very high. If you move to the following slide, we concentrate on the cost of this transformation. That is a cost of empowering our distribution of visibility of supporting our customers in selling, promoting, understanding and serving our products. That is a cost of advertising, that is a cost of media presence, that is a cost of doing something that also empower our brand, which is close to us also for the tradition of our company. So it's a full concept that we are working. On the right side in Europe, new offices, showroom in Germany, but also in the Netherlands. Elica CLUB, so a fidelity problem -- program, sorry, for which we support and engage our customers. Television with Alessandro Borghese, the partnership with Cairo RCS Media that covers television, media, newspaper, traditional newspapers, but also new way of approaching our potential consumers that will be online visible basically from these days up to the end of November. On the other side, in North America, very strong presence on the social media because that's the way to enter in the distribution and to approach the final consumer, but also a new showroom in San Francisco, which is an area that is important for us in terms of visibility, in terms of design expectation where we know that an Italian brand or Italian brands because now there is also still in the loop are very strong and need to be more visible in order to be more interesting for our customers. Of course, this is an investment, which is difficult to measure in terms of returns, but we know that it is the right one, right thing to do, and we are seeing that something is moving also in our sales and will be moving also in our financials.

Exactly. In fact, going to our financial, Slide #20. In terms of top line, we have already commented all the performance. In terms of profitability, we are aligned with our expectation. We are aligned with the level of the investment that just we explaining where our investment have been executed. EBITDA versus the last year, it's around 100 basis points behind and the same also for the adjusted EBIT. If you go below this part of the P&L, the part in the -- in the group net profit could not be compared versus the last year because there was the positive effect of the India divestiture for EUR 6.4 million. But in terms -- so if you go up in terms of financial items, we are aligned with the last year in terms of net profit is a loss of EUR 1.2 million that is, by the way, better of what we recorded in the second quarter. In terms of net financial position, the -- our net financial position is EUR 57 million of debt that compared to the previous year is EUR 10 million more, EUR 5 million coming from the opening balance related to the treasury share both during the last part of the year. EUR 4 million are related to the cash out of strategic projects, out of which EUR 1.3 million for the payment of the first tranche of the signing for the deal of Steel, EUR 1 million is related to the stake of the share that we bought from Fuji in order to make in place our project in China to transform the China in a sourcing strategic hub that we -- and restruct the model distribution of this area that will allow us to recover part of the profitability for the next year. And EUR 1.4 million is related to the down payment that we did for the lease agreement of our Poland Motor Division factoring. On top of this during the current quarter, we also had the cash out for EUR 1.1 million of tax dispute related to the 2015 and 2016 innovation tax credit. So we paid to the tax authority to close this dispute, but it will be offset during the 2026 by new innovation tax credit that are in the current moment under certification. By the way, our net financial position is strongly supported by our performance in terms of net working capital. As you can see, our CapEx are under control, EUR 2.5 million less versus the last year. And also our inventory trend despite June, we recorded an increase versus June 20 -- June that on the current year, despite we increased our inventory of EUR 5 million in the current quarter, we keep it at the same level. And we are working to reduce the stock as usual by the year-end in order to support the improvement for our net financial position. I leave the stage to Giulio for the closing remarks.

So very briefly before moving to the last part of the presentation. Takeaways of this first 9 months is that the dynamics are the right one despite it's very difficult to see what's next in terms of demand, in terms of forecast reliability. Now we see for sure, there is a relevant increase in contribution of the new cooking range and a relevant increase in contribution of the new sales offices that we have opened in America and in Europe. Next week, hopefully, we will be closing the deal with Steel and also from signing, we will move to the fact that we will be owning 28% of their shares. But the project work has already started because their products, their expertise to have them in our entities in the U.S. is too much important. So we are already working on a product range that will cover all the gaps that we need in order to be more successful and more over -- more fast in our growth perspective in the U.S. We know that margins are under pressure despite sales are back to growth, but we know also that this is the right moment to push on this direction because sooner or later, the real demand, let's say, will stabilize. So we will have more opportunities that we had when all of these projects started. If we look to the preliminary expectations, as I mentioned, we do not expect the overall environment to change. Pricing will be still under pressure. Promo will carry over in the incoming quarter and uncertainty and consumer confidence will stay low. In this environment, we foresee a more positive revenue forecast. So we expect our revenues to close the year between EUR 455 million and EUR 460 million, including also the fact that we are not selling any more Elica and moreover [ Puti ] in China. We expect on the other side, an operating margin remaining more or less in line with what we are doing now. We have an investment and acceleration plan in terms of communication in the last part of the year, and we want to close the year with all the -- the majority of the things that we have to do in terms to have the proper distribution, visibility, promotion, trade marketing activities, referring our brand in Europe in place. From a net financial position side, as Stefania mentioned, we expect a relevant improvement in the last quarter because we know that quarter 3 pays in any case the seasonality. So factory closed in August and products to be ready to be shipped between September and the beginning of October. And on the other side, we have an important flexibility from a manufacturing perspective in Mexico as well as in Poland as well as in the same Italian factory. So we know that we can manage our production, of course, serving our customers as first priorities, but also taking care of our financials. If we now move to the last part of the presentation, competitive dynamics, what we want to share is the business environment and our answer. I'll try to be very, very fast in this. But what we see now is, let's say, major domestic appliances market where in Europe, we see a demand that is at the lowest level in 10 years. There are not enough volumes for all the players. The price erosion is continuing. We are seeing promotional activities, oven with 40% discounts also on Instagram, also on TikTok, which is, I would say, a new channel, especially for built-in segment. So -- and everybody is foreseeing a long hard road out of this situation. Last week, BSH announced the closure of the -- their factory in Bretten, which is an historical factory, not for costing only for costing purposes, but because they see a very slow development in terms of volumes. So they have too much production capacity and production capacity unused costs. In terms of competition dynamics, there are 2 -- one main element to consider. There is Eastern competitors in Europe, but not only in Europe, also in the U.S. despite tariffs and things of this kind. Now they -- in terms of units, units coming from China and also Turkey, 10 years ago were representing 20% of European units sold every month. Now we are in the region of 45%. And I would say that in Europe, this 2x happened in the last 6 years, thanks to consolidation mainly. And this is a challenge from 2 sides for finished products because it means a low cost, very aggressive offer, but also for the components because a Chinese finished good brand wants Chinese components. So also who produce components in Europe is under attack. On the other side, there is an important cost gap between East and West, which is not anymore only labor cost. It's still it's commodities. It's also the cost of inflection where China is in a kind of 0 inflection, if not deflation since the last 5 years. So this gap is increasing. This creates a pressure in terms of competitiveness, impress -- in terms of aggressiveness, commercial aggressiveness, of course, is an additional threat for European company. If I look to my sector, I see that the priority is always made of 2 sides, restructuring and debt control. All of the big names are basically talking about this since quarters. And this creates the following 3 main dynamics. First of all, ramp of volumes. So there are not enough volumes for all the players. Second, the focus is today for today. So innovation comes as a second choice. Our customers, if I look at our Motor Division, if I look also our OEM business want the discounts today, don't want the innovation for tomorrow because today is a matter of surviving. And this makes them more focused on lowering inventories than on imagining sales growth and consequently an aggressive forecast. Our -- the forecast quality that we see now is, I would say, of a very scarce quality. Everybody is afraid to book units for December. This is also why we are being so prudent in our predictions. What is Elica doing as a group? We are doing, I would say, a different kind of game. If there are not enough volumes, let's create a new opportunity. We have discussed many times what we are doing in the North America. So Northeast, Southeast appliances, Canada. This in the last couple of years, brought relevant growth because we were not present directly in that dimension. And same we are doing in Europe. Small operations, the acquisition of Netherlands, if I remember, it's something of EUR 300,000, EUR 400,000. But this is having our people boots on the ground in the market that define Netherlands people are not that many. It's the second one for aspiration hobs in Europe. And after Netherlands, new showroom and sales office in Germany, we have moved all of our organization in the so-called [indiscernible]. That is a kind of market region of Germany, all a big part of the kitchen makers are in there. So our customers are close to our showroom and our sales force is close to our customers. This is important. And we are not going to stop. There are other dimensions where within this in the first part of this next year, we want again to put our boots on the ground. The same if we look to platform reduction, innovation is our approach for the, I would say, all Cooking Division. So the more products we have with the current distribution, the more opportunity of growth we have. We have seen in the first 9 months what's happening with cooking, but we do -- we are playing the same game also in Japan, where we have introduced a new super premium dishwasher and a new super premium aspiration hobs for professional use. Same, of course, what we did recently with still looking to North America but looking also to the opportunity that this will create in Europe. And same is what we are doing in the other division, Motor. Let's see because we are sure our technology, our competencies applied to other channels, to other sectors. So HVAC, agriculture, data center refrigeration, commercial refrigeration, but also the mechanical ventilation within the building as well as the heat pumps that, let's say, boilers with heat pump system. These are not wishes. These are ongoing projects. Of course, developing a project in the Motor Division is different than creating, imagining, building up new products and then placing on the market. It's a co-development process that goes for at least a couple of years. But for all of these features, there is a customer that is working together with us to see if our solution may be applicable for them. Last but not least, fortunately, we are not waking up every morning thinking to how to pay the net debt rate. So the leverage is under control. The production is flexible, and this allow us to control our net working capital. So we see also space for operations like we did with Steel. So financially sustainable, strategically more important. This, again, is something that the whole organization is working, we see because in this moment, and I would say in the next years, we see opportunity of growth and finally, to enforce our profitability, playing in new sectors, opening new markets, introducing new products in an organization that is and will remain exactly as it is. We don't need more salesmen to sell 100,000 hobs more. So change for the better, which is a positive message because to survive in this sector, you need to be strongly optimistic. Despite the industries under pressure, we believe we have a strategy that is focused on novelties on new building blocks, product range, control distribution, channels and geo. And we have also a debt profile that allow us to invest on ourselves in order to make these things happen and transform them into growth and into margins. Thank you.

This is Chorus Call conference operator. [Operator Instructions] The first question is from Emanuele Negri of Mediobanca.

I have a couple. The first one is on North America, which posted kind of 15% organic growth in the third quarter. Could you please give us an idea of the breakdown between volumes and pricing of this growth also considering the tariff scenario in the U.S.? And the second one is on the new products. You mentioned that the bulk of growth in the last few quarters came from new products. Which kind of profitability does this kind of new products have compared to more, let's say, traditional products in the Cooking Division?

Thanks for the question, Emanuele. In U.S., I would say it's mainly volume. It's mainly volume because we didn't touch our pricing, considering that from what is coming from Mexico, we are not suffering at the state-of-the-art any effect from the tariffs. We know that next year in June, there will be some discussion because the USMCA ends up in July 2026, and we are ready also to play with pricing. But so far, we didn't have any kind of pressure, and we used also this advantage in order to be more aggressive and more competitive. The marginality that we get from the North America premium cooking sector, so the one where we are the main player is very high. I would say at least 30%, 40% higher than we get in Europe because Elica in the U.S. is placed as a premium brand, premium, premium, I mean. For a big part of this growth also come from the new products. And also LHOV, range cookers that we distribute in Southeast, but also still that we were already distributing in Canada, partially in Southeast, where they are already growing their share. And in Northeast, as we have implemented our organization since April this year. So I would say that mainly is volume and this volume is made of new products for what concern all the -- let's say, freestanding range cookers kitchen that we have started to push. The second question was -- I think I have...

It was relating to the margin, so...

It's very difficult to estimate the margin effect of the new products in Europe. Why? Because we are basically investing even more than the products are delivering us. So there are 2 ranges induction hobs, so not aspiration, but induction hobs that we produce ourselves in our Poland factory. They are growing very well, and the marginality is in line with the kind of marginality that we get from, let's say, cooker goods business. So positive. Ovens, they are growing more slowly because the competition is very hard in that specific segment. And it's a product that we have designed together with ILVE, but they are producing. So for sure, here, the pressure is more and the marginality in order to have a product placement and positioning that is correct is lower. LHOV is very profitable. But in this moment, I am not seeing that profitability because my task is to go around Europe and be sure that every shop has at least one LHOV to show to the final consumer. So in this space, I would say that what we are doing a regime like the hobs are absolutely in line, if not better of our current product offer. The others are for a reason or another, but mainly because we are pushing them still less -- a lower contribution, if not a negative contribution to the overall industrial margin. I don't know if this covers your question.

[Operator Instructions] Management, there are no more questions registered at this time.

Okay. It means that we have been...

Sorry, there is a follow-up from Emanuele Negri.

Yes. Sorry, just if you have time, just one follow-up on Poland. Which kind of production capacity are you using right now in Poland? And how much spare capacity you have in case the volumes are ramping up because I think that this will somehow bring some relevant benefit to margins?

Yes, sure. In Poland, in this moment, we have, I would say, 65% to 70% of used production capacity. The other way around, we have 30%, 35% of free production capacity in Poland as well as in Mexico as well as also in Italy, where after the reorganization, we are producing a normal shift but without playing on additional shifts. And also in our Motor Division to move on the other side, the production capacity free is on the same ratio. So potentially, when the market starts back or if we see positive signals coming from our progressive taking charge of the distribution, we can grow without any kind of relevant investment.

There are no more questions registered at this time.

Okay. So thanks for joining the call. Thank you. Bye-bye.

Bye.