SEB SA (SK) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Groupe SEB conference call. I now hand over to Madam Nathalie Lomon, Senior Executive Vice President, CFO; and Ms. Isabelle Posth, Vice President, Financial Communication and Investor Relations. Madam, please go ahead.

Thank you very much, and good evening, ladies and gentlemen. Welcome to our Q3 2020 earnings release. So 2020 is really, really very atypical year with this unprecedented health crisis that is spreading around the world and that has massive impacts on all areas of the global economy. Against this complicated backdrop, Groupe SEB's operations have been heavily impacted by lockdown measures taken in many countries, by disrupted activities in off-line trade and in the HoReCa industry as well as by the shutdown of up to 25 of our 40 industrial sites at the peak of the crisis in mid- and April. This has, of course, significantly penalized both our consumer and professional businesses, but I will get back to this with more detailed comments in a few minutes. During this presentation, we will proceed as usual by reviewing the group's overall 9 months and Q3 performance, then we will focus on the businesses and geographies, and we'll end with our perspectives and objectives for the full year. So let's start with Slide 5, showing group sales. At end September 2020, revenue amounted to EUR 4.712 billion. It is down 6.7% on a like-for-like basis, 7.9% on a reported basis. This includes the third quarter, which is back to growth at 4.4% like-for-like, while as a reminder, H1 sales were down almost 13%. The recovery was obviously fueled by the Consumer business, which is 90% of group sales. In the context of a buoyant global SDA market, continued favorable trend for cooking products and booming e-commerce. While Consumer turnover declined by 3.4% like-for-like over the first 9 months, the group has achieved a growth by almost 10% in Q3 at constant FX and consolidation scope. This represents an outstanding turnaround versus H1 where Consumer delivered sales minus 11% compared to last year like-for-like, and this is amongst the group record quarterly performances. Conversely, our Professional business, including coffee machines and hotel equipment and representing 10% of group sales, continues to suffer from the crisis and is heavily impacted by the persistent difficulties in the HoReCa industry. It has posted for the first 9 months of the year a significant drop in revenue of 31.6% like-for-like, including a dreadful Q3 at almost minus 40%. But I will enter again into more details regarding these performances later on. I am moving to Slide 6. And I want to add an additional comment on sales. I would like to highlight here that beyond the better momentum in Q3, ForEx impacts have been much higher over the last 3 months, materializing in the 3.3% gap between reported and like-for-like growth. The operating result from activity stands at EUR 324 million at the end of September, which implies a 20% reported decrease. The difference between reported and organic figure is mainly attributable to currencies with a minus 63 headwinds on FX over the first 9 months of the year, becoming more penalizing over time. Apart from FX, the contractions in operating results from activity in the first 9 months stems mainly from the decrease in sales and, as a consequence, in gross margin for both Consumer and Professional. The decrease in gross margin has not been fully offset by the gains achieved in purchasing the reduction of growth drivers and the savings plan on structural costs. Nevertheless, Q3 shows a major improvement in the situation with operating results from activity amounting to EUR 221 million, which is a significant growth on a reported basis, 24%, compared to last year. This increase directly results from the strong momentum in consumer sales and unusually low investment in growth drivers, which we will likely reverse in Q4. It also includes a more detrimental FX impact of minus EUR 39 million, following the expansion of the depreciation of several currencies in the last few months. Regarding the financial situation, our net debt at end September stands at EUR 1.971 billion. It is down EUR 488 million versus the same period last year and EUR 26 million than at the end of December 2019. This decrease reflects a solid cash flow generation, which is largely due to a significant contraction in the working capital, thanks mainly to rigorous monitoring of customer receivables as well as inventories. Please keep in mind that this net debt figure includes an IFRS 16 impact of EUR 293 million and the acquisition of StoreBound back in July. I'm now moving to Slide 7, on which you can see our usual sales bridge between 2019 9-month sales of EUR 5.114 billion and this year, EUR 4.712 billion. The 6.7% organic decline I already mentioned earlier comes almost from the volume impact. Less loyalty programs versus last year high comps reduced the revenue growth of our Consumer business by around 0.5 points over 9 months and by approximately 2 points in the third quarter. But the major hit in terms of volume stems from the Professional segment, whose sales have been massively down. In addition, it is worth noting that at the time, although price increases have been implemented in markets with weakening currencies, they do not match yet the recent FX deterioration. This brings me naturally to currency effect that has been negative since the beginning of the year at minus EUR 110 million with a clear deterioration in the third quarter. And finally, the scope effect reached EUR 49 million over the quarter with 1-month impact of Wilbur Curtis, a 9-month impact of Krampouz in our group since September 2019 as well as 2-month impact of StoreBound, the U.S. company we acquired in July. I am now moving to Slide 8, which gives more granularity on the FX impact. The EUR 110 million headwind on revenue over the first 9 months of the year reflect a sharp deterioration in the third quarter, featuring a negative hit on our sales of minus EUR 90 million. As a matter of fact, some of the group's major business currencies have experienced an accelerated depreciation against the euro during the summer, widening the gap with Q3 2019. This was, in particular, the case of the Brazilian real, the Russian ruble, the Turkish lira and the pesos, Mexican, Colombian and Argentinian. The Chinese yuan situation was less marked but applies to a much bigger turnover. So I'm now turning to the second part of our presentation with the focus on our 2 business lines, Consumer and Professional. On Slide 10. As mentioned earlier, the Consumer business has been back to growth in the third quarter, and the graph shows a sequential improvement since the first quarter. Nevertheless, this positive evolution has been quite bumpy, including notably a sharp volatility within a single quarter. As a reminder, on this slide, group's Q1 revenue was down 17.3% in the first like -- in the first quarter, notably due to China, our first market, hit early by the COVID crisis. Q2 sales were down 3.2%, yet this softening stance hide a kind of volatile type of sales change, featuring a very low point in April, down by some 40%, gradual improvement in May and skyrocketing sales in June related to massive restocking by retailers. This restocking process went on in July, while August was more normal and September buoyant again, leading overall to the strong momentum achieved in Q3 with sales up almost 10% like-for-like. Nevertheless, the dynamic Q3 does not compensate for the backlog accumulated in H1. And year-to-date sales at end September are still down 3.4% like-for-like versus 2019. As far as our Professional business is concerned, it consists mainly, as a reminder, of Professional Coffee Machines. Revenue showed some kind of resilience in the first quarter with a 9.7% organic decline in a context of high comps to beat versus 2019, which you may remember, large contracts delivered to U.S. customers in H1 last year, and in the first quarter, with hotels and restaurants still largely open. Afterwards, the lockdown measures have, of course, sharply affected the activity in the second quarter, leading to a collapse in revenue. The only partial resumption of operations in the HoReCa industry has from June on with not all hotels and restaurants reopened, and in many cases, with reduced opening times and the uncertainties regarding the evolution in the coming months has continued to severely impact our sales in Q3 2020, with a close to 40% drop year-on-year on an organic basis in the third quarter. So for the whole group, at the end of September, the resulting performance of these 2 opposite quarterly business development is a like-for-like decline of 6.7% overall. But before getting into the detailed performance of our businesses, let's separately review the overall background, starting with the Consumer division. I am now moving to Slide 11. COVID-19 crisis has obviously impacted the end consumers' behavior, both in terms of consumption pattern and purchasing process. It's quite likely that some of these changes will survive the crisis when it is over and will constitute a kind of new normal based on a different consumption mindset. The lockdown, be it global or local, implying a stay-at-home imperative, has led to a strong shift to home consumption, bolstered by government consumption intensive programs in a number of countries. As for example, the stimulus checks sent to a large proportion of American household in the U.S. Overall, this has translated into increased spending for home equipment, including cookware items and small electrical appliances, both markets enjoying a solid momentum in the current context. With consumers spending more time at home, they also had more time to cook and to develop their interest for cooking, watching videos and tutorials online, sharing their cooking experiences on the social networks, putting more focus on healthy food, local eating. These have clearly driven our cookware and kitchen electrics categories, bringing new customers. As a reminder, cooking represents around 3/4, 75% of the group's Consumer annual revenue. On the retail side, as previously indicated, COVID-19 has dramatically disrupted the industry, which is experiencing a massive transformation with further acceleration in the development of e-commerce, including pure players' website, marketplaces, click and mortar and fast-expanding DTC online business on a worldwide basis. As a matter of fact, e-commerce of all has been capturing the vast part of growth in most of the large countries and efficiently leverages collected consumer data. The latter has become all the more important since about 3/4 of small domestic appliance purchases are now influenced by a digital touch point, leading to significantly increased digital advertising and marketing. Nevertheless, a progressive recovery of online channels has been observed over the very last month as consumers have been back to the stores, yet not quite as before the crisis, though. Traffic is significantly lower, amid concerns about visiting stores or malls and is hindered by the implementation of social distancing measures. But conversion rates are better, and average basket is higher than it used to be. Schedule shopping seems to be over, at least for the time being. In parallel, the move for local nearby shopping is getting a strong boost, appearing easier and safer to many consumers, although more expensive. All in all, COVID-19 has led to fast-developing omnichannel retail. It required from online retailers to amplify and accelerate their e-commerce efforts while, at the same time, online and club players have developed their presence in the physical trade. This increasingly blurs the boundaries between off-line and online retail. It's notably true in China with the burgeoning online to off-line move, which leverages on the online awareness to drive consumers into off-line shops or stores. The aim is to combine the convenience of e-commerce with the instant brick-and-mortar shopping and transforming a siloed channel approach into a much more integrated model. Let's move now to Slide 12 and review the group's Consumer sales change over 9 months by product category, with the minus 3.4% line featuring like-for-like sales evolution at end of September. Half of the categories are above this line, half are below, and cookware is more or less on it. The performances shown in this chart include the solid improvement achieved in the third quarter, posting Consumer sales up 9.9% like-for-like. As such, they're overall much better than those we presented for H1. Obviously, cooking has been behaving better than the other families. It is fueled, in particular, by food preparation that enjoyed a strong dynamic in the third quarter being up 30%, thanks notably to blenders. Electrical cooking momentum, up mid-single digit in the third quarter, has been driven essentially by grills, which also developing fast in China; oil-less and classical fryers; and table-top ovens. On the positive side, we also find home comfort, thanks to fan and personal care with a solid momentum for the Steampod hair straightener, notably in the third quarter. As already mentioned, at the end of June, cookware sales are down at end September, still suffering from the long shutdown of the Wuhan plant in China that entail shortages not yet caught up. Then if we were to exclude China, cookware turnover would have been up 2% over the first 9 months like-for-like. The rebound in the third quarter in cookware being nurtured by Tefal pots and pans worldwide and by woks in China. The home care product line, mainly vacuum cleaners, has not yet turned around and compared with the demanding 2019 base. But the recent or current introduction of new products has materialized into a better momentum in the third quarter. The situation is more or less similar for beverage that comprises, in particular, high comps for BeerTender. The reason for linen care underperformance is related to an underlying declining trend for ironing, on top of which, the containment has added another unfavorable layer. However, things improved somewhat in the third quarter with revenue only slightly negative. On Slide 13, regarding the Professional business accounting for 10% of the group's revenue. Sales over the first 9 months have been down 32% organically. This underperformance has to be put in perspective of 2019 high comps in H1 linked to the delivery of major PCM contracts with U.S. customers. Nevertheless, [ overall sales ] have been impacted by the consequences of the COVID-19 health crisis in the HoReCa industry, which remains massively hit by sharp and extended decrease in business activity. Ongoing effective closures or nonreopenings, reduced activity level, direct exposure to health measures, newly implemented curfew containment and overall major uncertainties have led customers to be extremely cautious and, hence, to suspend or postpone their investments in coffee machines. This has mechanically led to reduced order for the group. And in parallel, but not offsetting the collapse in equipment sales, our service and maintenance business, representing 30% of PCM revenue, has been recovering in Europe and, in particular, in Germany. Now we hand over to Isabelle Posth for more details on the market, and we are moving to Slide 15.

Good evening. Yes, we are on Slide 15. As usual, the review by geography focuses on the Consumer business. But as an introduction, you will find here the quarterly phasing of sales changes in the group's continent, as we call them, since the beginning of the year. Performances varied quite a lot across the continent quarter-after-quarter, reflecting the worldwide spread of the pandemic and the sanitary measures, including lockdown put in place by the government and impacting business. Volatility has been huge, as explained by Nathalie earlier, including within quarters. As mentioned by Nathalie when she was commenting Slide 10, in Q1, group's Consumer sales dropped by 17% like-for-like. They were dragged down by Asia, especially China, early hit by COVID-19, ultimately weighing severely on Supor's activity. The pandemic surging later in EMEA, in Western Europe mainly, and in the Americas, the negative impact on our activity also occurred later and, as such, was more limited in Q1. As a reminder, again, in Q2, the Consumer revenue decline was 3.2% but does not really reflect the significant changes in trends that have taken place. Owing to the containment of the epidemic, Asia bounced back and achieved growth as from the second quarter, thanks mainly to China's strong rebound. At the same time, things started to improve in EMEA, notably as from mid-May, with the end of the massive lockdown and major restocking in the trade in June. Conversely, activity plummeted in the Americas, very seriously affected by the fast dissemination of COVID-19 and no or late reactions from some states, U.S. and Brazil, in particular. And then in Q3, Consumer overall performance was plus 9.9%. And as you can see, all continents were back to positive growth, EMEA and the Americas leading the way with sales up double-digit organically. The solid performance was fueled, as a matter of fact, by our 6 subcontinents. Across the board, business has been largely fueled by e-commerce, the weight of which in group sales has gained at least 10 points over the 9-month period, according -- depending on the countries. Now moving to Slide 16 with a focus on EMEA. Well, EMEA represents almost 50% of Groupe SEB's Consumer sales, including 35% for Western Europe and 15% for the other countries. In Q3, group revenue for the whole region was up 12.2% like-for-like. To start with Western Europe. Following a tough second quarter, business improved sharply in the third one, fueled by almost all markets. The organic 9.4% dynamic was driven by a solid demand for SDA and cookware products against the backdrop of reallocation of household spending towards our products and of continued stock rebuilding by customers. The latter probably explains the by end month of September. This solid performance was achieved despite a high 2019 comps in terms of loyalty programs. Excluding the negative impact this year, growth would have reached 12.6% for the third quarter. Detailing now a few countries. Our sales in France have benefited from a strong momentum, up almost 15% in Q3, with almost all product categories contributing to growth: cookware and kitchenware; kitchen electrics with a special mention for Cookeo; food preparation appliances and beverage; coffee makers, full automatic as well as espresso coffee machines, as well as Dolce Gusto within the single-serve segment. There has also been a strong impetus in home cleaning, bolstered by new launchings in versatile and robot vacuum cleaners. In linen care, in a declining market, as you know, our revenue increased double digit, thanks to irons and garment steamers, and led to the strengthening of our leadership position in the country. In the other Western European countries, Groupe SEB has achieved a very good performance overall, stemming from almost all markets, except for Italy being penalized by high comps due to large loyalty programs in 2019 and a later rebound post confinement. Q3 dynamic was particularly robust in Spain, including solid momentum also for VMS products, both cookware and SDA, the U.K., Belgium, the Netherlands, the Nordics, Denmark and Sweden, in particular. Our German business is also back to growth in Q3, which is very encouraging. Everywhere, e-commerce has been a key growth driver, but the group has also made new and exciting inroads with some off-line retailers. Moving now to Eurasia. And it overall increased FX volatility during the quarter where, in fact, volatility is mainly depreciation. The region shows an outstanding performance in Q3 with sales up 19% organically, which would be some 5 points above, excluding LP's contribution, significant in 2019 and mainly located in Central Europe. This clearly confirms the business turnaround in most markets against the backdrop of brisk SDA market, boosted by home cleaning and stay-at-home categories; that is to say, food preparation and electrical cooking. Among the champion products, OptiGrill, the ironing items, the garment steamers and the ironing system IXEO and vacuum cleaners, Clean & Steam, in particular, have been driving growth. Sales have also been very satisfactory for VMS products. The sharp improvement in Q3 is owed to our large markets, Russia, Poland, Ukraine, Turkey, in particular, all achieving high double-digit revenue growth, combining positive volume effects and pricing. At the same time, the ongoing development of our business in smaller countries and the continued inroads in Central Asia, including, for instance, Kazakhstan, constitute relays for the future. As in all regions, e-commerce has been the great winner in Eurasia with first click and mortar circuits than pure players, most of them being national rather than global. Over the 9 first months and also due to the specific situation this year, online sales have significantly increased their share in our revenue by around 10 points, generally outperforming the market and gaining ground in all distribution channels. In all distribution channels, Groupe SEB has improved both its online and off-line market shares in Eurasia. I am now moving to the Americas, which is Slide 17. The Americas are representing approximately 14% of group sales and have been growing 10.8% like-for-like in Q3. The health situation remained quite serious and critical in Q3 with COVID-19 pandemic constantly spreading. This was particularly true in the U.S., Mexico and Brazil. On the economic standpoint, Q3 saw a major acceleration in the continued depreciation of several American currencies, like, for instance, the Brazilian real, the Mexican peso -- well, all the peso, in fact, Mexican, Colombian, Argentinian and so on. In North America and especially in the U.S., but it is also true in Canada, the COVID crisis has come on top of already difficult times for the off-line trade. While all stores have reopened, some banners or chains are still in dire straits and the shift towards online sales has not always compensated the increased deterioration of the business off-line. Additional closures of stores are, thus, being announced every week or have been implemented by retailers during the period, resulting from pandemic financial pressure. My comments will now focus on the U.S. In a bullish SDA and cookware market, Groupe SEB ends Q3 on a very positive note. Revenue has been up by more than 20% like-for-like, propelled by an excellent momentum in cookware driving -- driven by the cooking-at-home trend and obviously fostered by the stimulus checks granted by the American administration to more than 150 million consumers to incentivize consumption. Our 3 brands contributed to the outstanding dynamic. Tefal sales have grown in all distribution channels, and the brand has entered new programs with some retailers. All-Clad rapid sales development stems -- has stemmed mainly from newly launched hard anodized stainless steel cookware ranges, targeting younger generation, and from the fast-increasing business with pure players. IMUSA has achieved in Q3 and over 9 months a great performance based on successful extended distribution, best-seller products such as traditional pots and pans and calderos as well as also new items and materials and also the gradual expansion in SDA line. On the contrary and despite better distribution exposure following Rowenta's channel extension last year, the linen care business continued to be penalized by both a declining market and by poor demand related to the pandemic shopper behavior towards ironing. Newly acquired StoreBound achieved in Q3 an outstanding performance with sales up by more than 80% versus last year, bringing the 9-month growth to more than 55%. The very strong increase has been driven by the DACH brand, featuring mainly cooking appliances. Well, overall, the acceleration in online sales is a reality with all our major customers. Our policy is resolutely to fuel this massive dynamic through the launch of new product lines, additional listings of selected products, special programs dedicated to millennials, intensified digital marketing activation and so on. Moving now to South America. The story is different. Well, I have already mentioned the health crisis as well as the currency environment. In Brazil, the first half of the year has been quite tough due to the pandemic. Although the sanitary situation is still a major issue, Q3 has represented a turnaround that materialized into a solid pickup in revenue with September even reaching all-time high monthly sales. The strong dynamic reflects a buoyant market, both in SDA, all categories up, apart from linen care and cookware. It is linked to new consumer behavior, favoring home equipment purchases and especially cooking items as well as to subsidiary -- as well as to subsidies, emergency aids that have been granted by the Brazilian government to a part of the population. In this very positive context, group sales in Brazil for Q3 have been increasing by slightly more than 10% like-for-like on a 2019 base that had been inflated by the positive impact of PIS/COFINS, probably you remember that, with almost all product lines contributing to growth. This is namely the case of cookware that has been recovering after a number of difficult months. As for SDA, fans benefited from very high temperatures in September across the whole country and leading to record sales. Food preparation, including kitchen machine, which is a flagship product in Brazil, and blenders registered growth way above 50% like-for-like. With the shops and stores having reopened in June and e-commerce developing rapidly, mainly through click and mortar circuits, the rise in Q3 sales has been omnichannel. In Colombia, the retail environment returned to normal in the third quarter with a good overall dynamic of all channels, traditional, modern, specialists, group retail, off-line, online, et cetera. Demand for our products has been very strong, building a solid base for growth. As for Brazil, Q3 featured the 3 higher sales months in the group's Colombian history. Double-digit organic growth in the 20s include price hikes implemented to compensate for the weakened cup. It was fueled by outstanding results in cookware as well as in kitchen electrics, marked notably by a solid recovery in blenders and continued development in oil-less fryers. Now getting back to Asia. Well, Asia, let me check. Yes, Asia represents close to 37% of group sales and has been up 6% like-for-like in Q3. Starting with China, the group's first market where consumption has been recovering although not booming. As a matter of fact, Chinese consumers have been turning back to almost normal life with no more stay-at-home imperative. However, overall demand remains essentially oriented towards online sales, while the off-line trade still shows a massive negative trend with no major improvement at the time. During Q3, the cookware market has been enjoying a positive evolution, thanks mainly to the increasing share of e-commerce acting as a strong catalyst. Conversely and following months of strong momentum, the SDA market proved softer during the summer. The slowdown in Supor's domestic sales growth in Q3 of 3.9% like-for-like, following a dynamic 10% in Q2, can be attributed to 2 main factors. On one side, the strong channel inventory replenishment in April and May after the shortfall caused by COVID-19 in first quarter. And second, on the other side, the large-scale promotions related to the shopping festival in mid-June, which pushed up sales in the second quarter but hinders selling in Q3. However, Q3 revenue growth was rather well balanced between cookware and SDA. Cookware sales have been mainly fueled by woks, a Chinese flagship product and Supor's largest cookware category; and kitchenware, where current hero products are mainly chop boards, kitchen tools and knives more than on-the-go items. Regarding SDA sales. Food preparation confirmed its robust growth, exceeding 50% for the quarter, thanks to the ongoing strong momentum of high-speed blenders. Line care also proved dynamic owing to garment steamers. On top of this very successful product line, Supor continues to enlarge its product offering, entering new categories, more trendy and more Western style, and responding to new needs and desires of Chinese end consumers. Among these new categories, we will mention, for instance, oil-less fryers, table-top ovens and sandwich makers. In the context of a softer market, Supor confirmed its overall dynamic approach, combining targeted innovation in enhanced presence in the field and increasing digital activation in order to conquer new consumers, including, especially, millennials. To this view, Supor has increasingly -- has been increasingly leveraging social networks and developing live streaming e-commerce, capitalizing on influencers and celebrities having millions of fans and followers to market the products. The outbreak of the pandemic early in 2020 has, in particular, boosted popular platforms featuring short videos like TikTok or Kuaishou where Supor has been quite active. Now getting to the other Asian countries, excluding China. Sales momentum has been accelerating in Q3, posting a 12.4% growth like-for-like, driven by the vast majority of countries in the region. I will comment only Japan and South Korea. In Japan, against the background of solid demand for SDA and cookware products, the group has achieved a nice growth path in Q3 despite high comps in September last year due to anticipated sales by retailers ahead of the VAT increase in October 2019. Stackable cookware, namely the Ingenio range, the pressure multi-cooker Cook4me, the international version of Cookeo and the more recent [indiscernible] cooker have experienced tremendous success. Food preparation has been doing well, especially blenders, and the lineup is being developed and enriched with new products. As already indicated in past quarters, group retail, now comprising 43 stores, continues to enjoy a strong dynamic. In South Korea, business has been robust in the third quarter, fueled by the very good performance during the Thanksgiving festival holiday season but also thanks to constant extension of the product offering. Besides pillar, long-standing categories like cookware or kettles, the group has successfully added new families, such as vacuum cleaners, blenders, garment steamers, where it has gained market leadership, and also VMS cookware and SDA ranges. Launching now oil-less fryers and draft beer machines and expanding distribution in the e-commerce as well as some specialists are additional growth drivers in the country.

Thank you, Isabelle. So I'm now moving to Slide 20 to talk about outlook and prospects. So until now, due to major uncertainties and low visibility related to the crisis, the group has not given any guidance for full year 2020. But now following a good performance in the third quarter and given the fact that the end of the year is close, we will try to share our views on the end of the year with you. So indeed, Q3 performance has been robust in the Consumer business while tough in the Professional division. So cushion is still required as the health situation remains serious in the Americas and have shortly deteriorated over the last weeks in Europe, with the epidemic strongly resurging and curfews or containment measures being taken again by government. So under the current conditions and assuming that current economic and sanitary conditions prevail, Groupe SEB's 2020 sales should contract between minus 5% and minus 6% on a like-for-like basis, with a negative currency effect in the range of minus EUR 200 million to EUR 250 million. Regarding the Consumer business, the group foresee a normalization in demand. As for the Professional business, it will continue to be severely impacted by the effects of the crisis on the hospitality and catering sector. However, the resilient market and the solid performances in the third quarter lead us to be confident. After 2 quarters of reduced investments in growth drivers, the group should resume a substantially more proactive policy in the fourth quarter. And as mentioned earlier, we expect a negative ForEx impact that will be at least as penalizing in the fourth quarter than what it has been in the third quarter. On this basis and taking into account a total negative currency impact slightly exceeding EUR 100 million for the full year as well as a positive impact effect on raw materials, full year operating results from activity is expected to be down by 25% to 30% versus 2019. We are now happy to take your questions. So please go ahead.

[Operator Instructions] We have the first question from Nicolas Langlet from Exane BNP Paribas.

I've got 3 question, please. The first one on the full year adjusted EBIT guidance. So the midpoint of the guidance implies around EUR 210 million adjusted EBIT in Q4 of EUR 160 million decline year-on-year. Can you help us understand how you build this decline between FX negative like-for-like and growth driver cost increase? And notably, by how much do you expect to increase growth driver cost in Q4? Second question, if you take all the cooking categories, the one benefiting from the work-from-home trend, by how much did they grow overall in Q3? And do you expect those categories to continue benefiting from the work-from-home trend in the coming quarters? Or you already start to see some signs of normalization? Last question, on the PCM. Can you tell us how the order book evolved in recent months and notably, how the current order book for next year compare to the year before? And finally, it seems that, that segment will likely remain under pressure for a couple of quarters. Do you have any plan to adjust cost and limit the operating deleverage for that business unit?

Okay. Thank you, Nicolas, for your question. So I will start with the bridge on the fourth quarter. So as I mentioned, we have quite a few driving assumptions to explain for the performance we expect in the third quarter. The first one, we see that the consumer growth will normalize. So we do not expect to benefit from the same kind of pattern that we have experienced in the third quarter but something that would be less significant, still limited. Professional business, we think that the business will still be impacted in the third quarter. So we do not see -- in the fourth quarter, sorry. So we do not see any improvement coming from that segment. Having said that, there will be a, when doing all the math, a little bit of growth, excluding FX, quite limited. And then we will significantly reinvest on growth drivers in the fourth quarter. So again, all of this, assuming that situation remains as it is, you know that we have always been very cautious in engaging growth drivers. And shouldn't we see any significant momentum opportunity to invest, that will be certainly a different story. And then last but not least, we see that in the fourth quarter, there will be a further deterioration coming from the FX conversion. So we think that on the full year, the impact could be in the range of EUR 200 million to EUR 250 million on the top line, comparing to EUR 110 million at the end of the first quarter. And this impact on the top line will reflect in the operating results with an impact that will be on a full year, slightly above EUR 100 million compared to the minus EUR 63 million that we have in the third quarter. So that -- these are the main items to explain for the bridge. Then I will maybe let Isabelle answer your question on the categories in cooking, and then I will get back to you on the PCM business.

Yes. Regarding cooking, as we mentioned it, those categories -- these categories have been growing quite fast in Q3. And overall, kitchen electrics have been up double digit in the period with a very strong boost stemming from food preparation. And there, the big, big category, which is blenders, has been growing quite fast. Electrical cooking also has been growing well, and that was driven by grills, by the oil-less fryers, by electrical pressure cookers such as Cookeo, for instance. So a very good stance in electrical cooking also. Regarding beverage preparation, the turnover has been up, let's say, mid-single digit. And overall, a very strong dynamic on the quarter. We expect these categories to continue to be -- to drive growth over the next months. Of course, what's going to happen in the society and with potential new closures, new lockdowns, curfews and so on will -- might change the deal. But we feel rather comfortable with these categories. I have not mentioned cookware, where cookware has also been up double digit over the quarter. And so all cooking items have been up, as a matter of fact.

And to your question on the PCM segment. So for sure, the order book is not as strong as what it was 1 year ago. The underlying sector, hotel, restaurant and catering, has significantly been hit by the crisis. And we have experienced throughout the year some postponements of projects by our major customers. To the contrary, what we said is that we still have a basis of recurring revenue in that business. You may recall that it's around 30% of the revenue of the business, which is coming from maintenance. So even if the machines are not used on the full speed, if I may say, they still require maintenance. That's the basis for building the revenue assumption for 2020. And then the discussions are still there with our customers. We are more discussing postponement of the schedule than any cancellation of contracts.

Okay. In terms of cost structure, do you have any plan to try to adjust it? Or you are ready to support this deleverage for a couple of quarters and make sure you have the sufficient resources to benefit from the recovery when it materialize?

No, we will -- obviously, we will look at the cost structure. We have a different way to look at it. First of all, there is a measure in Germany, which name is Kurzarbeit, which is kind of a short-term unemployment that we can use to offset a part of the direct cost in the plants and in some structure in the operating expenses. That's one thing that we are currently looking at. And then obviously, we will not keep the structure as it is. We will further dig into what we can do to reduce the operating cost of this business in 2021 for sure.

Next question from Charles-Louis Scotti from Kepler Cheuvreux.

I have 3 questions, please. The first one, on your top line guidance. It seems to suggest a 8% reported decline in Q4, i.e., 3% to 4% organic decline in the -- during the last quarter. What extends such a cautious net in Q4, whereas the comparison basis is much easier than for the beginning of the year? Second question on the gross margin. You mentioned in the press release persisting pressure on gross profit. Is it related to the online shift or the deteriorating product or channel mix? And my last question on the working capital, which apparently has contributed massively to the deleveraging in -- at end of September. Can you quantify it and help us quantify what could be the working capital change for the full year?

Okay. So starting first with the Q4 numbers assumption. First of all, talking about the comparison base, you may recall that last year, we have benefited in China from a full Chinese New Year effect. As you may remember that the Chinese New Year occurred at the end of Jan in 2020. So all the selling that we did for Chinese customers was done in December. So that's something that we will not be able to beat as in 2021 Chinese New Year is scheduled in February, and we think that most of the selling will occur in the first quarter next year. So that's one item on the comparison base. Then as I mentioned, we do not expect any improvement in the Professional segment compared to what we have delivered in the third quarter. We still have the revenue coming from maintenance. But there is a drop in projects and machine replacement, and we do not see any improvement in the underlying sector of our professional business in the fourth quarter. Then talking about the other continents. Well, we've had, I would say, very bumpy quarters. Q2, Q3, we've seen, in some months, decreases of 40%; in other months, increases of 40% to 50%. So bear with us that it's not easy to make a full forecast for the end of the year. Even if we're getting close to the end of the year, we still are relying on what our customers will do. We think we've made a cautious assumption, assuming that there is no further lockdown, so that the consumption will be there in the fourth quarter. And that's another reason why we think it's a good time to increase the level of investments we want to have on the growth drivers. Then you had a second question on margin. What we see on the -- in the gross margin is mainly a volume impact in the -- on a year-to-date basis. We are losing revenue. We are -- as a consequence, we are not as efficient as we're expecting to be in our plans. But we have also worked super hard on our purchasing in order to deliver more than what we were expecting for this year and to partially compensate. We have also benefited from a short-term unemployment subsidies in France and in Germany, and this is how we are maintaining the gross margin level on a year-to-date basis. Then what would be the pressure coming from the online, that would really depend from one market to another. Really, what we're looking at, the big few players that our customers, the business we do with them is not dilutive from a gross margin or gross profit standpoint. We think that their business model is quite different compared to the -- one of the traditional retailers. But we are not selling to the big 2 players, diluting the gross profit or the gross margin of the company. Working cap, that's a tough one. To be honest with you, quantifying what would be the working cap at the end of the year, it's a bit difficult. We expect that we will have a nice October, November. Not everything will be cashed in at the end of the year. What we've done throughout the year was to work super hard on the inventory reduction. So we think that there will be some of it that will reflect at the end of the year. Then you know that for us, the story does not end at the end of December. We also have to build the inventory to fuel the business for the beginning of 2021. And as we plan to invest on growth driver, it's also because we're making the assumption that there will be business to do in 2021. So we will need some inventory to deliver sales at the beginning of next year. So I think a bit too early to get back to you on this item.

Next question from Alessandro Cecchini from Equita.

The first one is about the A&P reduction in the third quarter. So in the first half, A&P reduction was minus -- so a positive contribution of 50. I would like to better understand what was the positive contribution in the third quarter. My second question is about the trend that they are experiencing Consumer business in October, in particular in Europe. It seems to me that the trend decelerated in Europe over the last weeks. I would like to better understand this point. And finally, my last question is about what do you think about the food preparation in general, generally speaking, for the last part of the year considering the strong rebound that you had in the third quarter.

Thank you for your questions. So first question related to everything we do in terms of advertising and promotion. Frankly, we didn't have to invest much in the third quarter as we have benefited a lot from the restocking of our distributors, mainly traditional retailers who were closed a significant part of the second quarter. This restocking effect has started in June, and we have benefited from it as well in July and, to a certain extent, in the course of the third quarter. So there was not a very strong need to boost our advertising investment in the third quarter. You may also recall that we've been very cautious on this kind of investment in the second quarter when the crisis started, and that was for obvious reasons because a lot of our customers were closed, and so the sell-out was low. Now this is not the plan we have for the fourth quarter. Fourth quarter, we want to further grow our investment in advertising, in marketing, not only to fuel the fourth quarter numbers but also to prepare for the beginning of next year. Now talking about the trend in October. As I was saying, there is none month that looks like the previous one. So we've had a very high -- very low April, super high June, nice July, lower August, strong September. October, you're right, is a bit -- is not as high as what we have seen in September, but we still see growth in the month of October, especially in Western Europe countries. And your last question was food prep. Well, you've seen that we have delivered very good performance in food prep in the third quarter. So we had a good momentum in Europe, in China, that was the 2 continents which drove the line up. I mentioned that we grew by 30% in the third quarter in food prep. So we have good products. The momentum is there. We hope that we'll be able to meet the consumer requirements to that extent. And we also have -- even if it's not in the organic growth, StoreBound in the U.S. is coming with a very strong performance. So compared to what they were delivering 1 year ago, it's 80% growth in the American market with a lot of domestic appliances that are dedicated to food preparation as well. So I think we have a good story to tell there.

Okay. So just a recap of last year fourth quarter in China. I remember right that we needed to account roughly minus 7%, minus 8% of growth in China for the fact that you will not have the bigger, the even in this year, it's correct? Minus 7%, minus...

That was roughly the estimate we gave you last year. That's right.

Next question from Marie Fort from Societe Generale.

I've got 3 questions. The first one is, could you help us to estimate the normative growth that we could expect for China in 2021? Because it seems that the market, particularly for SDA, is maturing in this country. Also, could you comment, according to you, do you expect that the second-hand market for PCM division could compete with the new market in case of numerous hotel and restaurant bankruptcies, it's something that you worry about? And also could you tell us what is the percentage of your sales in the Middle East?

Okay. So starting with the assumption we have for normative growth in China. Maybe a bit too early in the year as we are just starting the budget exercise. You're right that the SDA market is still maturing there, but for sure, next year, we will benefit from an easy comp to beat. Regarding cookware, if we were to compare with competition, we have suffered more than competition on the cookware market as the plants we have that is producing for the domestic Chinese market on cookware products is located in Wuhan. So that plant has been closed for 2.5 months, if I'm not wrong. And so we have certainly, sorry, lost sales during that period but we have not lost the customers. So we're confident that we will be able to get back to growth because of this comparison base. So that's a bit difficult now to do the math for the Chinese market for 2021.

And at this stage, are you comfortable with the consensus estimate at plus 11% for 2021?

I'm not commenting the consensus for 2021. Again, as I told you, we are just starting the budget exercise. And usually, we do not guide even at the beginning of the year on a full year basis. So I am not commenting on the number of the consensus for 2021. You had a question on the second-hand market. For the timing, it's not something that we think should have an impact on our sales. You know that we are launching, on a regular basis, new machines with increased functionalities. And we think that when the market will recover, we will have the right products to make the difference and to sell to the consumers that will be there. So we do not consider that the second-hand market would stretch our capacity to restore our top line in this part of the business. And then you had a last question on the Middle East sales. So -- well, think that if your concern is what will happen at the end of the year, we think that, well, should something happen, if our products were blacklisted, that would not be material to the group performance. And then if we look at the full year basis, it's around 1% of the total group sales that we do in Middle East.

[Operator Instructions] We have one more question from Arnaud Despre from Portzamparc.

I just have one question concerning StoreBound. So there was a good contribution in Q3 with a good level of growth. Do you expect comparable growth in Q4? And maybe to be clear, can you help us on the contribution of StoreBound in your annual guidance?

So this segment of the market in the U.S. is behaving particularly well. So I'm not telling you that StoreBound will deliver another 80% growth because that's just a number we could not trust when we see it first in the fourth quarter but we expect a significant growth coming from that segment. They have the right products, and they have all the skills to activate consumers through a social network and through digital means, which is proving to be superefficient in the current context. So we have a strong expectation from them. But I cannot commit or we cannot commit on an equivalent performance compared to what they did in the third quarter. But it should be nice numbers. So I think if it was the last next question or?

Yes, it was the last question.

Okay. So maybe as a conclusion on the current situation, I think that, once again, we demonstrated that the sector we are in is resilient. We demonstrate the capacity of the company to adjust to crisis. We have taken the right measures in terms of cost containment, being less investment when it was not necessary action on cost structure. And so when the market has rebounded, we've been there. So let's set apart the Professional segment, which is another story. We've been in a position to deliver a growth that was close to 10% on the legacy business of the group. That's why we are confident in our business model, our teams and our capacity to deliver in the next quarter and in 2021. Thank you for your questions.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.