SEB SA (SK) Earnings Call Transcript & Summary

Good day everyone and welcome to today's SEB 2022 Sales. Today's call is recorded. At this time, I would like to turn the call over to Stanislas de Gramont. Please go ahead.

Yes. Good afternoon, ladies and gentlemen. Welcome to this presentation of 2022 provisional sales results. We'll be taking you through this presentation with our Chief Financial Officer, Nathalie Lomon. Right, without further ado I'll start, we are on slide -- no before, you're going too fast. We'll covered 2022 at a glance, what happens, the highlights, the review by geography and then some conclusions for the year. Starting with 2022, our full year sales totaled at EUR 7.960 billion, that is 1.2% negative versus year ago and reported minus 4.7% like-for-like. To be noted that this performance is 8.2% above 2019. You will reckon that we see 2019 as the last, let's call it, regular year and we keep tracking our activities on that. Our fourth quarter sales performed at minus 3.6% reported and minus 5.6% like-for-like, which is again 7.1% against 2019. Now when we look at the way sales went throughout the year, for the reminder of full year 2021, which you will remember was 15.5% against full year 2020. So full year 2022 is minus 4.7%. This is like-for-like sales change. We started the year with a Q1 at almost flat at 0.4%. Sales went down 5.1% in Q2. We hit minus 8.1% in Q3 and Q4 is slightly better towards minus 5.6%, leading to this minus 4.7% like-for-like. If I move to the next slide, this growth is composed of -- or this decline is made of minus EUR 378 million, 4.7% in organic growth. We have a very, very important currency effect that weighs for 3.3 percentage points, EUR 269 million, and tiny scope effect. This is the integration of Zummo juice company that -- juicemaker company that we acquired last summer for EUR 10 million. When we look at the currencies, the big 3 contributors to our currency impact on sales is the Chinese yuan, the U.S. dollar and the Russian ruble, with the Brazilian real and Mexican peso also contributing. And if you look on the top right of the chart, out of this EUR 269 million, we have a Q4 that weighs for EUR 40 million when Q2 and Q3 were respectively at EUR 81 million and EUR 92 million contribution. That reflects, as you all know, some reevaluation of the euro in the last quarter of the year against, in particular, Chinese yuan and U.S. dollar, but also other currencies. Now we look at the way our sales have performed in the various business segments. You may remember that when we presented the third quarter year-to-date results, we did already use that format that basically says, out of sales which are essentially flat in reported minus 1.2%, we have 2 blocks really. We have France and Germany and Russia, Ukraine, which are significantly down versus last year. And France and Germany alone weighs for 3.8% decline in the total group sales whist Russia, Ukraine weights for 1% negative. We have a very strong positive contribution from our Chinese business of EUR 240 million, 3 percentage points in growth. Professional business also has confirmed a very strong dynamic this year weighing close to EUR 100 million growth, 1.2% total group sales. And the other countries or business segments, a mixed bag that all in all, is almost flat at minus 0.6% in reporting. So as you can see, a very varied performance depending on the segments and the geographies. Now if we go a bit deeper, starting with this very complex or complicated slide that in the lines shows the various business segments. And on the columns 2021, 2022, reported on like-for-like and the Q4. What we can say is that, well, Q4 is in -- and I'm on the bottom right number. Q4 is at minus 5.6%, full year is 4.7%, so it's pretty similar. And that hides a consumer business that is at minus 7.3% versus minus 5.9% when professional is at plus 17.6% in the fourth quarter when the full year shows a plus 9%. So a slight deceleration of consumer and the very strong acceleration of professional in Q4. When we look at it by region, we see that EMEA is pretty consistent between the full year and the fourth quarter, 11.1%, 12.1%. We see that Americas are slightly better in Q4 versus the full year driven by South America. I'll come back to that. In Asia, we see a very strong resilience of our Chinese activities. China is 5% like-for-like growth full year and the Q4 despite all the events that happened in Q4 in China is still posting 3.8% growth, whilst the other Asian countries had a more difficult Q4. Going into the professional business, this is really one of the strong satisfactions of the year for us, reminder of the numbers, plus 15.6% sales, 9.2% like-for-like growth at EUR 725 million with Q4 at 28.4% overall growth, 17.6% like-for-like. All the business segments have been contributing to 2022 sales growth, Professional Coffee Machines, of course, which is 90% of the business, but also the Hotel Equipment and Krampouz, our planchas and waffle makers equipment in France. In PCM, we have a buoyant Q4, all geographies and a strong delivery flow had to deliver the performance. We have a larger and well-diversified customer base. This is one of the things we undertook during the COVID years to expand and enhance our customer base and that pays off right now. And we have service revenue which is up double-digit, which again was one of the areas we are developing as potential great ways to develop strong and recurrent profitable growth. Key highlights for 2022 is first, the acceleration of the business in Germany. Germany is one of our top 2 markets. The business is doing great. We have accelerated the synergies and the collaboration between Schaerer and Wilbur Curtis in the U.S. Wilbur Curtis remember was acquired at the back end of 2018, had a difficult COVID period, and we see in 2022, a very strong recovery of that business. And last but not least, we have a dynamic machine rollout in Luckin Coffee in China. Again, remember that 2 years ago, Luckin was a question mark and they are back full speed opening hundreds of stores, and that's obviously benefiting us. We don't advertise it much, but we have a solid recovery of our Hotel Equipment business in Q4 under the brands, WMF and Hepp and last, Zummo went first consolidated in Q4 that impacts for EUR 10 million sales, as I said. Moving into consumers. We would qualify that year and that quarter as overall resilience, and we have some specific issues that we've already hierarchied in Q3. Starting with sales trend in Q4, which is slightly better than Q3. With full year sales down 5.9% like-for-like and again, we should always remember that 2021 was a record 16% growth. And a consequence of that -- the element of that growth is that we oversold some kitchen categories and it was during the COVID period. And obviously, the year after, we suffered from those high comps. We have full year sales, as I said in the introduction, 10% above 2019 levels, which confirms that our markets are positive and our markets are resilient. 100% of our like-for-like decline stems from France, Germany, Russia and Ukraine. Those weigh around 1/3 of our total consumer sales and represent 100% of the loss year-on-year. That includes, you remember, around EUR 80 million of Loyalty Programs that happened in 2021 that were not reviewed in 2022. As I said, Nathalie, will elaborate later on. Strong sales, 5% up like-for-like in China, beating the odds and doing better than the market. And as I said, stable sales in other geographies with a mixed picture. If I go into product categories, we have our core businesses, cookware and electrical cooking slightly negative at the average of the group, driven by this over consumption in the COVID years, and that is the comp number that is reflected. We have 2 categories that are particularly impacted. One positive linen care business, which really suffered during COVID days, and is growing double digit in 2022. Conversely, the food preparation, which was particularly in demand during COVID is going through tough year. And we see that home care and home comfort are categories that performed well and continue to perform well. If we look at our geographies in our top 20 countries, while that confirms that France, Germany, Russia amongst the big offenders, as I said, those 3 with Ukraine represent 100% of the loss. We see a negative U.S.A., and that's driven with a staggering double-digit growth starting with 2 or even with 3 in some instances a year ago, with a strong performance of Colombia, Mexico and Brazil. China was in the positive territory last year. China is in the positive territory this year. So China confirms quarter after quarter, year after year, that it is a very strong and high-performing business segment for us. Japan on the contrary, suffered some effect [indiscernible] in the negative. I'm done with that introduction, I will now hand over to Nathalie Lomon who will take you in more details through the various geographies. Nathalie?

Thank you, Stanislas. Good afternoon. Good night to everybody. So starting with Western Europe, some contracted picture in this part of the world, with a good resilience outside France and Germany. So hence, we have already commented in Q3 and again in Q4 we're suffering from an underperformance in those 2 countries. First, from a lower level of loyalty programs. As Stanislas said, it's minus EUR 80 million when compared to 2021 that we have delivered through those programs. We have faced high comps in kitchen categories and these are categories where we have not only oversold during the COVID period, but where we have a very strong weight in terms of product when compared to the total turnover we deliver in France and Germany. And last but not least, the market trends, we're not in the right direction with demand that has been rebalanced towards other sectors than electrical appliances and home equipment at large. We have suffered from significant destocking in retail and consequently, also market share gains from B brands or private labels mainly in France. On the other hand, the other Western Europe countries have shown a better resilience with recovery in linen care and a mixed picture with positive trend in the U.K., in Italy, in Portugal, in the Netherlands, fast-growing categories we're thinking of oil-less fryers and versatile vacuum cleaners. Last but not least, in those countries, we have seen our D2C approach continuing -- developing continuously, both online and offline. If we move to the other European countries, they're up 6% when compared to 2021, excluding Russia and Ukraine. So I will start with those 2 countries where sales are down more than 30% on a like-for-like basis. So it's a significant impact. And the cost from those 2 countries, our sales are up with a few examples that are showing a mixed picture. A good performance in Turkey, in Egypt and in India despite volatile economy, despite inflation, despite FX, who have been in a situation where we have put significant price hikes during the year. And this has helped us grow out that line sharply up. We also had a very good performance in Poland. And in other countries, in Central Europe, we have suffered from market slowdown and distribution destocking as in France and in Germany. In the same -- well, D2C performed well in this area. We saw growth, both online and offline and same kind of flagship products have been successfully rolled out as in Western Europe, oil-less fryers, Cookeo/Cook4me with [indiscernible] sectors, and we are starting to grow our sales in kitchen knives. Despite a volatile year, what we see in this part of the world, our sales are up 16% when compared to 2019. I'm moving now to North America. North America was a challenging year because we had to face very high comps from 2021. So our sales are up 1.1% helped by the FX, as Stanislas just mentioned. So it's a minus 10% organic decline when compared to '21, again, with very high comps. And altogether, our sales are up 18% when compared to 2019. In the U.S., situation is the following. We had to face some destocking in the trade throughout the year, a challenging situation in kitchen electrics because of high comps in 2021 and a good resilience in cookware sales despite the market was declining. We have confirmed our leadership with our 2 brands on the market, T-Fal, All-Clad. Last but not least. In linen care, we have benefited from a nice recovery with Rowenta, and we have a very, very strong leadership in steam irons and premium steam generators. In Mexico, situation is completely different. We are benefiting from an ongoing very strong momentum. The market is well oriented. And we have a strategy of expanding our product range, which is a winning strategy. We have grown our sales in coffee machines, in fans, oil-less fryers, linen care, blenders, cookware, so almost all the product categories that we are selling in this country, and this has helped us gain significant market share across all those categories. In South America, the performance was mainly driven by Colombia. Our sales are up close to 6% like-for-like. And Q4 is up 17.6%, benefiting from low comps in Q4 last year. We have in our reported sales a strong benefit from the FX, especially from the Brazilian real. And when excluding the FX impact, we see that we had a very nice growth in Colombia, double-digit organic growth with very good market dynamic. Again, in this country, we have extended our product offerings, selling more fans, in food prep with blenders in cookware. We are helped in Colombia because we have local facility, so it's helping us in terms of competitiveness versus competition. And last but not least, we also have a nice network of stores that we're operating as proprietary with close to 30 stores in Colombia, and it's giving us high visibility in the market. We have gained market share in all categories with the leadership of Imusa, which is a well-known brand in Colombia in cookware. And in terms of SDA, we're getting closer to competition in terms of market share, so not yet #1, but we're getting closer. Brazil is a different story. Throughout the year, retailers have been very cautious on the level of their inventories. However, we're delivering stable sales on like-for-like basis with a strong Q4, which is coming from successful Dolce Gusto rollout and a good performance on fans and oil-less fryers. Now moving to China. China is costing a new landmark record in sales. Sales in China, domestic China are now above EUR 2 billion, and it's a 5% growth on a line-for-like basis when compared to 2021. Supor has gained market share across all categories. So we are for sure the undisputed #1 in cookware, both online and offline. We are #1 online in kitchen electrics, and we are narrowing the gap with the #2 in the offline segment. We're capitalizing on our strong levers. First, a very fast pace of renewal of products. We continue to trade up through innovation, both in our flagship and mature categories, rice cookers, electrical pressure cookers, woks. We have developed new categories, LKA, oil-less fryers. We are strong in e-commerce. We're delivering 70% of our sales online, including new platforms such as TikTok and Pinduoduo. We have strengthened our approach in terms of D2C in terms of customer relationship management. And we haven't been -- we haven't seen any significant impact in December on the production capabilities and on the supply chain despite the COVID outbreak that China faced. So altogether, a very satisfactory performance of our business in China, plus 5% like-for-like. Moving now to other countries of Asia, good resilience, but a difficult fourth quarter. On a full year basis, our sales are down 6.4% like-for-like and Q4, down 12%. We had a very high comp base last year, and we have suffered this year from the heavy destocking in the trade. Japan performance, which is one of the big countries in the area, is in line with the group performance for the consumer business. It's a difficult market where to place price increases, consumers, customers are very reluctant to accept price hike in a country which has faced almost no inflation for years. But we're very strong in Japan, nevertheless, with our cookware business. Ingenio has a strong penetration, and we also have good position in kettles. As far as our own retail and D2C business is concerned, we're still ramping up. We now have 56 stores, so it's plus 5% when compared to last year with a very good traffic, and it's almost 1/3 of what we sell in Japan that we do through our own retail network. Other countries in other Asia, it's a mixed picture. Environment was challenging in South Korea, especially at the beginning of the year. We're delivering a stable performance in Australia. And despite a volatile context, we have delivered stable sales in Southeast Asia. That's it for the view by continent and country. Stanislas?

I will conclude with maybe 2 or 3 concerns. The first one is, this performance confirms that the group's balanced strategy and balanced business model works in a volatile environment as the one we've been going through this year. We are a multiproduct company, we are a multi-brand company, we are multi-geographies, we are multichannels, and we see that in a year like that, that is extremely effected by a lot of outside events, we're able to hold our business in a fairly resilient manner. The second conclusion is there has been a very strong organization of all the teams -- of the group's teams in a fast-changing environment. We moved from a positive Q1 to minus 8% Q3. And we've been able to adjust our investments, our spend to the sales levels that we will be reflected in the operating profit results we will show in -- at the end of February. And maybe last, not to keep that for too long. We guided back in October full year operating results from activity between 7% and 7.5% of sales that is confirmed and expected to be in the high-end of the range. Of course, this is a preliminary result. This is not audited. So we will not expand too much on that in this presentation today as there will be a full call dedicated to that at the back end of February. So this is what we wanted to share with you, and now I think we are ready to answer your questions.

[Operator Instructions] And we'll first hear from Charles Scotti of Kepler.

A couple of questions from my side. The first one, is it possible for you to give us, where do your volumes stand compared to pre-pandemic level, i.e., if we strip out the impact of price increases and also the strong destocking impact? And second question, if we look to 2023, can you give us some indication or at least help us quantify what would be the major moving part when it comes to your earnings i.e., raw materials, freight and foreign exchange? Third question on the consumer mood. Obviously, it's very early in the year, but what do you see in the market in terms of the consumer behavior in Europe, U.S. and China, especially since the country has lifted their restriction? And finally, sorry for the many questions, but finally, on professional, the performance was great in Q4. Can you tell us if it was due to a one-off sizable contract or if you do see a strong recovery of your core business?

Let me try. And well, first, we won't give you a guidance. I mean, this is a sales call, and we don't -- it's very early in the year around the 30th of January. So we don't have guidance on 2023. Equally, I think on volumes, pre-pandemic, I mean, you're asking for hope, at least which is not at all the exercise of today. So we will answer these questions precisely on the volume/price mix effect back in -- at the end of February. What I can say and that's obvious is that the year just as it was at the end of Q3 has been marked with increasing pricing, positive mix and negative volumes, but it's very early to give you more details at this stage. I apologize for that. Consumer mood is when we see that in Europe, there is no marked difference between Q1 and Q4, no more, no less. As far as China is concerned, we -- as you know, our Chinese colleagues while China is in Chinese New Year break and that has been so for the last 10 days, this is stopping on Wednesday this week. So again, give us a few weeks before we can assess beyond what you read on the good consumption levels during the holiday season. But give us a few weeks before we can assess or give you some data or feedback on what's going on. On professional, if I may, and maybe, Nathalie, you will jump in, we told you throughout the summer that Q4 would be positive. Q4 is positive. It's positive driven by not big contracts, recurring business, services, all geographies. So there is not one big one-off contract that has driven this very positive performance.

Yes. You're right. We said that we're expecting a double-digit growth in the fourth quarter for the professional business. We knew that the business was resuming. We had good news coming from China. We also had good news coming from the Hotel segment. And so this is what is explaining our performance into the fourth quarter. You may also recall that Q3 was stable. So we knew that we had sales that had moved a bit in the fourth quarter. But I think that even if we're not yet at the level of sales we had before COVID, that business is really back on track.

Marie Fort of Societe Generale.

I've got one question concerning the level of inventories at distributors. We saw some -- we have seen some warning on that topic from different players. What is your view? I remember that in October, you were expecting that the destocking should hand probably Q1 2023. Have you changed your view on that side?

Not really. I think we know we had quite a lot of inventory in trade in the half 1 last year. We've seen those reduce substantially throughout the second half of the year. We may have still some pockets left in those countries where sales have been pretty slow in the fourth quarter, while as a consequence, there is a pocket of excess inventory, but we don't see that excess inventory in trade as being a major topic in 2023 as it was in 2022.