Elica SpA

MIL:ELC

Earnings Call Transcript

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Elica First Quarter 2025 Results Presentation. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Giulio Cocci, CEO of Elica. Please go ahead, sir.

[Giulio Cocci, executive]

Thank you. Good afternoon, everyone, and thanks for joining our call. Let's go briefly through the agenda, which is pretty simple. We will have some highlights of the quarter, and then we will drill down the industry trend, our sales dynamics and the financial review to close with some remarks and takeaways from the current momentum that we are living.

If we move to Slide #4, 3 bullet points to describe quarter 1. First of all, we see after many quarters a positive number, a growth year-on-year, and it's a healthy growth because it's a growth in both of our divisions. So Motor division and Cooking division are both growing in a reference market that remains weak, unstable, uncertain with all the question marks regarding the second part of the year.

Net sales were almost EUR 119 million with a growth of 1.3% versus last year, driven by, I would say, 3 main factors. For what concern the Cooking division, we keep on growing in North America. So our direct distribution plan, the way we are managing our organization in there, our products, our value proposition is working. And as we will see during the presentation, is getting stronger month after month.

We see also, and this is the second driver of our growth, the winning on OEM projects starting to deliver. So our OEM business is positive as it was positive in quarter 4 last year. So far, we have a neutral tariff effect that may even become an opportunity, and we will describe it in a specific chart in the presentation.

For what concern Motor division, this is a much more European battlefield, I would say. And we see positive dynamics, positive dynamics, especially in the heating segment, where our continuous market share gaining, again, is starting to deliver in a market which is, I would say, stable, but with some opportunities to be taken, and we are doing it.

For what concerns the margins, as repeated many times, the transformation that we are leading for our Cooking division and the execution of the project are impacting margin and will keep impacting margin. The priority in this space remains the midterm. So our EBIT adjusted figures is EUR 1.1 million, meaning less than 1% on revenues with a difference of EUR 0.7 million versus the same period of last year.

The main driver here is the intensified investment in Cooking transformation. We are selling, proposing, training, L-H-O-V, Lhov our products, but all of the cooking range. We are working on the display. We are increasing trade marketing activities all over Europe. At the same time, we are transforming Netherlands, so the acquisition of aXiair that we did at the very last part of last year. And we are increasing our direct presence in North America from Southeast of the U.S. to Northeast in the U.S., while Canada keeps growing.

In an environment which is still promotional. We will see a specific slide, but the price battle is not finished yet. Probably there are some slowdown versus what it was last year, but at least we are seeing in our margins, the carryover of the very best that was the second part of 2024.

Despite of the investment, despite of a market that remains in any case, stable, we see our debt profile remaining solid. So our net financial position is exactly where we left in December 2024 with remarkable work in terms of net working capital management with additional optimization in our CapEx expenditure and with the leverage that remains strongly below our covenant.

In the following chart, which I will not comment too much in depth, you just see the trend of the last 2 years and 1 quarter. So EUR 119 million in terms of revenue means a growth that is significant considering the slowdown of quarter 3, 2024, while the margin level, I would say, 1% more, 1% less is always there. The explanation is basically one, cooking transformation and strong investment on products, on positioning, on brand, on market development, while -- and this is the core, I would say, topic of all of these projects, our debt is always there. So this is a bill that we need to pay ourselves. Stefania?

[Stefania Santarelli, executive]

Good afternoon to everyone. Moving to the industry trend, starting from, as usual, the European market slide relating to the sell-in for the European market. Basically, market unchanged, still driven by replacement factor. The first 2 months of the current year is showing still a weak demand with minus 2%, aligned with the previous quarter with some markets like France and Germany, strongly negative respective the average. Regarding the aspiration hobs, also in this case, the market is unchanged with respect to the last quarter of the previous year, plus 10%, mainly driven by the replacement and the consequent conversion ratio from induction hob to aspiration hobs.

Moving to Slide #8. Here, we can see the trend of the price and the promotional environment. Basically, also in this case, there is no signal of improvement in terms of price, focus on kitchen hoods. We can see that January and February, the medium going price is basically flat versus the last quarter of the 2024 despite generally, we see during the first quarter of the year, a rebound of the medium going price due to the seasonality trend because in the last quarter, generally, there are some effects from promotional activity, Black Friday, the initiative to reduce stock to our -- in our customer.

In the cooker hoods, we still see that there is an improvement as we saw last year during the Q1 2024 versus the last quarter of the 2023. And we still see in our number also the carryover of this negative price mix. If you compare the price of the first 2 months versus the beginning of the 2024, there is a price reduction of 7% for the kitchen hoods. Moving to aspiration hob trend, still the line is declining in terms of medium going price and the price -- the promotional effect in the medium going price for the aspiration hobs gave a negative impact from the beginning of the medium going price of the 2024 of minus 10%.

Going forward to Slide #9, relating to the North America market. Also in this case, the data is showing a market that is unchanged with respect to the average of 2024. With the beginning of the year that for the cooker hoods for the ventilation segment is still showing a negative signal, minus 2%. And if we compare this category with the cooking category and so all the cooking category, we can see that since January and February was a very positive trend, plus 12%. But if we exclude the impact of the microwave since the fact that for the announcement of the tariff from China, there was prebuying effect of some Chinese products in the American market. If we exclude in this kind of effect, we can see that the market without the microwave grew at a level of 2.7%.

Going forward to our presentation, Slide #11, we go -- come back to the number -- our number in terms of sales, EUR 118.8 million of turnover, meaning an increase versus the last year of plus EUR 1.6 million, equal to 1.3%, out of which coming from organic growth is 1.1% and with also a slight impact -- positive impact from the currency. The positive trend despite we still see a strong promotional activity coming from the effect from North America project, from the impact of the new project for OEM customer and also the recovery of the demand for the Motor division respect to the previous year.

In fact, if you look the performance of our division, Motor growing versus the last quarter 2024, plus 2.9%, mainly organic growth, almost organic growth and Cooking division grew plus 0.9%, out of which 0.5% is organic growth.

In terms of regional performance, as we said, we can see that America as a benefit contribution in terms of growth for EUR 1.2 million, equal to 6.6% versus the last year. EMEA is minus 3%. In Asia is plus 25% versus last year and is all related to our joint venture, Ariafina, thanks to the distribution delivery of the new product for Japan.

In terms of brand breakdown for the Cooking division, we can see that the OEM had a great contribution in terms of organic growth, plus 1.7% and this is mainly EMEA market. And our brand is basically flat, where there is a positive contribution from the North America, we can see in the later slide -- in the next slide, negative impact for our brand in EMEA due to the market dynamics.

I leave the stage to Giulio for the American part.

[Giulio Cocci, executive]

Just a few comments on our American business main highlights. So today, in the first quarter, of course, our B2C, so brand sales and direct distribution sales are representing more than the 30% of our sales, which is a ratio that 2 years ago was -- 3 years ago was impossible even to think. In the first quarter, we scored almost EUR 6 million of sales that means a growth of 27% versus last year in a market which is basically flat, it's not specifically negative with an important contribution to our growth in this part of America.

What is driving our growth? For sure, we are increasing our customer base. We have more customers, thanks to the fact that we are approaching them directly with our, I would say, original sales force that has been restructured in any case, but also with our new 2 distribution companies, Southeast Appliance and AG that in the first quarter scored almost 2 million sales themselves.

There is a big focus on our products. There is a big focus on the new products that we are introducing in the market because we see an opportunity. So induction and aspiration hobs that we manufactured in Mexico, but also to enlarged product offer. We distribute Elica, of course, we distribute ILVE and Steel range cookers, Tulip Cooking, which is, I would say, top range cooking set and Kobe, which is a Californian Japanese flavored brand that complete in terms of brands, our offer. The main point here is that the 70% of the sales in terms of units of an American distribution company in the premium segment is represented by range cookers. So the fact that we have range cookers in our offers allow us to sell more and more cooker hoods.

Moving to the following slide. We believe it is the case to give a better explanation of what we see as a potential effect of the duties. In this moment, giving a big summary, we see more opportunities than threats from the duties, even if in this moment, there is not a specific application on our business.

Let's start from the big numbers. So Mexico. Mexico, technically, the duties would be 25% on hops, cooker hoods that represent a big part of the value that we then sell to the United States. But there is and there will be no impact because what is valid here is the USMCA. Products that are under the USMCA agreement that will be discussed probably by the end of the year, but that in any case, is valid till July 2026, are outside of the duties. So we see no impact for ourselves, for our own business, but also for what concern the products and that are the majority of our sales that we distribute to our OEM, Whirlpool, Electrolux, all of the guys that are playing in the U.S.

For what concerns China, there is a 145% duties that in our case affects our wine coolers and refrigeration business. Of course, we are talking about minor sales. We see the effect being no material. For what concern the wine coolers, the agreement that we have with our distributors, with our customers is ex-works from China. So the customer is in charge for duties obligation. He will apply -- they will apply, sorry, a specific price increase after having negotiating a price reduction from the producer.

Same for what concern the fridges. Our customers will apply a price increase of 40% in order to offset the cost and, let's say, defend, if not completely maintain their market, their margin. There is also -- so even here, we do not see a material effect because the quantities are not that many and because in any case, all of the customers that we met are ready to apply the price increase.

Let me say also something that may describe better the purchase pattern that we are talking about. We -- in North America are playing in the premium segment, a premium premium, meaning that the average expenditure of a family for a kitchen, wood plus appliances is in the region of $70,000 to $90,000 -- so $1,000 more on a fridge is not something that changes the decision, considering that the remaining part of the offer is basically with no price variation.

There are some product line, mainly B2B, mainly IKEA that we produce in Europe and that we sell in the U.S., where there is a 10% duties applied. Also in this case, if the customer in charge for duties obligation. We are talking about a flow that is no more than EUR 1.5 million to EUR 2 million, so not material values also from our customers' perspective that will apply if the case specific price increase.

For what concerns the last part, the range cookers, so ILVE and Steel that we buy from Italy, with our distributors and we sell to the market. Even here, there is a 10%. But again, we are playing in the very premium segment. This means that we pay from ILVE, for example, or from Steel, EUR 4,000 for a range cookers. That means that there is a duty of EUR 400. We sell these products, the final distributor sell these products to [ John Smith ] at EUR 12,000. So this EUR 400 completely disappear in the value chain and again, are not a decision-making price increase from a purchase perspective.

So all in one, in this moment, with the picture that we have been given so far, we do not see duties representing an issue. What could be the only point to put attention. Once this scenario will apply or not because some of the threats are still threats are still not applicable. What we know is that all of our customers, but also all of our competitors will react with a strong price increase in the market. Of course, this may delay some purchase decision from the final consumer perspective. So the only effect that we see is that this scenario and we are also sure -- will sooner or later slowdown will become inflection and consequently somebody that cannot afford any more the purchase.

Our channel, the premium channel, we see it quite safe. But from an OEM perspective, so value for money, that could be some risks if we look to this effect. There could be also some opportunities, and then I closed this specific part of the presentation. Why? Because we produce in Mexico. And a lot of, let's say, the mid- to low-price competition, so what is sold in the big malls, beyond depot, [indiscernible] is instead purchased in China.

So in this moment, we have some big customers that are coming to our factory in Mexico and asking to develop some product for them. Why? Because even if this scenario sooner or later, will become more, let's say, manageable to have a double source helps in a situation that is happening now, but might happen back in a couple of years. So this from our side represents an opportunity.

It represents an opportunity, if we move to the following slide, as we see an opportunity in the U.S. So from the beginning of April, our Southeast Appliance, there is a blue part of the slide is developing in Northeast. We have a new sales force under the same company, so under our control, which is distributing Elica, ILVE, Steel, so with a full product range, Elica is catching the second richest part of America. So here, we have seen so far the cost of implementing this organization, we haven't seen the revenues, the growth and the opportunity that we are creating day by day.

[Stefania Santarelli, executive]

Okay. Moving forward to the financial part, Slide #17, the P&L. We start from the revenue. Even if we have already commented EUR 118.8 million, that means plus EUR 1.6 million versus the previous year. Positive contribution from new products in the North America, the volume recovery for the Motor division offset in terms of volume and sales, the negative carryover, the negative effect of the promotional activity.

In terms of profitability, adjusted EBITDA EUR 7 million means less EUR 0.6 million versus the previous year and adjusted EBIT EUR 1.1 million that means EUR 0.7 million less versus the last year, are related to and has been impacted by the investment in our business transformation, the trade activity relating to support the distribution, and the launch of the new product. The investment in the faster expansion of North America distribution. As we said, we moved from SEA to expand our direct distribution to Northeast of America. All of this affect the profitability of the quarter.

In terms of financial chart, we have a number that is slightly better than the previous year. In terms of net profit is negative for EUR 0.7 million and group net profit negative for EUR 1.1 million. But in this scenario, we preserve our net financial position since we have the same number despite the seasonality that generally affected the first part of the quarter, we are in line with the same level of net financial position, EUR 47 million of net financial position. Despite we increased our stock because we increased around [ EUR 5 million ] of stock, but we did a very good job in terms of the other items of our net working capital, for receivable and payable and also a positive effect of CapEx because there are -- there is a EUR 1.2 million of positive effect that is coming from CapEx. And we are able to keep our leverage below our covenant. And in line to what we recorded last year, 1.5x level.

I leave the stage to Giulio for the closing remarks.

[Giulio Cocci, executive]

So Slide #20, just to give a time line of our project. We are in the red part of the slide, red from many perspectives. We have done many things to recover profitability to change, I would say, the business model of this company or at least the attitude to focus on those business that represents the future for us in a less costly, more strategic, more -- less complex and more focused way. This have allowed us to deliver very good results from 2021 to 2023, but moreover, to structure the group in a way that we can better manage the future.

Now we are in the transformation phase. That means that the focus from cost reduction means becomes building long-term growth fundamentals, which we didn't have fully under our control in the previous part of the story of the company. This means the Cooking transformation, built-in range, positioning, Lhov. It means Boots on the ground. So investing on the distribution in Europe as well as in the U.S., as we just commented.

It means also to develop the big opportunity that we have in Motor division in terms of new channels, in terms of product lines. After last year, we were just producing for, I would say, the hot part of the Motor division. So heating, ovens, ventilation, we arrived to the Frankfurt fair with a model for refrigeration that would be applied also to, I would say, commercial refrigeration. So opening a new channel while developing new products already with new customers, so not just a guess project.

We are investing on distribution also in terms of small, sustainable, intelligent M&A, AG International in Canada, aXiair in the Netherlands. Northeast Appliance (sic) [ Southeast Appliance ], which is not an M&A, but it's an investment in people, in organization, in a warehouse, also something that allow our sales, our strategy to become reality to go straight to the final customers.

Of course, as I mentioned at the beginning of the presentation, the attention, the focus on the financial management is obsessive. We need to pay the bill ourselves. This is the mantra. Now this will allow us in the midterm to have a new brand positioned where we want it to be and where it deserves to be. It will allow us to have a product range that this company never had a wider, stronger, our distribution network with a strong customer base growth.

Scalable innovation that means induction, that means also what we have doing in terms of electronics and what we are developing with the Motor division with a huge availability in terms of production capacity. We can increase our production, our sales 30% without buying an asset. Of course, this -- if we are good as we are to manage the debt while we do investment in a growing phase, this becomes a huge opportunity.

So just to close, Slide #21, what are the takeaways from the first 3 months of 2025. I would -- without repeating what I've already said that the start is good. The start is better than we expected, but there are still 9 months ahead of us. And we experienced that in 2024 as well as in 2023 that probably, I would say, June, July is becoming the sanity check period to understand if the year will be under control as we believe in this moment.

The profile of the debt is solid. The transformation is going well. What we see is that the strategy is delivering. Every small bits that we do, that we close starts immediately to deliver market share, customer sales. We do not see at this stage, it is preliminary in my expectation, any changes versus the guidance that we gave at the mid of February. So one thing is sure, we are not going to change our midterm priorities. We may balance some of the projects in order to ramp quicker if we see the opportunities or reduce the cost if we see that we need to take some more attention on the financials. But the path is that one and it can only go faster.

In terms of guidance, we keep with -- I would say, flattish guidance versus 2024 in terms of revenues and margin with -- if we continue working as we are doing so far, a further improvement in the net financial position. But moreover, a huge delivery of projects that is what then will start to pay in the following years. Thank you.

[Operator]

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

[Emanuele Negri, analyst]

I have a couple. The first one is on the outlook for pricing beyond the U.S., which will obviously be impacted by the tariff scenario. In Europe, which kind of price should we assume? Do we expect that pricing for aspiration hobs and cooker hoods will continue to decline through the year? Or do you think that we reached a bottom on this term?

And the second one is on profitability. In this challenging context, which kind of action do you have in your pocket to try to support profitability through the year?

[Giulio Cocci, executive]

Thanks, Emanuele. So pricing, we foresee let's say, an erosion of the pricing also in 2025, but made of 2 effects. We imagine that there will be a carryover of what happened in the second part of last year, where from a side, the average market price kept on decreasing. On the other side, we took a decision to react to some extent, especially in France, but also, I would say, in the same Italy in order to go promotion and then to reposition some of our offer, mainly on aspiration hobs.

So I would say that we should have roughly a 5% combined of price erosion coming from carryover and new price actions in 2025. Then there are some other activities that impact on net sales because there may be discounts, there may be promotion, there may be quantity premiums that are related to the launch of the new products. So extra discounts if you have a Lhov displayed in your store, additional discounts if you have a Lhov, cooker hoods and aspiration hobs and an oven in your stores. This is specific actions that we are doing mainly on big customers and also the geographic dimensions where we want to be not only present but also very much visible, but I would say that this 4% to 5% is what we have at least planned at this part of the year. So with probably the big battlefield to start.

In terms of profitability, let's say, the first part of the year, we see 2 effects. One is the investment that goes over. So in terms of people, in terms of distribution, in terms of trade marketing, in terms of visibility on the media and also that will be flat all over the year. In terms of Ducati sponsorship. So this is coherent with what we did last year.

You see also an additional negative effect that is the carryover of the labor cost increase on the factories, but also on the white collar. On the other side, there are actions from our side that will deliver the most impact, let's say, between the end of -- that will be materially visible in our economics between the end of quarter 2, and I would say, the second part of the year because they need time to be implemented and actions on the cost actions in terms of negotiations with some of our suppliers, actions in terms of restructuring where something needs to be restructured. So I would face them, let's say, more on the second part than on the first part of the year.

[Stefania Santarelli, executive]

Because I can add also that in the current quarter, we don't see any impact of raw material. What we said at the beginning of this year that our expectation in terms of raw material was basically neutral because there are some positive impact that we can -- we will see coming from the negotiation, as Giulio said, but there will be also some negative impact from some commodity like copper.

In this quarter, in this specific quarter, what we saw, it was highly negative impact because we are using -- we are consuming stock at the same price of the 2024. So still, we don't see due to the fact that we closed the year with some stock, we don't see the positive effect of the negotiation that Giulio said before.

[Operator]

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

[Carlo Maritano, analyst]

I just have a quick question. In the first quarter, we have seen a decrease in CapEx by more than EUR 1 million. So I was wondering what amount of CapEx should we expect for the year?

[Stefania Santarelli, executive]

Okay. Thank you, Carlo, for the question. As we said also in terms of guidance for the current year in terms of net financial position, our target is to improve a little bit the financial position versus the previous year because as you said, we need to finance our investment with our resource. One of the key points to improve the net financial position is the level of the CapEx. So our target is to reduce, respect the last year around EUR 2 million versus the closure of the 2024 that was EUR 17 million of CapEx. Our target is to have EUR 15 million. That is clear that part of this positive effect is coming from our attention and focus on CapEx, but there is also a seasonality effect. But the target is to have an improvement, a reduction versus the previous year of EUR 2 million.

[Operator]

[Operator Instructions] Mr. Cocci, there are no more questions registered at this time. You have the floor for your closing remarks.

[Giulio Cocci, executive]

So thank you very much, and we'll probably see in other occasions. Thanks a lot for joining the call.

[Stefania Santarelli, executive]

Thank you.