Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the De'Longhi third quarter 2022 consolidated results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Fabio De'Longhi, CEO. Please go ahead, sir.
Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group 9 Months 2022 results conference call. Today, together with me are Marco Cenci, Chief Strategy & Control Officer, Stefano Biella, CFO, Fabrizio Micheli, Director of M&A & IR, and Samuele Chiodetto, Investor Relations. The group ended the first 9 months of the year with revenues substantially in line with the record levels reached in 2021. In the last 2 quarters, the results were affected by many headwinds, of which some are temporary and others are originated from exogenous events. In particular, the group's performance was impacted by three main effects, rising trends in cost inflation, extraordinary costs of handling the excess inventory, and softening demand in some markets.
First of all, in the last 12 months, the upward trend of many product costs like energy, freight, and raw materials has put some pressure on the industry's margins. On our side, by leveraging our brand's awareness among consumers, we were able to implement the selective price increases in order to offset, to a certain degree, the impact of cost inflation. Secondly, the substantial increase of inventory level has required the implementation of extraordinary measures to reduce the stock. During the last months, we have prioritized the reduction of the stock in order to favor a normalization of inventory level in the short-term, consistently with the standard seasonality. The logistic and warehousing cost of the excess stock, combined with the production inefficiencies, have affected the results to an extent that we should be able to ease next year.
Lastly, the Group sales have been leveling off, even though many complexities affected the consumer demand have emerged in the last months. However, the Group has carried on its long-term strategy on media and communication, maintaining the planned investments and spending, and spreading the Coffee Global Campaign across the world as a milestone for the future expansion. In addition to the above, let me also stress that even in the complex macroeconomic environment, we're still benefiting from positive long-term trends, in particular, on one hand, the secular trend in coffee. Today, 54% of total sales, which is confirming its expansion year after year with a potential upside still largely unexpressed in many regions. On the other hand, a well-established presence in the world of cooking and nutrition, which is rapidly evolving according to new consumption trends of the new generations. Now, let me focus on results.
Consolidated revenues for the first 9 months of 2022 were down by 1%, with a positive contribution of +4.4% from the currency component. In the third quarter, revenues fell 4.7%, with a positive contribution from the currency equal to 5.6%. In the 9 months, the group has been able to mitigate a weak performance in the European area, thanks to the growth achieved in the extra-European geographies. Here's some more color on the third quarter. Southwest Europe showed dynamics similar to the previous quarter, with a moderate weakness of continental markets and a main exception of Italy and Iberian region that showed some growth. In Northeast Europe, the negative trend continued in the quarter, albeit improving with severe negative impacts of the Russian-Ukrainian conflict.
The MEIA region experienced a positive quarter, driven above all by a positive currency contribution. Net of which, however, sales were still in positive territory. The American area decreased in the quarter compared to last year due to early sales of portable air conditioners in the previous quarters. While on the contrary, the region recorded a double-digit growth in the coffee, supported by a strong acceleration of fully automatic coffee machines. Finally, in the Asia-Pacific region, the double-digit growth shown in the first half continued, sustained in particular by the significant expansion of Greater China. As to the evolution of the product categories, the segment of coffee machines for households continued its growth trend in the quarter, expanding at a mid-single digit pace, supported by fully automatic and manual machines.
The food preparation segment confirmed the tough comparison with the extraordinary growth rates obtained by last year, as well as the impact of the weakening consumption. The contribution of the comfort category, portable air conditioning and heating, remained positive, although in the third quarter, air conditioning products slowed down. Home care, floor care and ironing, was in positive territory, both in the quarter and in the nine months, in particular, thanks to the double-digit growth of ironing in the third quarter. Finally, the contribution of the professional coffee machines of Eversys was largely positive, showing a high double-digit growth trend.
Looking now at the evolution of the operating margin in the quarter, the Net Industrial Margin stood at 46.7% of revenues, compared to 49.9% last year, due equally to rising production inefficiencies related to the stock reduction measures and to the increase in product costs, raw materials, logistics, transformation costs, not fully offset by the price increases, equal to EUR 15.6 million in the quarter and EUR 48 million in the nine months. Adjusted EBITDA amounted to EUR 63 million, equal to 9.2% of revenues, compared to 14.7% in 2021. Witnessing a margin erosion due to the aforementioned cost inflation, lower volumes, and extraordinary warehousing costs. In the third quarter, expenses for media and communication were slightly below last year in value and did not add pressure on the margin.
As to the balance sheet, Net Financial Position as at 30 September 2022 stood at EUR 29 million, decreasing from 2021 year-end due to higher investments and exceptional working capital absorption. The Free Cash Flow before dividends and acquisition was negative by EUR 272 million in the 9 months, mainly due to higher level of investments, CapEx of EUR 126 million, approximately EUR 33 million higher than last year, and negative working capital dynamics, minus EUR 366 million, originated by the higher inventories and a sharp decline in trade payables, not fully compensated by the decline in trade receivables.
Now, as a conclusion of my results overview, let me say that despite the de-deteriorated geopolitical scenario and a softening consumer demand, we still believe that the secular trend in coffee and our strong presence in the nutrition and cooking segment will sustain a business expansion in the medium term, as witnessed by some markets and product category, even in these difficult times. Moreover, we strongly believe that sticking to our strategy on price management and media spending, together with the measures implemented to reduce the stock levels, will ensure a recovery of the group's profitability in the near future. As to 2022, we confirm our current guidance, forecasting full-year revenues down mid-single-digit% and an adjusted EBITDA in the range of EUR 320 million-EUR 340 million. Now, we can open the floor to Q&A. Thank you.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions. Anyone who has a question may press Star and One at this time. The first question is from Isacco Brambilla with Mediobanca. Please go ahead.
Hi. Good afternoon, everybody. Three questions from my side. The first one is on the extraordinary costs you are recording this year. In at the end of July, you indicated EUR 60 million in extraordinary costs. Is there any update you can share with us on how this cost evolved in the third quarter? Second question is on coffee makers. If I made correct calculation, the division accelerated in the third quarter, growing at least mid-single digit. Is this sort of sustainable growth pace even looking at the coming quarters? Last question is on net working capital. Is the EUR 700 million stock target by 2022 year-end still valid?
If not, is there any number in terms of net working capital on sales you are confident to achieve by the end of the year? Thanks.
No, we confirm the actual extraordinary costs, which we previously announced around EUR 60 million due to inefficiencies and extraordinary logistics costs. We are fairly in line with what we have previously said. With regard to coffee makers, you're right. We're still showing a positive trend. This is in value. In volume, we see some weaknesses in certain product categories. But all in all, we feel strong about the asset, the long-term growth trend in the segment. We think that this probably is, considering the market circumstances, a strong performance for our coffee maker segment. Some color around it. There is increased penetration in new geographies.
We see better mix and premiumization in the high ends. We expect this to continue in the future. With regards to the stock level, I said yes, we're super strict in our destocking policy. The ambition is to go to EUR 700 million. Obviously this is just the first step of our normalization plan. We think that the company can have an ambition to have a rotation around 2.5 times. This is, let's say, at constant revenues, we think that we can bring down further in 2023 our inventories, ideally in the EUR 600 million area. Obviously, you have to account for seasonality.
As you know, our business is cyclical, and we need to produce in advance to level off our you know production levels during the year. Obviously, we will not have an effect similar to what we've dealt with in the past, but we can expect maybe in the short term, the EUR 700 million to go up again, probably in the area of EUR 800 million or around. It would be you know defined according to the market needs and the seasonalities, and then hopefully to see the usual reduction and hoping to have our optimal level at the end of the year. Sorry. On working capital sales, it's we say the very aggressive plan to reduce inventory is also affecting purchases.
We have to fully assess the real impact of the reduced purchasing in the short term. However, we should have working capital lower than 10% on sales. Next year as an ambition.
The next question is from Luca Bacoccoli with Intesa Sanpaolo. Please go ahead.
Hello. Good afternoon, everyone. A few questions again from my side. The first one is a follow-up on the inventory level. I was wondering if the expected reduction will drive to a similar cash flow generation, or as you were mentioning before, the other elements of the working capital could become a major headwind, so limiting the positive impact from the working capital shrinking. The second question is again on the inventory level, but your distribution partners. If at the retailer level, you know how the inventory are moving, if upwards or downwards, or otherwise are stable vis-a-vis the previous quarter.
The other question is on the FX impact, looking at the nine months at the EBITDA level, basically the FX as a natural effect. I was wondering how should we model the 2023, taking into account that the euro keeps appreciating against the US dollar. Finally, if you can share with us any update on the current trading, this would be very helpful, so from October onwards, if you have seen any relevant, let's say, deviation from the sales trend seen up to the nine months. Thank you.
All right. No, thank you, Luca, for the question. Our vision is to have at year-end approximately EUR 200 million in cash. Looking at the current levels, we should expect cash generation for quarter three around EUR 150 million-EUR 180 million. We feel pretty confident about this. I said that there is something that probably will depend also on our purchasing strategy that can also probably affect a little bit cash performance, but that will potentially only postpone by a month or two the cash generation. We feel strong about the impact of the cash flow that we will generate with the inventory reduction in the next months.
Just taking into account that our strict policies might have a short-term, you know, say, impact that we didn't have in the past. Second point on distribution and also is related sort of also to your final question on current trading. Some product lines are normalizing the stock levels. Some product lines are still behind the, let's say, the plan and where they should be. Just a reminder, we felt that the stock levels were around 25 weeks at the beginning of the year in kitchen machines, where usually the, let's say, normal level should be around 12 weeks. Now I think they are going down, but kitchen machines are still high.
Coffee, I would say rather stable with maybe some positives in certain product lines. Probably fully auto is better off and maybe slightly higher in other segments. All in all, yeah, we feel that is normalizing. Also good signal in current trading for kitchen machines, where we had a pretty positive October, well, less negative. Less negative October in kitchen machines, which is probably showing that also the inventory levels, the trade level, are going in the right direction. We have also to be cautious because we are getting closer to Black Friday and probably now some restocking took place, and we have to monitor the next months. All in all, I jump also to the final question, we saw a pretty positive October.
Pretty positive, I mean, in line, if not better, which is suggesting that our year-end forecast is definitely achievable.
Mm-hmm.
We are still very prudent as we are now still in, let's say, destocking situation at trade level, and the markets are a bit softer than what they used to be last year. Overall, we are confident about reaching the guidance. Probably in the short term, we're going faster in the top line, but also you saw that our margins were slightly below expectations for the reasons that we have, you know, already discussed. Therefore, or broadly, we confirm the year-end guidance, where maybe so far we are a bit ahead of the plan in terms of top line, but maybe margins, we are in line with what the, let's say, the guidance was.
You also had a question on the nine months FX effect on EBITDA. It is fairly close to neutral.
Right. I was wondering, what should we expect for next year?
For next year, I think, let's say, our currency exposure is getting better. I mean, we will get back to you on this probably later on with a more precise outlook for next year. What I can say in the short term, we're more balanced than in the past. More balanced impact. We can have maybe a slightly negative impact, but not as significant as one might think, looking at the change, the new exchange rates, euro-dollar. We are less affected by that.
Okay. Great. Very, very clear. Okay. Thank you.
The next question is from Alessandro Cecchini with Equita. Please go ahead.
Hello, everybody, and thank you for taking my questions. The first one actually it's on your point on, I mean, the current trend. If I understood correctly, starting from the -10% of organic growth that you had in the third quarter, probably you are expecting, I mean, a less negative fourth quarter in terms of year-on-year growth. If you could clarify a little bit better on this point. In your assumption for the year, what kind of FX impact are you planning for this year? Finally, if you could confirm your, I mean, previous guidance of around EUR 110 million of headwinds coming from logistics, raw material, et cetera. Thank you.
The first question is about the guidance. To meet the guidance, probably we have to meet the guidance. We could achieve guidance on the top line with a slowdown in sales, apparently. We are more positive on our potential top line performance. Still we see the pressure on the margins. Therefore, we think that potentially better top line performance that is in line with what you are seeing in quarter three can be potentially offset by the continued pressure on the margins, which is also partially due to our aggressive destocking plan and the headwinds generated by the lower efficiencies.
We didn't change guidance as we think that the EBITDA targets are fairly in line with our expectation. Indeed, it's not impossible that we perform a bit better on the top line. Again, will not have any meaningful impact on overall guidance for the next quarter, which I hate to comment on the short-term, you know, results. Second question is about Forex in the
EUR 100 million cost.
No, the FX in the
In the full year.
In the full year. The impact is not a significant impact. I said currency exposure has been mitigated due to the new currency balance. We expect not to have a significant impact at the EBITDA level. For what refers to the logistics and the cost inflation, we confirm between EUR 100 million and EUR 110 million of, let's say, extra cost, including the extraordinary cost related to the logistics, let's say, impacted due to excess of inventory and the inefficiencies at the factory level.
Okay. Thank you. Thank you very much.
Mr. De'Longhi, gentlemen, there are no more questions registered at this time.
Ladies and gentlemen, if there are no more questions, thanks for attending the De'Longhi conference call. Bye-bye.