SEBYF - SEB SA (SEBYF) Q3 2023 Earnings Call Transcript
2023-10-26 17:36:09 ET
SEB SA (SEBYF)
Q3 2023 Earnings Conference Call
October 26, 2023, 12:00 ET
Company Participants
Stanislas de Gramont - CEO
Olivier Casanova - Senior EVP, Finance & CFO
Conference Call Participants
Marie-Line Fort - Societe Generale
Alessandro Cecchini - Equita
Presentation
Operator
Hello and welcome to the Groupe SEB 2023 Third Quarter Sales and Financial Data. My name is Caroline, and I will be your coordinator for today's event. Please note this call is being recorded [Operator Instructions].
I will now hand over the call to your host, Stanislas de Gramont, the CEO; and Olivier Casanova, Senior Executive Vice President, Chief Financial Officer, to begin today's conference. Thank you.
Stanislas de Gramont
Thank you very much, Caroline. Good evening, good afternoon, everyone. Thank you for attending this call. I have by Caroline. I will be managing the presentation of the third quarter results together with Olivier Casanova. And maybe before getting into the numbers, I would start by giving the 2 headlines of the quarter. The first one is that we have confirmed the rebound in sales that we were anticipating from the second quarter. And the second one is on our profitability. We are confirming the momentum towards our historical profitability numbers, and we are very pleased with this achievement.
Without further ado, I will give it over to -- hand it over to Olivier to take us through the numbers first.
Olivier Casanova
Okay, thank you, Stanislas and Good afternoon, everyone. So this is Olivier Casanova speaking.
So on Page 5, you have the highlights -- the sales numbers. So we are achieving a revenue of €1.9 billion in Q3, which is up 8.9% on a like-for-like basis, as you can see, accelerating the trends that we have seen in H1. Moving to next page you have the usual bridge of revenue on a 9-month basis. Obviously, in green, we can see the organic growth of 3.9%. As indicated, as expected, in fact, we have a higher currency -- negative currency effect in the first 9 months at minus 5.1%. You can see in the box on the right-hand side, the breakdown by quarter, and you can see the acceleration of this negative impact in Q3. I'll comment further on the next slide on which currencies are particularly responsible for this move.
And you have a modest -- sorry, before we move, we have a modest scope effect, which corresponds to the first consolidation of La San Marco and Pacojet, which are 2 of the acquisitions made during the year.
So moving on to next slide. You can see here the breakdown. We have a total negative currency effect of €282 million which is in large part due to the depreciation of the RMB. As you can see, it's dropping 8% year-on-year -- and given the size of our revenue in RMB, this is obviously impacting significantly our top line.
You can see also that 3 other currencies are explaining the bulk of this impact, the Turkish Lira, the Ruble and the Egyptian pound. Obviously, our revenues in these regions, these countries are much smaller but the depreciation of those currencies year-on-year has been quite significant, hence the very material impact on our top line.
Moving to next slide. You can see, as Stanislas was indicating the acceleration of the recovery with 3 negative quarters last year. Q1 2023, which was down on the previous year again and then up 6.8% in Q2 and up 8.9% in Q3.
Stanislas, I hand over to you to comment on .
Stanislas de Gramont
Thanks Olivier. We move on to Slide #9. That's recovery or this rebound of sales will happen in the 2 sectors of the 2 business activities we operate in. Starting with the consumer business. We have a 9-month sales at 1.2% like-for-like growth when the last quarter -- third quarter is up 5.5%. Now you can see that the currency effect is getting deeper than was expected, yet it's worth mentioning this 4-point improvement in the like-for-like sales in consumers.
And in Professional, I think the sales number is very, very impressive with 42.6% like-for-like growth in Q3 that converts into 50.6% reported growth in Q3, leading the year-to-date at 31% like-for-like and 38% reported.
And if I move on to the professional business with a few highlights or a few comments on what's going on -- what went on in this quarter. Now you remember that since the beginning of the year, in fact, since Q4 last year, we've had growing sales in professional coffee machines in all major regions. And our 3 major regions are Germany, United States and China, and that continues in the third quarter.
We have a further acceleration of sales growth in Q3, driven by large contracts in the U.S. and in China, but it's also substantially supported by service sales in all the regions. And I think if we step back what is worth and interesting to look at is that there is a structural growth in consumer demand in coffee-based beverages. We can see that in China with some form of coffee-based drinks, which are mainly drunk cold. We can see that in the United States, where that's the machine you have on the right, the skyline machine is the first U.S. type coffee machine based and built on German full auto technology, and that is one of the star of this year's development. So we can see that in all markets, we're able to adapt our machine offers to the requirements of the market and the evolution of the market in terms of coffee consumption.
And see that the synergies we're anticipating 4 years ago when we bought Wilbur Curtis with the VMF integration are now bearing fruits and is a key driver of growth of this professional business.
Now moving on to consumer, which arguably was a bit more difficult in the beginning of the year. We see that the recovery of Q3 or the acceleration of Q3 is driven by 2 regions, mainly the Americas. We had a negative 10% like-for-like evolution in H1 in Americas. We post a 15.5% increase like-for-like in Q3, that was planned. It's, in fact, as expected, a bit better maybe than expected. But certainly, in the direction we are looking for.
In EMEA, we moved from 3% growth H1 to 7% growth Q3, again, like-for-like. When in Asia, the evolution is more modest from minus 2% to minus 1%. This one, we'll have the opportunity. We'll come back to it a bit further down the presentation.
I move on to the next slide starting with EMEA. As usual, we have 2 dynamics in EMEA. If I start with the Western Europe, we have a set of good news with a continued recovery of the business in Q3 several countries, France, which is our bigger country -- biggest countries with Germany in Europe, Benelux and the Nordics. And that is driven by most product families and most retail channels.
The DACH region -- DACH is made of Germany, Austria and Switzerland. It's still expected -- is impacted, sorry, by weaker consumer spending. We see that consumption is sluggish in Germany. We also have -- it's not noted, but we have a kind of 2, 3 points negative effect of loyalty programs in Germany that impacts our performance. I mean, all in all, it would be flat, but in effect, it's slightly negative.
And we see some improvements lately in both small domestic appliance and cookware. We have 2 negative countries in U.K. and Italy. Those are affected by selling issues facing issues mainly. I mean that will be resolved, I think, in the U.K. later on this quarter and probably will last until the beginning of the year for Italy.
So overall, Western Europe that is holding up quite well if we put aside the -- that region. In other EMEA countries, sales are really booming with 29.7% growth in organic. That is driven by positive market conditions. That is driven by very successful rollouts of new products. What we call new products in Eastern Europe is Optigrill, Ingenio, Cookeo that are not that new in Western Europe, but there -- this is the model of the group expanding their sales rapidly towards the eastern part of the continent.
And last comment maybe on Europe is we have our EMEA, we have 2 countries where very high currency volatility, Turkey and Egypt. And those solid growth despite this FX volatility, we are even gaining share in Egypt.
If I move on to the next slide on the Americas. We have, as I said, the like-for-like growth in total America, 15.5% year-on-year with 14.9% in North America and 16.8% in South America. The growth in the U.S. is very positive. We have a strong growth that is yes, on the favorable base, but it's also thanks to market share gains on all our brands of cookware, Tefal cookware, All-Clad, IMUSA cookware. So we are very pleased with our cookware performance in the U.S. We have a very, very strong performance in Mexico. -- positive market conditions, strong performance in cookware Linen Care and fans and I should have added blenders positive currency impact. The Mexican peso this year is gaining value against the euro. So it's a very positive story. Whilst conversely, in Canada, we have a weaker market demand and we are suffering. Just for -- just to give you an indication, today, Mexico is about twice the size of Canada. So it's -- the balance of both is very positive. Moving south, we have a solid performance in Colombia. You know that it's one of our jewels in Latin America. We keep gaining share in all categories, in fans, in blenders, in Cookware. We have a staggering 62% market share in Cookware.
We are at or close to market leadership in small domestic appliance, it's a very, very solid performance against market conditions, which, in this case, are not that positive. And last but not least, we had a very good quarter in Brazil. We have strong, good commercial performance in fans in beverage and oil less fryers. And it's good to see that all the countries in this region of positive results in that quarter. If I move on to Asia, well, it's a bit less positive. We have a 1% decline in like-for-like in total Asia, 12.5% decline reported. That reflects the devaluation of most Asian currencies mainly or more importantly, the Chinese yuan and the Japanese yen against the euro. Now if I break it into 2 pieces, starting with China, which is, of course, a very important market for us. We're posting like-for-like sales flat, which is a very good performance versus our peers. And in fact, we have a weak market conditions. I think that's in the paper. Some of our competition has communicated about the market trends in China. And what we observed is that we gain market share and we can attribute this gain of market share to -- 2 things. The first one, which is a recurrent 1 in [Technical Difficulty] -- we have a very strong product pipeline. We are fast, agile and reactive at launching new products. We have a very efficient omnichannel execution in all sales channels. We're #1 in the growing online networks, sales networks like Douyin, TikTok. That's great, but we also see that Supor is operating on more resilient and less discretionary product categories. We are very strong in rice cookers. We are very strong in cattles, we are very strong in . And those categories are part of the categories that Chinese consumers when their rice cookers is broken, well, they need to change it. Well, maybe some other categories like what we call Western style categories like oils less fryers are less essential and more discretionary.
So we think and we observe that performance is probably helped by this category coverage that is more leaned towards essential more than discretionary. As for the rest of the APAC region, we see weak demand across the region, especially in Japan and South Korea. South Korea market is depressed. And in Japan, we have a very weak Japanese yen that is beating -- biting into consumers' appetite for buying our products. I mean the Japanese yen is now tracking around JPY 160 to euro was, I think, €128 2 years ago. So that's taking a bit of a pinch on the performance. Before moving on to numbers, I will hand over -- I will cover, yes, Page 15, the evolution of the categories. With -- we have 3 categories at or above 20% growth in consumer, Linen care, which is having a very, very stronger in all the geographies, Floor Care, which is for this quarter, over 20% growth in Home Comfort with a very strong fund performance in all Latin American countries, but also in Europe. Then we have beverages, which are north of 10% growth, driven by most categories. We have a strong performance in LKA, in particular, on beverages. Cookware is slightly positive, and that's great because cookware is a very important category is the biggest category of our portfolio. LKA, large kitchen appliance in China manages to stay positive in a pretty gloomy real estate environment in the country. Electrical cooking is moving on positive, driven by the likes of beverages and oil less fryers, which are with new product initiatives that are hitting the market this quarter and full preparation stays slightly negative this year, personas. I hear Olivier to comment on the profit performance.
Olivier Casanova
Okay. Thank you, Stanislas. So moving on to next page. So you can see that in the quarter, we are delivering €209 million of operating results from activity, which is substantially up on last year. This represents a margin of 10.9%, which is up 460 basis points versus the same quarter last year.
So the reasons for that are partly explained by Stanislas. The top line is, of course, helping. We can see an acceleration of the positive volume effect, particularly in the professional segment, but we can see also an acceleration of the positive price mix effect versus the first half. Equally, we see a growing benefit from lower cost of freight and lower raw material and purchasing cost of finished goods. So all of this is helping in the recovery of margins in the third quarter.
Finally, we have also returned to, let's say, the more normal pattern of investment of growth drivers. Last year, we had an unusual pattern with, let's say, more investment in the first 9 months and less investments in the fourth quarter than usual. We are going back to a more normal let's say, pattern this year and concentrating our investment in the fourth quarter of the year to sustain the activity in the busiest quarter.
So moving on to the next page, you can see the evolution of the margin by quarter. In dark blue, of course, is 2023. In the middle, you have 2022. And on the left-hand side, we are showing the median margin over the 2015-2021 period, which represents, let's say, a good -- it's a good representation of the historic margins of the group.
You can see that in Q1 of this year, we were materially below the average. In Q2, we have caught up with the historic margins. And in Q3, we are confirming this recovery were up materially on last year, and we are in line with historic numbers.
And Q4, we will comment on Q4 next quarter. So moving on to the net debt figures. So net debt stands at €2.278 billion, which is some €300 million lower than last year. It's, of course, in part, the result to the normalization of the working capital. As you remember, we had a particularly high inventory position last year. So inventory is now down about €400 million year-on-year. It's also reflecting, of course, the higher EBITDA with the recovery of profitability. But it's also, of course, the reflection of the dynamic M&A activity in 2023 with the acquisitions in the first half of La San Marco, Pacojet and of course, for Zummo.
So this is, let's say, leading to a disposition of net debt. Stanislas, I hand over to you to comment on the guidance.
Stanislas de Gramont
Thank you, Olivier. So I will -- well, to kill all the suspense, we are maintaining our guidance for the full year with the group revenues mid-single-digit like-for-like growth -- with a positive like-for-like growth in consumers, strong like-for-like growth in Professional, negative impact of foreign exchange of circa 5% and a group of that will grow by at least 10%. Now maybe a couple of qualitative comments. It is true that the current consumer demand is -- and we read the press and we see the numbers like everyone. So we know that the demand is not at its peak of form. Yet we also know that we have some strong plans -- strong action plans that are in place that have their fruits in Q2 and Q3. And we are confident that in this context that is not the most optimistic or positive, our action plans will carry on bearing the fruits.
So you have a management team in front of you that is committed to making those numbers, and we are confident that those numbers will materialize as we integrated them back in July.
Now I think we are done with the presentation. We are now ready to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. We will take the first question from Marie-Line Fort from Societe Generale.
Marie-Line Fort
I've got three questions. The first one is about China. Could you comment further the trend in China? And what are your expectations for the Double 11 commercial operation, for instance? And how do you see the end of the year?
The second question is about your interesting slide on Page 18. And can we consider that the Q4 margin median between '15 and '21 is a good guidance for Q4 this year?
And lastly, do you see more promotional operation on your markets given the low demand and are you worrying that your price could deteriorate end of the year and potentially next year?
Stanislas de Gramont
Thank you, Marie. Bonsoir, right. I can't say I'm surprised with the questions. Maybe starting with China, Olivier will take the second one, and I'll cover the commercial operations well actually in the first piece.
China trend, I think China is a market that is searching itself. We do not expect an outstanding burst of consumption in Double 11. We see a very moderate sales growth in Q4, very moderate. And Double 11 will be part of this very moderate sales growth. Is built in our numbers, and we are confident that, that very well the right sales growth will allow us to achieve our ambition. When it comes to promotion operations, I think we are -- we are seeing that, of course, as all our competitors, our starting point is very healthy from the gross margin realization and our prospects or our projection for the Q4 integrates that more aggressive promotional activity that we know is happening and will happen in the back end of the year.
So the answer is yes, we see it. Yes, we anticipated it, and we are -- it's part of our plan. Olivier?
Olivier Casanova
Okay. So first, of course, we are not guiding specifically on Q4 margins. However, we have made the comment that we are going back to historic profit levels. So that's one pointer. The other one is that we have clearly confirmed our guidance, both in terms of top line growth and in terms of offer growth for the full year. So I think if you make the math, you will probably get to, let's say, a reasonable estimate for the fourth quarter.
You should also bear in mind that -- we have, as I indicated, we have -- we are going to have this year a higher concentration of our growth drivers investment in the fourth quarter to support the activity than we had last year.
So we are not expecting, let's say, the similar pickup on last year's profitability in the fourth quarter.
Operator
[Operator Instructions]. We will take the next question from line Alessandro, Cecchini from Equita.
Alessandro Cecchini
The first one is about it maybe early, but your feeling about orders for Black Friday or orders for the last quarter in particular, in Europe and in the U.S. So if you could elaborate a little bit more on your feeling for the rest of the year?
And if you could, I mean, better explain what you are seeing in Germany and your issues that you had in Italy and in U.K., in the first 9 months, more or less in the third quarter, if I am not wrong.
And finally, my last question, it's about the business in other Western Europe that was very strong. Actually, I would like to better understand the how much was the component -- the price component within the organic growth?
And lastly, on the professional business, so for the quarter was very strong, actually much better than the previous 2 quarters. So just to go more about the outlook for the fourth quarter, if you see more normalized growth or you see these large contracts to be part of the last quarter as well.
Stanislas de Gramont
Right. Thank you very much. Your questions are very specific, and you will understand easily that it's difficult to answer specifically. Maybe to make it in 3 blocks. The first one is on the Black Friday orders. We are seeing a good level of activity moving towards Black Friday. It is pretty unstable, and we are -- we have to maybe expect orders coming a bit later than they usually come. And I think that reflects certain velocity of consumption and a certain reality of retailers to stock.
And I think that's a good transition for what happens in Italy and U.K. In Italy, in fact, we have one of our major customers that is pretty substantially carrying destockings in this year. We don't report it. It's not material at the group level yet. It's a fact that affects the sales in Italy. And I think that comes December, January, that will be over.
U.K. is more a phasing of sales between huge sales number in September -- August, September last year, that will probably happen more in October, November. So it's very different.
Germany is -- I think the market is sluggish. As I said, we have around 3 points of sales decline due to loyalty programs year-on-year. But generally, it's market conditions and trading conditions, which are not very good.
Now when it comes to other European markets, it is a combination of pricing, right, especially in countries with volatile currency pricing is a key strategic lever to maintain profitability, but it's also good market conditions, but it's also market share growth driven by strong product initiatives. So pricing, yes, but not only we are progressing in Eastern Central Europe. And we've been progressing in Eastern and Central Europe for many years, and that progression continues.
Now for the professional, yes, our sales, and I said that in my comment, our sales in Q3 have been or pumped up by specific strong contracts. So I don't expect Q4 to be as strong as Q3. Yet, as I said, the underlying trend is very positive. And yes, there has been a pretty substantial dip up in Q3 that will not replicate, but still the outlook is very positive.
Alessandro Cecchini
So just on Black Friday, if I understood correct. Overall, you see a good level of activity. All in all, putting all the contexts in mature markets.
Stanislas de Gramont
Yes. Yes, with some uncertainty on consumer -- on consumption. I mean we -- you read the papers as I do. You read retailers, publications as I do, like maybe more than I do and we are in the context of overall consumption that is not very positive. But as far as we are concerned, we see a positive outlook.
Alessandro Cecchini
Okay. Probably given I don't know if you already asked for, but the level of trade in distributors probably is still low. So basically, the sellout is similar to the Celine after quarters of destocking.
Stanislas de Gramont
That's our expectation. If you put aside Italy, I would say, mainly, yes, I mean, I could argue about this customer or that customer but a couple of millions here and there. But essentially, yes, I think there is a normalization between sell-in and sellout.
Today, now if retailers are caught with cash flow issues that you don't know -- we don't know what they will do. What we can say, and that's probably a fact of this business for the last 12, 18 months is that the orders come late and they don't come as a regular flow as they use to 2 or 3 years ago. That's a fact of our business.
Operator
[Operator Instructions]. It appears no further questions at this time. I'll hand it back over to your host for closing remarks. Thank you.
Stanislas de Gramont
Right. I don't know if the lack of questions is because of the clarity of the presentation or the quality of the results or both. Let me be optimistic.
Just to thank you for your continued following and support. I think we are now having a good understanding of how we are going through navigating through these post-COVID days. We see a business that is still evolving in a very hectic environment, yet we see numbers which are stabilizing and which are stabilizing towards a position that was the historical position of the group.
Growth is still fragile. We've seen that, and that was, I think, the meaning of your questions. But in the short term, we're optimistic on our ability to deliver our numbers.
And in the midterm, I can only reaffirm our convictions that this business is a very positive business. It's a business that makes people's lives easier, better, simpler, faster in their homes that is very important for consumers in emerging markets, in developed markets. And I think we should be able to demonstrate that this business can recover its historical growth back and its historical profitability numbers.
Thank you very much. I wish you all a good evening and see you in the full year results in the end of February.
Operator
Thank you for attending today's call, you may now disconnect.
For further details see:
SEB SA (SEBYF) Q3 2023 Earnings Call Transcript