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Good morning, and welcome to Electrolux Professional Group Q3 results presentation. My name is Jacob Broberg. I'm heading up Investor Relations and Communication. With me today, I have, as always, Alberto Zanata, our CEO; and Fabio Zarpellon, our CFO.
And I hand over to you to start, Alberto. Please go ahead.
Thank you, Jacob. Good morning to everybody. So Q3 -- as the headline says, in Q3, we improved profitability. So another step towards the achievement of our financial target. And different from the previous quarter, we also developed organically organic sales.
I would summarize the quarter as the quarter where all the financial KPI has been improved. We grew sales, organic sales, we improved the EBITA and we improved the EBITA margin. We also continue to generate a strong cash flow, more than 100% cash conversion, taking down the operating working capital on sales and further improving also the order intake, so the collection of orders. So a positive quarter in the right direction, despite the negative impact of the currency that was hitting us negatively in the quarter, in particular, in the laundry business.
If we look at the sales -- the development of the sales by region, we have different dynamics, meaning that, overall, sales were positively -- organically, positively growing both in Europe and in the Americas, while they've been declining both in Food & Beverage and Laundry in the Asia-Pac, Middle East and Africa region.
I take also the opportunity to give some headlines about the market because if these are our sales, where is the market? Europe is still holding. In general, Europe is still holding, mainly driven by the South European markets that -- or the Mediterranean region that have been performing extremely well during the summer, thanks to the touristic season, but it seems to be holding well also during the fall.
The Asia-Pac region, I'm talking about the market, again, the by far largest market, that is Japan, is soft -- still soft for different reasons because of the increasing interest rate that is, in some ways, slowing down the investment because of the inflation that -- for at least that market is high because of, let me say, the softening of the demand after the peak of the pre-COVID recovery.
In the other countries of the Asian region, Southeast Asia, in general, China, we see improving market condition. Still pretty tough the situation in Middle East. We have a big region, Middle East and Africa, but I would focus on Middle East mainly, where the situation is still pretty challenging, as I believe everybody can clearly understand.
In America, we see an improvement of the situation. It is still not as good as, obviously, we would like to see the American market. But as we said also the other time, we are leaving uncertain days, so days where many decisions are postponed because of what is going to happen during the coming weeks.
If we go to the segment, Food & Beverage, we have some words about the 2 segments, starting from the Food & Beverage. The first thing I want to say is that both segments have been improving the profitability and the margin. In the Food & Beverage, we did this despite an organic decline. And I think it's important to spend a little bit of time on this one because the decline -- the organic decline of the sales is entirely due to the situation in Middle East.
If I would have excluded the Middle East and Africa -- Middle East, not Africa, only Middle East, I would have delivered organic growth. And in this region, in particular in the Asia-Pac region, the Middle East is the most profitable or at least 2 of the most profitable markets. So the organic decline is coming from a specific -- from this specific region.
An additional comment about the sales development in Food & Beverage. I want to make it about an action that we consciously took. What I mean is that since the beginning of the year or last year, we took the decision to phase out a product family that are the -- we call semi-pro with refrigerators. This is a subfamily in the cold line that we decided to phase out because the margin was very low. So we consciously decided to lose sales to improve the profitability. And indeed, you see that despite the organic decline, the margin improved.
And the other important thing is that the order intake is improving, and it is improving, in particular in North America because we already commented that the Asia-Pac region -- Europe is doing well, continuing to do well, generating profitable growth. And Europe is the largest market that we have.
But again, North America is still suffering. I have a specific comment about or deep dive in North America because we always had -- at least I always receive a question about that. North America is improving. It's still negative. So we are still declining sales, but much less than in the previous quarter.
And what we are doing is starting to provide the good result. You know that 50% of our business is chains, and chains are growing 5%. So finally, chains are starting to -- let me say, to convert the tests that we have been doing since the beginning of the year or better since last year into orders. And this is obviously very, very good.
The other thing that I want to mention is that since September last year, we reviewed our -- or we relaunched, revamped our go-to-market, reestablishing all the processes. I call them back to basic, meaning demonstration, training, support and so on and so on.
And the results are coming. We started from the largest region, that is Texas. And the results are very good because we collected orders for the combi oven that you know is being the -- one of the most profitable line that we have in million dollars for the coming 2 quarters. So very, very good results that are giving confidence, so that finally, the situation should turn into a positive for U.S. Food & Beverage too.
If we move to the other segment, here, the picture is quite different. I believe that in the Laundry, we are confirming our strong position in the market, our leading position in the market, with strong growth of the sales, but also a strong organic growth.
I would say that the market is not growing so much. You know that this is an industry where it's tough to have a hard number. We have them for U.S. and Japan. Typically, these 2 markets, but not for the overall market. Nevertheless, for the information that we are able to collect from the -- what has been in the past year, the market is not growing so much. So clearly, our position is becoming even stronger, and it is across the different regions, across the different markets.
Also in this case, Asia-Pac, Middle East and Africa is the one suffering, so reflecting the same picture that we had for Food & Beverage, and it's mainly due to the situation in the Middle East.
A couple of words about profitability because I believe it has to be mentioned this one. TOSEI was slightly accretive at group level. It has to be said because in Q2, it was dilutive. So it is slightly accretive. It is good despite the market conditions that are not so good. But thanks to the fact that in the 2 categories where we play, Laundry and Vacuum, we are market leader.
We have been able to hold the market share, And as a consequence, we have been able also to take action to defend the profitability. So slightly accretive at group level, but for the Laundry, TOSEI is dilutive.
So if I don't look at the organic, let me say, profitability of our laundry business is one point more. And again, you know that we said it also when we acquired TOSEI, that TOSEI would have been dilutive to Laundry before synergies. So we are still expecting synergies to kick in.
We started replacing the external supplier for the combo machine, but that is just the first step of a long line of process that, in some way, will find the peak between the first and the second quarter of next year when all this project should turn into actions and then starting to deliver the synergies.
So one point more basically in terms of organic. And when I mentioned at the beginning that our quarter was affected negatively by currency, I was mainly referring to Laundry because in the case of Laundry, the currency impact is a couple of points. So this means that the quarter of Laundry would have been around 20%. So very, very, very good.
In addition to that, Laundry is giving us confidence that we will be able to continue to perform pretty well also the coming quarter because the order intakes continue to be strong.
With this said, I believe I'll let you comment in detail the financial, Fabio, so please.
Thank you, Alberto, and good morning to everybody. As Alberto anticipated, quarter 3 was another step toward our margin expansion. As you see, EBITA moved up from 10.5% of last year to 11.5% of this year, up in absolute value by 12%. Acquisition integration costs for Adventys and TOSEI burdened the result for roughly SEK 3 million.
When we look at the accumulated performance, meaning moving from the quarter to measure the performance of the 3 quarters together, EBITA margin is currently 11.5%, up roughly 5% in value compared to the same period of last year.
If we somehow for -- we do the exercise to exclude the acquisition cost and integration cost that burdened the result of this year for roughly SEK 50 million, to be noted that the underlying business performance this year is already at 12%. So let me say, a remarkable step forward.
In the quarter, we improved margin, thanks to pricing, more than compensating inflationary item like the labor cost. We continue to enjoy lower material cost. And as Alberto just mentioned, we have a remarkable sales increase of the high-margin laundry business that grew organically over 5%, generating more than 20% EBITA value, and definitely also a very good performance of Food & Beverage in Europe.
Currency negative affected the quarter. This quarter together was a negative impact, both in terms of translation and transaction. Currency translation reduced top line roughly a couple of points, and somehow in the same order of magnitude for what concerned the EBITA, but let me say, with a neutral effect in terms of margin. Currency transaction instead had a minimal effect on the top line, but significant burden the bottom line, the EBITA, with roughly SEK 30 million negative impact in the quarter, mainly in Laundry.
And this due -- specifically due to the, I would say, swift strengthening of the Thai baht, that is our sourcing currency versus euro, U.S. dollar and SEK, combined with a continued weakening of U.S. dollar in particular versus SEK. As in the past, we have not stayed still facing this situation, but we have already taken proactive action on price to compensate the weaknesses, in particular of the Thai baht.
Alberto mentioned that the acquired companies overall in the quarter had a reasonable good improvement in terms of margin. They are accretive on a group perspective. And even if they were not part of the group, besides the softer development of the market, they were expanding the margin compared to the same period last year.
Moving into more the other part of the balance sheet. Financial net was SEK 29 million lower than last year, despite a roughly SEK 1 billion more in terms of borrowing, borrowing that we have enlarged to support the acquisition of TOSEI and Adventys.
This, I would say, remarkable result has been achieved, thanks to a well-structured funding structure. For example, in the quarter, we have closed fully the bridge facility that we were activating for the acquisition of TOSEI and replace it with a medium-term loan. Currently, a large portion of the debt is in yen-based, let me say, currency. And also, we enjoyed the reduction in the interest cost in the market.
Tax rate for the quarter was approximately 22%, is somehow, let me say, a down weight in this quarter. But overall, I give you a guidance that, on a full year basis, the expected guidance of 25%, 26% is still valid also going forward. EPS was SEK 0.66 per share, up roughly 18% compared to the same period last year.
As you see in the graph, we continue to deliver good cash flow performance. In the quarter, we delivered over 440 million, confirming somehow the consistent cash generation quarter-on-quarter that this group is able to provide.
A note on CapEx. Here you see in the quarter, CapEx was somehow relatively low, lower than the same quarter of last year. But somehow I want to give some sort of guidance. As I said, going forward because of significant investment, in particular on the product that we are doing both in Laundry and in Food & Beverage, we should expect somehow an increase of CapEx on sales compared to the historical average.
In terms of asset management, we continue to improve. Operating working capital on sales was reduced to 16.8%. And you see, we are continuing trending in the right direction. And with that, let me say, the major improvement coming from the inventory that, as you know, was the area where we suffered the most in particular, during 2022 and 2023.
Our financial position after the acquisition of TOSEI and Adventys remains strong. And you see that we are continuing to improve also in terms of balance sheet solidity, with a ratio on net debt on EBITDA down at 1.7x.
So I will say that, overall, we are closing a quarter, as Alberto anticipated, with all the financial KPI moving the right direction. A pretty solid balance sheet, meaning with the right condition to deliver -- continue to deliver both in quarter 4 and in the coming year.
And with that, back to you, Alberto.
Thank you, Fabio, and Fabio was mentioning about the investment. He was specifically referring to the CapEx. I would extend this one also to the overall cost.
If you look at our profit and loss, you will see that we have an increase of the operating cost. But by far majority of this increase is due to the investment we are doing in R&D, in research and development and innovation.
We said more than once that we are investing well above the average of the industry in R&D. Roughly 4% of our net sales are reinvested in research and development. And we do this because we want to continue to bring to market products that are innovative, that -- to bring new features to the market, in particular for what concerned the sustainability.
And I'm really proud to introduce the product that we launched in September, and that we started to introduce last week. Exactly last week, we started up with low volume to ramp up gradually. And it is the first product of a family of dishwashers. These are the high-volume dishwashers.
Similar size to the ones that you have at home, if you want to say, with a small difference, that in 1 minute, so you have your dishes done compared to the typical couple of hours that it takes a domestic dishwasher.
But we do this. We're the first in the market machine that is totally digital. Also from the picture, you clearly see that there is no control panel, and the control panel is on your mobile phone. So all the electronics is moved to the web and to the mobile phone that everybody has in his hands, the electronics -- obviously, the control of the electronics, the user interface.
And this is important because gradually it's giving us the possibility to develop a lot of services to our customers. Not only the possibility to remotely monitor the machine, operate the machine, change the program of the machine, but also this can be done both by the users and the service technicians.
But not only -- this is the first machine that we developed thinking about the aftermarket business, so the consumable, in particular, because we will -- we are going to create the automatic reordering of detergent that is used by the machine through the app. This is additional business that we, in this case, for the first time, introducing the business plan to develop this product.
So totally digital, thinking about the aftermarket. And last but not least, this is the by far best machine for what sustainability is concerned in the market, reducing the water consumption, the energy consumption, the detergent consumption and as a consequence, helping us to achieve our ambitious target to reduce the CO2 emissions also for the Scope 3, that is the most challenging one but also the most impactful one because it relates to the product or the usage of our product done in the market.
So very proud, very happy for that. And with this said, I believe we are at the end. So back again to summarize a quarter. A quarter where net sales improved, both total net sales and organic net sales, despite the headwinds in some markets, in particular, Middle East, soft Japan, still uncertain United States.
EBITA margin improved. In this case, despite a pretty significant currency headwind, and despite the fact that the U.S. market that we all know being the most profitable market where we can grow the EBITA margin and also Middle East that, for us, is a profitable market, have not been performing as they're supposed to be.
We continue to generate a strong cash flow. This is giving us to be strong financially, but also to be strong in terms of ability to reinvest and develop new product. We improved the operating working capital, finally, I would say, on this matter.
The order intake is still supporting our development, not only in the quarter, but I can also anticipate that the current trading is still in line with this message. So the order intake in October is still supporting us in the development.
And this means, as a conclusion, that despite the situation that we see in Middle East, in particular, that -- it is clearly out of our -- totally out of our control. Laundry is performing well. It is performing well and is going to perform well.
In Food & Beverage, in particular in Europe, we are -- we have a solid business -- a solid and profitable business, and the recovery in the U.S. is clearly giving us hope that also in that market that, that is very important, in particular, profitability, we are going to improve our performance. So the combination of all these things making us cautiously optimistic about the quarter to come.
And now back to you, Jacob.
Thank you, Alberto, thank you, Fabio. And with that, we open up for questions. Operator, please go ahead.
[Operator Instructions] The first question comes from Gustav Hageus from SEB.
I was -- can I ask you about the numbers so that I didn't get it wrong. Did you say, Alberto, that 50% of your U.S. -- sales in U.S., Food & Beverage sales related to chains, and those were growing? Was it 5% in the quarter? Can you repeat that? That would be helpful.
Everything is right other than in the quarter, they are, year-to-date, 5%. So there's been a recovery from being down at the beginning and coming up during the last part -- the last month. So other than that, everything is okay.
And what about Q3? Could you help us figure out what that would mean for Q3, roughly?
We have -- it is positive. Let's say that it is positive also in Q3. We had down Q1, recovery in Q3, positive -- Q2, sorry and positive in Q3. So it is a constant improvement of the sales, in particular to the chains. So they are showing a recovery much faster than the general market, what we call institutional market.
And if you look at the order intake that you have been referencing being in growth now for quite a few quarters in a row, what is it -- what's the split there in terms of chains versus institution in that mix? And does that differ from how we've seen it in the past?
Look, for the order intake, I don't have exactly this one. I tell you something that the beverage, that is not the largest part, obviously, of the food and beverage business. But the beverage order intake is extremely strong in the United States, and 100% of the beverage is chains. So I'm expecting that chains will contribute positively also in Q4.
Perfect. And then given that interest rates now finally seem to be coming down a bit, do you have a view of the amount of sales from Europe that is connected to some type of financing -- debt financing in the other end as you sell them to franchisees and what have you?
Look, and again, but please take it really as a high-level view of the things. The interest rate is super important for the laundry coin business because these are investments. The opening of new shops because the replacement is replacement. You need to replace the product, and that's it.
The big thing is about the new investments. And when you talk about chains, when you talk about laundry coin shop, in particular, in the United States, this is influenced by the interest rate. So the interest rate is coming down, and you see that both in laundry and in the chains, we are improving our performances.
I have -- sorry, operator, I have several questions from the web, both from Henrik Christiansson at Carnegie and from Stefan Stjernholm at Nordea, and they are all related to FX.
So one -- some of the questions you already answered, I think, Fabio, what was driving FX, Thai baht and U.S. dollar, SEK. But the other questions are related to, when do you expect the price action taken on Thai baht to come through and neutralize the negative FX impact in laundry? And also are we thinking of any hedges to mitigate those impacts? So there are 2 questions.
Okay. Let me take one by one. So first of all, the swift of the Thai baht has been, let me say, pretty strong in quarter 3. So it was -- it has been a pretty swift move. And this is also the reason why we had a major impact, I would say, from currency in Q3. Action on price are already in progress, and we expect to start to have a mitigation effect somehow in the beginning of next year.
When it comes to what concerned the hedging, for what concerned also our company policy, we are not active hedging future flows. So we are not going to speculate around the currency development. At the same time, we are taking instead a proactive action to hedge on the balance sheet item, receivable and payable, in order, let me say, to reduce short-term volatility and give us more time to secure the positive impact on price increase and hitting the P&L.
Thank you. Please, operator, go ahead.
[Operator Instructions] So far, there are no further questions from the phone.
Okay. With that, I think everything has been clarified, I hope. And I would like to say thank you for listening in and speak to you next time. Thank you, and goodbye.