De' Longhi SpA

MIL:DLG

Earnings Call Analysis

De'Longhi Reports Significant Q1 2024 Growth Amid Post-Pandemic Recovery

In the first quarter of 2024, De'Longhi Group's revenue surged by 9.4% to EUR 658.8 million, driven by a like-for-like growth of 5.9% and strong performance in the Coffee and Nutrition sectors. Professional coffee segment rose by 10%, boosted by La Marzocco's consolidation. Despite challenges in the EMEA and China, the Americas and other markets exhibited robust growth. EBITDA margin improved to 14.2% from 12.3%, supported by volume increases and stable costs. De'Longhi projects a 9-11% sales rise for 2024 with an EBITDA forecast between EUR 500-530 million.

Strong Revenue Growth and Strategic Expansion

De'Longhi Group reported robust revenue growth of 9.4% in the first quarter of 2024, with revenues reaching EUR 658.8 million. This increase was driven by a strong performance in the Coffee segment and the consolidation of La Marzocco, a professional coffee machine company. The Coffee segment, especially fully automatic household machines and professional units, thrived, underscoring De'Longhi's successful market strategy and product innovation efforts.

Geographical Performance and Market Trends

Geographically, the European market displayed steady performance with organic growth in the low teens, bolstered by strong results in Southwestern Europe. In countries like the Iberian Peninsula and Switzerland, turnover increased by double digits. Northeast Europe also saw consistent organic revenue growth, particularly in markets such as the U.K., Poland, and Hungary. In the Americas, the acquisition contributed significantly to a 10% turnover growth. Conversely, the EMEA region faced challenges due to macroeconomic and geopolitical issues, while turnover in the Asia Pacific remained stable.

Enhanced Margins and Profitability Insights

The group achieved an improvement in margins, with an adjusted EBITDA of EUR 93.8 million, or 14.2% of revenue, up from 12.3% in the previous year. This margin growth was supported by a stabilization in production costs and increased volumes. The easing of inflationary pressures on product costs also played a part in this improvement. As a result, the net industrial margin increased slightly to 50.9% of revenue.

Coffee Segment Leading the Growth

Coffee continues to be a primary growth driver, with the segment reporting EUR 397.6 million in total turnover, where professional coffee sales represented slightly more than 10%. Both household and professional coffee machines saw low teens growth. The company's strategy to use strong marketing campaigns, including the use of Brad Pitt as an ambassador, has been particularly successful in driving this growth.

Challenges and Opportunities in Logistics and Costs

Despite some logistical challenges stemming from the Red Sea crisis, including increased costs of inbound logistics from Asia to Europe, the company reported favorable trends in industrial and logistical costs. This favorable trend is expected to continue through the year, contributing positively to the profitability.

Outlook and Guidance for 2024

Looking forward, De'Longhi is confident in its ongoing growth, expecting a 9% to 11% increase in sales for 2024, including contributions from recent acquisitions. The company also forecasts an adjusted EBITDA range of EUR 500 million to EUR 530 million for the new business perimeter. They remain cautious but optimistic, noting the need to adapt to evolving macroeconomic and geopolitical conditions.

Investment Strategy and Financial Health

The group continues to invest significantly in media and communication, maintaining spending compared to 2023. Their robust financial health is evident with a positive net financial position of EUR 307.6 million. Free cash flow before dividends and acquisitions amounted to EUR 389.2 million over 12 months. While the first quarter saw a negative free cash flow due to increased net working capital, the overall financial strategy remains solid.

Market Dynamics and Consumer Trends

Consumer dynamics in North America showed some softness in the Nespresso capsule segment, likely due to a temporary adjustment. However, the company remains positive, noting an improvement in April and seeing potential in other products like Nutribullet, which performed well. Similarly, the company expects continued growth in the professional coffee segment driven by strong market initiatives and new product introductions.

Increased Market Share and Product Innovation

De'Longhi has maintained or increased its market share across several segments, particularly in high-end fully automatic coffee machines. New product launches like Rivelia and Eletta Explore have been well-received in key markets. The company plans to continue leveraging innovation to drive growth, with new products contributing to a sustained competitive edge.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the De'Longhi First Quarter 2024 Consolidated Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Fabio de' Longhi, CEO. Please go ahead, sir.

[Fabio De’Longhi, executive]

Thank you. Good afternoon, ladies and gentlemen, and welcome to the De'Longhi Group First Quarter 2024 Results Conference Call. Today, together with me are Nicola Serafin, Group General Manager; Marco Cenci, Chief Planning and Control Officer; Stefano Biella, CFO; and Samuele Chiodetto, Investor Relations, External Communications Director and M&A Manager.

The group has expanded its turnover by close to 10%, thanks to the strong organic growth realized in the recent months and the consolidation of 1 month of the business combination in Professional Coffee. The net normalization of the post-pandemic effects on consumption, together with the restored level of normality of stocks and distribution level has favored a considerable comeback in growth dynamics in the recent quarter. Specifically, the ongoing expansion of the Coffee segment as well as the recovery of the nutrition and food preparation sector have enabled the group to achieve an organic increase in turnover at constant currency rates in the high single digits for the third consecutive quarter.

These dynamics of increasing volumes, together with the stabilization of some production costs compared to the previous years, have allowed the group to obtain a further margin improvement, quickly bringing it within the historical profitability range. These improvements have been accomplished while maintaining a high level of investment communication across the brands, particularly through the execution of the global coffee campaign with Brad Pitt as an ambassador.

Now let me focus on the results. In the first quarter, the group revenues reached EUR 658.8 million, showing a 9.4% increase compared to the previous year, thanks to a like-for-like growth of 5.9%, which was 7.3% at constant exchange rates. The geographical expansion, in line with the previous quarter, displayed a steady growth trend in the European area, achieving organic growth at a low teens rate.

In more detail, Southwestern Europe experienced organic growth of roughly 10%, in line with the main patterns identified in the second half of 2023. Within this context, the main markets witnessed significant growth in turnover across all major product categories, with certain countries like the Iberian Peninsula in Switzerland showing accelerated growth in the double digits. Northeast Europe witnessed a significant organic revenue growth for the fourth consecutive quarter, reinforced by the high-teens performance in the early months of 2024. We observed the continuation of a favorable trend of the U.K. and Poland, with acceleration in the Czech Republic, Slovakia and Hungary.

The EMEA region has gone through a decline in turnover, which has been heavily influenced by complex macroeconomic and geopolitical context. The Americas area achieved an increase in turnover of around 10%, thanks to the consolidation of La Marzocco and mid-single-digit organic growth, supported mainly by the performance of nutrition and food preparation, thanks to the expansion of Nutribullet products. Finally, the Asia Pacific region, which was the only 1 to show growth in the first quarter of last year, maintains a turnover in line with 2023, highlighting a partial decline at an organic level. However, growth has been seen to be accelerating in countries like Australia and New Zealand.

Regarding product segments, it's worth highlighting that there has been positive momentum across all macro categories, allowing the group to achieve organic growth at constant exchange rates in the high single digits. Specifically, the coffee machine sector, both for domestic and professional use, which currently account for approximately 60% of total revenue, grew significantly in the quarter at a low teens rate, driven by an acceleration in the expansion of the household fully automatic machines and the contribution from La Marzocco for 1 month. In the Nutrition and Food preparation category, personal blenders and hand blenders supported the sector performance in the quarter, which recorded low to mid-single-digit increase. Lastly, in the quarter, there was a worth noting expansion of Braun branded ironing products with significant growth in many countries in the European region.

Looking now at the evolution of operating margin. The net industrial margin stood at EUR 335.4 million, equal to 50.9% of revenue compared to 50.5% in 2023, benefiting from positive effect of the mix and an easing of inflationary pressures on product costs. EBITDA adjusted was EUR 93.8 million or 14.2% of revenues compared to 12.3% in the previous year. Expansion of volumes, a further partial easing of inflationary pressures on some industrial costs and an investment in media and communication in line with respect to 2023, A&P on revenues at 11.2%, have supported an improvement in margins despite an increase in labor costs and organizational structures.

As to the balance sheet, the group ended the quarter with a positive net financial position of EUR 307.6 million after EUR 326.8 million of net absorption in relation to the closing of the business combination between La Marzocco and Eversys. Free cash flow before dividends and acquisition amounted to EUR 389.2 million in the 12 months, thanks to a significant contribution from current operations, while it was negative by EUR 28.2 million in the quarter due to an increase in net working capital compared to the year-end value.

Now as a conclusion to my results overview, I would like to point out that over the last couple of quarters, we have been able to seize multiple growth opportunities, allowing the group to go back to mid-term growth path consistent with its business potential. The overall picture represents the consolidation and strengthening of results following the gradual post-pandemic normalization phase in the recent years.

Despite being aware that the current macroeconomic and geopolitical scenario remains uncertain and variable, the most recent positive developments in the group and growth dynamics have led us to confirm the forecast of a 9% to 11% increase in sales for 2024, including the enlargement of the perimeter through the business combination of La Marzocco and Eversys. In terms of margins, the quarterly results reinforced the expectation of an adjusted EBITDA of around EUR 500 million to EUR 530 million for the new perimeter.

Now we can open the floor to Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from Niccolò Storer, Kepler.

[Niccolò Guido Storer, analyst]

I have a few questions. The first one is on coffee. If you can provide us with the breakdown of coffee turnover between professional and consumers so we can better analyze the results. The second one is on price/mix, overall negative contribution. But in the press release, you mentioned a positive pricing -- sorry, a positive mix. So simplicity pricing is negative. So if you can comment on that and maybe quantify how much of the EUR 1.4 million loss in EBITDA is a positive mix and how much is negative pricing.

Third question is on A&P, which has been driver to increase profitability in Q1. If you can remind us which is your expectation for the full year? And last one on Americas. Have you seen any softening impact in consumption over the past weeks? This -- I'm asking because we have been seeing several consumer-related companies warning in these days.

[Fabio De’Longhi, executive]

Thank you, Niccolò, for your questions. So the first one, if I'm not mistaken, is about coffee. Of course, coffee continue to be our strong growth driver for the group. In the quarter, we have reached EUR 397.6 million for the totality, where professional represent slightly more than 10% of total sales. Now the contribution of La Marzocco, of course, is positive. And you can calculate for just 1 month as the difference is approximately around EUR 20 million and is in line with the budget.

With regards to -- your second question is about price/mix. The split of price/mix in absolute value, negative pricing for approximately EUR 3.5 million or around 0.7% on sales. While -- and this is the combination broke down to minus 0.2% due to a positive mix contribution for approximately EUR 5 million. Yes, yes. The price, we're not concerned about this price deterioration as an indicator. We said very loud also in the previous calls, we have increased prices last year, and now we are benefiting from some cost reduction. So our intention was to reinforce our commercial initiatives around some key products in key areas. I think the -- let's say, the strategy has been pretty successful, and you can see it in our sales results. So we are very confident in being able to continue, say, protecting our profitability. At the same time, continuing having very strong commercial initiatives around all the categories, in all the key markets and product lines.

With regards to A&P, in absolute value, slightly above last year, but in percentage better than last year, lower than last year. And Nicola Serafin made very clear during the last conference call that we are aiming to higher efficiencies in how we spend our money. And we certainly are more effective in our campaigns that it is still very stronger than ambassador. And at the same time, on higher sales, of course, as a percentage of sales, the investment is now lower.

Last question about U.S.A., good question. We see Nutribullet is performing very well. On the contrary, we see a softer market for our Nespresso capsule business. We think that this might be temporary. Nespresso has experienced a very strong growth in the past years. So it could be that there is a temporary slowdown and some also inventory adjustments. In fact, we are seeing now an improvement already in April. So probably it's a bit too early now to try to extrapolate. So we saw a weaker quarter in coffee due to this capsule market. But now we're seeing a better trend in April.

So I think that I'm quite confident that we can continue exploiting the success of Nutribullet and also turn around this initial weakness on coffee, particularly on -- the weakness is not on coffee, it's in the capsule coffee makers, which we expect to turn around as also Nespresso has a very ambitious plans for the second half of the year.

[Operator]

The next question is from Isacco Brambilla of Mediobanca.

[Isacco Brambilla, analyst]

I have 3. The first 1 is a follow-up on professional coffee. Could you just clarify if the 10% mentioned as an incidence was on total sales or just on the coffee makers side? And connected to this, now that La Marzocco deal has been closed, if you can provide a bit more color on the growth prospects of La Marzocco or [indiscernible] B2B coffee makers business for the remainder of the year and beyond?

Second question is on food preparation. This is now 3 quarters in a row with organic growth in ample positive territory. Which is the, say, expectation for the remainder of the year, also considering that the division would be facing in the second part of the year a bit of a tougher comparison base. Last question is on net cash. If you can share any kind of a target for net cash by the end of this year?

[Fabio De’Longhi, executive]

Okay. Sorry. So maybe I wasn't clear on my -- sorry, my information with regard to the split between household. When I said 10% -- our professional is 10% on total coffee sales, including also 1 month for La Marzocco. With regard to professional, I think that both businesses are in -- in line with our plans. And with the budget. So we expect Marzocco to let's say, confirm also the budget for the remainder of the year. We see some softness now in Eversys. On the contrary, for the moment, we see also in current trading and acceleration with La Marzocco. It's a bit too early to extrapolate on this, as we have only 2 months of visibility in March, and now we're seeing April in terms of top line. But we feel that the numbers are coming in line with budget.

With regards to food preparation, it's good news. All in all, it's good news. Maybe some softness around kitchen machines, which is a historical product for Kenwood. The market has dramatically declined in 2 years, now it's stabilizing but still in the negative territory, unfortunately. On the contrary, strong growth in the quarter for Nutribullet, strong growth also with Braun in particularly with hand blenders. And I have to see positive signs also in another food preparation with Kenwood, in particularly with the new Multipro Go, which has been a phenomenal success in many European markets and internationally. So we expect this trend to continue over the next 9 months.

With regard to net cash, I think that -- yes, De'Longhi has a stronger cash-generating business model, we continue to generate a lot of cash. This could open opportunities for M&A or for the dividends eventually in the future. For the moment, we think we have the financial means to make acquisitions. We -- and even if La Marzocco as an acquisition is not particularly complicated because it's a stronger commercial and organization which has delivered strong results on a stand-alone base and doesn't require strong integration, we believe that it's important for the group for the moment to digest this integration, support it and make sure that both the professional business continue to grow in the midterm in line with our plans and expectations. So I would say no expectation for short-term acquisitions for us.

[Operator]

The next question is from Francesco Brilli, Intermonte.

[Francesco Brilli, analyst]

A couple of questions from my side. A follow-up in Nutrition and Food preparation segment. Specifically, I saw it and then when commenting sales by region, you mentioned Nutribullet just in the Americas area. So I was just wondering how it's developing the rollout of the brand outside the U.S., and we should expect a further acceleration due to the Nutribullet international expansion this year or somewhere next year?

And the second one is on -- if you can provide some color on the very first week of the second quarter, if you are seeing a continuation of the trends offset and achieved in the first quarter across segments? And then just a quick one on La Marzocco. Should we consider any phasing or any seasonality in -- in the -- for the revenues of La Marzocco this year from one quarter to another?

[Fabio De’Longhi, executive]

Okay. Francesco, so first question about Nutribullet. I would say, definitely positive news on North America. Our international expansion is rolling out. I have to say that the market -- the blending market is not positive at the moment. So we have delivered growth in Europe, thanks to market share gains. We expect it to continue growing with Nutribullet, but probably in not high-growth environment. So this, I would say, we expect to grow, probably not a very high level, but positive [indiscernible] results on Nutribullet.

The second question was about Q2. It will -- fairly in line with what we have seen in the first quarter. So we expect that to have a quarter 2 in line with quarter 1, certainly a positive quarter for us. Third question for La Marzocco. No, professional is more stable, less seasonal. And so you can expect quarters quite similar in revenue in the next -- in the remainder of the year.

[Operator]

The next question is from Alessandro Cecchini, Equita.

[Alessandro Cecchini, analyst]

The first one is about the coffee, that low teens organic growth in the first quarter. So probably you are expecting a similar trend for the second quarter given the size. So I would like to better understand how much the performance is driven by new products like Rivelia, like the products that you launched. So just to understand if you are still gaining market share, thanks to new products and the feedback around the Rivelia that is -- has been launched in several new geographies during this year. So this is my first question.

My second question is instead about -- I mean, still the professional business. You stated but we know that you are working or co-working with Starbucks, with Eversys. So just if you are confirming that this project is progressing? And basically, you expect to see some rollout -- potential rollout by year-end or during the next year? And finally, on the blender on Nutribullet, so we saw your competitor -- listed the U.S. competitor that is growing faster in blenders. You are saying that you are going well, probably in an environment that is not so good. So just to say that's probably you and this player are gaining market share, I presume. So just if you can elaborate a little bit more your position in your current dynamics for your products?

[Fabio De’Longhi, executive]

Yes. Coffee, yes, I would say the trend still positive to, let's say, -- no different angle on quarter 2 from our general view on the quarter. We expect to deliver as a group growth in quarter 2, and we think that the coffee should continue at a similar growth rate that you have seen in quarter 1 or so in quarter 2. Maybe some color around it. I think we see strong growth in super automatics, which are our better product.

You asked about how important innovation is. And yes, it certainly is very important. Certainly, Rivelia is doing well, happy about the launch. Have been launching selected markets like Italy, Spain, now it's being launched in Germany as an example, pretty good results and happy about that. But it's not just about Rivelia. I think that the growth is coming also from some products that were launched in the last 18 months that now are starting to have a strong momentum.

I would like to highlight Eletta Explore in the high end, doing very well in particularly in the mix market or automated mix markets like Germany as an example. But also with the Magnifica Evo range, which is performing the mid-tier of the market very well. We have also 2 new launches in this segment which are happening now. So we think that we will continue to add new products, and we believe that this will enable us to grow and maintain or maintain our market shares. And just a note, we have increased our market share further in the first quarter of '24. So pretty happy about commercial results and pretty happy about our ranging, particularly with the coffee makers and automatic coffeemakers.

With professional, the question was about Starbucks. It has been longer -- a longer than expected project, but Starbucks made very clear that is most important for them, this project. So very committed to the launch. The plan is to start deliveries in quarter 3 with, let's say, a large -- a very large test, I would say, probably hundreds of units, and then to roll out fully in '25 upon success of this let's say, larger test in quarter 4. But I would say in track with -- and Starbucks has already -- has reiterated their commitment to the project.

With regard to blending, you're referring I think from -- to Ninja, I assume. And the performance, I think that yes, probably they're performing well. We are performing well. We are happy about our commercial results, both in United States and North America. So I don't know exactly if you are referring to the Ninja performance.

[Alessandro Cecchini, analyst]

Yes, yes. Ninja.

[Fabio De’Longhi, executive]

In the blending or in the blending and food preparation category, where I think we have different perimeters. Even in blending, we are more focusing on just on -- on the single-serve blending, they are more also in traditional blending. We are now launching more products also to enter the traditional space, and then also the blending category and operation category is much wider, where I mean other product lines might affect the company performances.

[Alessandro Cecchini, analyst]

Okay. And finally, if I may, on the fully auto that you are, I mean, gaining market share. So my curiosity is driven by -- do you see more in high-end products? So for higher end, I consider more than EUR 700 or in particular, still gaining traction, the EUR 400, EUR 600, EUR 500 range of your products.

[Fabio De’Longhi, executive]

Yes. I mean there are different stages of maturity in the different markets. We certainly see a traction for higher-end products, automated milk versus manual milk. I don't know if it's clear for you what automated milk versus manual milk means. But in automated milk, the consumer, thanks to, let's say, frosting devices, can make a cappuccino just a touch of the button. So this is growing as a category, the more interest in -- around espresso and automatization of making cappuccino, so this is a trend. At the same time, in other markets or in certain markets, the market is becoming somehow more competitive. So there are also need of promotional initiatives. But all in all, I think that it's a very healthy market where consumers are attracted by innovation and improved functionality.

[Operator]

The next question is from Hela Zarrouk, ODDO BHF.

[Hela Zarrouk, analyst]

I have 4 questions, please. My first question is on full year guidance. Could you please share with us your expectations in terms of growth at constant perimeter and constant currencies for the full year? My second question is on logistics and industrial costs. So what are your expectations for the upcoming quarters? And should we continue to expect lower logistics and industrial costs to have a positive effect on profitability over the full year? My third question is on the price/mix. So what should we expect going forward, still slight negative impact on the full year adjusted EBITDA or maybe it should turn positive for the coming quarters? And my final question is on the guidance. So what are the main factors that could according to you, lead to an increase in the full year guidance?

[Fabio De’Longhi, executive]

Well, Hela, we don't have an official guidance at constant perimeter. But it can be extrapolated. I think that it can be, let's say, low to mid -- let's say, low to mid at constant perimeter. For the moment, we see little currency effect. The fact that was very negative last year and now is fading. Actually, in the month of April it was close to 0. So we see very little impact on currency. And we said that the growth from 9% to 11% is thanks to the consolidation also of La Marzocco. So this La Marzocco consolidation in the next quarters can represent about 3 points of growth on total year. So you can expect, let's say, mid-single-digit growth for the group as I, let's say, support to make you understand what is the potential without adjusting our guidance.

With regard to the logistic cost and also the price/mix, Nicola, do you want to handle these 2 questions? And then maybe I can jump in for the last question.

[Serafin Nicola, executive]

Yes. In this moment, we are experiencing, let's say, favorable trend on the industrial and logistic cost that obviously, we are strictly monitoring because there are some setbacks still from the Red Sea crisis that on 1 side is affecting the cost of the inbound from Asia to Europe. But currently, we are in the -- we have a low single-digit effect of favorable cost that we can -- we think that can be a carryover along the year.

Going on price/mix, going back on the detail of the question before, we -- in terms of price -- a bit of price erosion, we have limited concern, as Fabio mentioned before, because we had some reposition of pricing that has been already happen in the second half of last year through the carryover of this is we are getting now, and it's probably more affected in the first half of this year, and then it will be more neutralized. So this effect of the combination of price/mix is about 0.2% in this moment on the top line, it's something that can be even reduced along the year if we have this effect. And we have positive sentiment on the mix effect.

[Fabio De’Longhi, executive]

Okay. On guidance, I think it's probably, let's say, too early to revise guidance. It's a good quarter. It's a strong quarter. This could suggest optimism for our ability to deliver results for the year. So we're happy about that. We will monitor. I think that also we have to take in to consideration two aspects. Well, one is the overall complex macro and geopolitical complexity. And the second, that we have a tougher comparison in any case in quarter 2. I would remind you that last year -- quarter 1 was a weak one, not just for our decision to strategically exit the portable air conditioning, but there was softness in the SDA in coffee for the first time.

So we're going to have -- this is -- quarter 1 is an easy comp. Quarter 2 would be still not a difficult comp. But later on in the year, we're going to have more difficult quarters to compare with. So for the moment, very happy. As Nicola said, the markets are strong. Strong Europe, strong Eastern Europe, very strong Eastern Europe, great initiatives in North America. Maybe some weakness in China and in some Asian markets, but we are confident about how we are faring and -- but too early to review guidance for us.

[Operator]

The next question is from Natasha Brilliant, UBS.

[Natasha Brilliant, analyst]

Three for me, please. Just to come back on your comments just now on Asia. Obviously, outside of Australia and New Zealand, if you could just give us a bit more color on what is driving that organic weakness and when you expect might change? Second question is just on the Middle East, obviously, challenging backdrop there at the moment. Is the impact on logistics and -- so is disruption there? Or are you actually seeing changes in underlying demand? And could you see a catch-up on that later in the year? And then final question, if you could just remind us on expectations for CapEx? And working capital has run around a little bit, what we should expect for the full year on those, please?

[Fabio De’Longhi, executive]

Okay. Thank you, Natasha, for your question. I mean Nicola, you want to handle the commercial dynamics in Asia and in Australia?

[Serafin Nicola, executive]

In the very last information that Fabio added. Okay, we have strong Europe, Asia, where China a bit weak in this moment. Overall, it's a market that is suffering in terms of growth, while Australia and New Zealand, after a difficult 12 months of the past year, they are finally back on track with a growth of mid- to high-single-digit that is really encouraging. So overall, we see market is stronger. Obviously, China is an important market, but it is not our largest market. So overall, the effect on our revenue potential is limited. So we have great potential overall from a high-performing market.

In terms of logistics and disruption, we have reset a bit, we have rerouted all our supply already done. And so we are full on track of availability in this moment. So if any disruption could have been affecting the market results, it happens. And I would say that MEIA in this moment is suffering a bit of the geopolitical situation more than product availability because indeed, the supply was at the same level of availability also to Europe, and the technically Europe is performing much differently than MEIA.

[Fabio De’Longhi, executive]

Yes. On CapEx, CapEx is fully in line with the indication over last year.

[Serafin Nicola, executive]

We have less extraordinary investments that probably we have already done in the past few years. Couple of important investment in industrial infrastructure that we are, in this moment, is activated and now it's time capitalize at best the production capacity.

[Fabio De’Longhi, executive]

At constant perimeter. Of course, we now have to take in consideration some incremental CapEx to La Marzocco, which doesn't represent a major portion of our total investment. With regards to -- that question about the working capital?

[Natasha Brilliant, analyst]

Yes, yes.

[Fabio De’Longhi, executive]

You mentioned the working capital. We have said that we might have a higher working capital progressively in the next months. We have reached record low levels last year and before we have to manage to have the right products at the right time in the right markets.

[Serafin Nicola, executive]

And we have a bit of increase in working capital compared with the year-end towards lowest ever, and it was planned to -- and it's a bit of stock up due to the seasonality of the product, but still, our current working capital and stock level in particular is much lower than towards -- in the same period of last year. So we are working with even an optimized situation compared with the already optimal that it was at March 2023.

[Operator]

The next question is from Francesco Brilli, Intermonte.

[Francesco Brilli, analyst]

Just a quick follow-up and just more a curiosity. You mentioned before that you are seeing some -- in the North American market, you are seeing some softness of the capsules product. And I was just wondering if you think it could be a signal of more interest from different kind of products? I mean, from espresso machines, fully auto, semi auto instead of capsules? Or it just, I mean, a result of -- of higher sales in the past than a normalization of the demand? Just curious on this.

[Fabio De’Longhi, executive]

No, it's normalization. I think it's normalization by phasing. I think that, again, we see there is more and more interest around coffee and cappuccino and as well as on cold drinks, cold coffee drinks in North America. It could be just a temporary adjustment. Nespresso, we'll have a very strong plan for also the second half of the year to support, say -- and go back to growth -- and go back to growth, yes.

[Operator]

The next question is from Luca Bacoccoli, Intesa Sanpaolo.

[Luca Bacoccoli, analyst]

Three questions from my side. The first 1 is a follow-up on the kitchen machines. You mentioned the drop in the last 2 years. So I was wondering if we are back to the pre-COVID level or we are just above or below that, let's say, threshold? The other question is on the ironing. You mentioned a very strong growth in the first quarter. So is this due to new product launches or a temporary increase maybe due to easy comps? So just to better understand the trend that we have to expect for the rest of the year because this has been a very volatile business in the past.

And finally, a question on the financial charges. So actually in the financial income, the EUR 4.1 million, if you can split between the FX recovery effect and the pure financial income, just to have an idea of the yield that you get from the available cash in order to make a fair assumption for the full year?

[Fabio De’Longhi, executive]

Okay. So about kitchen machine, basically, before COVID -- okay, during COVID, our phase expanded -- probably the market expanded 30, maybe even more, 30-plus percent. After COVID, there was a sharp reduction. And now we are still below the pre-COVID levels, I would say about 20% below pre-COVID levels. The market is now stabilizing. And -- but for the moment, we don't see clear signs of recovery. We expect it to be very weak also this year -- also this year.

So unfortunately, we believe in the long term, this market will really come back. But it's for the moment, I mean, there have been an incredible growth during COVID. And I think for a few years, probably we're going to have to suffer a bit, and hopefully, we're going to normalize this in the future. But I have to say that on the contrary, we're doing very well with blending, hand blending and personal blending, and we have new initiatives around other Kenwood product that I mentioned before.

Ironing, we think that we have stable market shares for the future. So you can expect ironing to deliver growth for the group in the near future. And the growth is due to a combination of innovation from our side, new products. We had a very strong ironing and iron pipeline, which is translating in new markets. There is also some competition weakness. A few competitors are -- we think, a new competitor is a bit focused, and we are taking advantage of his weakness.

With regard to the financial question, Samuele, you want to handle this?

[Samuele Chiodetto, executive]

In financial income, the effect is coming from the careful liquidity investment, the strategy that we had, in particular, since the start of the year. Bear in mind that from now on, it is the cash out related to the business combination, we should have a lower -- slightly lower impact for the 9 months.

[Operator]

The next question is from Fraser Donlon, Berenberg.

[Fraser Donlon, analyst]

Fraser here from Berenberg. Just 2 questions. So the first was -- like thinking about the lower end segments, let's say, radiator, heaters, air conditioning. Do you see any change in competitive intensity vis-a-vis exports from China? And you obviously read about that country potentially pushing more products in this direction. So I just wondered if you see any change in the landscape with those lower kind of price points?

And then the second question was could you just give an update, please, on the pump business in terms of like how you could see your share evolve in Europe? I think on the last call, you mentioned some quite interesting product launches in the category. So I'd just be interested to kind of have an update there.

[Fabio De’Longhi, executive]

Okay. Fraser, just to seize a bit the -- say, the risk, the actual opportunity, now heating and air conditioning represent far less than 5% of total sales. It's like we're talking about really a smaller portion of our business. I think with the decision to exit the U.S. market in the portable air conditioning, now around 3%, yes.

Now with decision to exit North America and portable, I have to say that we have really a portfolio of high-end product/markets. So we really the -- let's say, the effect of the low end has already fully happened. We maintain in the high end of the market. We see the weakness more related to seasonality, or we are witnessing for this year a very unstable weather in the main markets for unfavorable weather condition in Japan, for instance. And this is resulting in the weakness. It's not really a positioning issue. It's not a product issue. It's not a China product aggression issue, it's more like a seasonality this year. I mean, what have to happened, happened already with the decision to exit North America. Actually, I have to say that today, heating and portable are profitable, high-end businesses for us.

With regard to the second question on pump, we have significant investments around our pump and grinder range. And Nicola, maybe you want to handle this question?

[Serafin Nicola, executive]

Pump, it's not to say that's different in terms of market trend and potential, obviously, on a different scale than the fully auto. We have a significant range as in we have main launch in the marketing. Also, innovation is coming. We are introducing cold brew technology in -- both in the pump with the grinder and the traditional pumps. Also, market is giving a signal of -- positive signal of recovery and to be back positive as it is in fully auto. So definitely, pump is for us a growth driver for the coming months, and we are very positive.

Obviously, that being a bit going back also in 1 of the questions before, pump is coming from Asia for us. And there has been a bit of difficulties in realigning the supply to the Red Sea canal considering the lower stock that we had at the beginning of the year, but now since hybrid, we are back on -- fully on track on availability for Europe, in particular. So it's definitely something where we are very optimistic about.

[Operator]

[Operator Instructions] The next question is a follow-up from Isacco Brambilla, Mediobanca.

[Isacco Brambilla, analyst]

A very quick follow-up on my side. In the past calls, you mentioned wage inflation as a potential headwind for 2024 EBITDA. Doesn't look like you are suffering any burden in the first quarter. Can you comment a bit on this, if there is any marginal update to comment?

[Fabio De’Longhi, executive]

Thank you, Isacco. Nicola?

[Serafin Nicola, executive]

Probably, wage inflation is -- there are 2 sides. There is the labor cost on the cost of goods, and definitely there, we are more than offsetting the labor cost that is mandatory and is affecting with the efficiency and the benefit of the reduction of the material cost and industrial costs. Overall, the industrial cost, as I mentioned before, it's positive. So labor, the industrial labor cost is offsetting for the time being. And also looking forward for more than no industrial costs. We have a carryover of the cost, but we are working with optimizing the structure. So it's limited to the carryover of the effect of the wages increase, but we are leveraging the growth of the business to try to offset as much as possible this effect. So this is why at the EBITDA level, the impact at this time is also looking forward for the year and should be very limited.

[Operator]

[Operator Instructions] Mr. de' Longhi, there are no more questions registered at this time. The floor is back to you for any closing remarks.

[Fabio De’Longhi, executive]

Okay. So thank you all for attending the De'Longhi first quarterly results conference call. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.