SEB SA (SK) Earnings Call Transcript

Hello, and welcome to the SEB Provisional 2023 Sales Conference Call. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Stanislas de Gramont, CEO; and Olivier Casanova, Senior Executive VP, CFO, to begin today's conference. Thank you.

Thank you very much. Good afternoon, everyone. Welcome to this provisional presentation of the sales results for 2023. As I said, I will be managing this presentation together with Olivier Casanova, will take you through a short slide deck, and then of course, we will take, as usual, your questions. Let's go to the agenda page, which is Page 3. We will cover the key highlights of 2023, the performance by segment and geography, and then we'll conclude on the outlook for the year in terms of profits. Starting with the key highlights, I mean, Page #5. The first point is that we've beaten the EUR 8 billion sales mark for 2023, and that's driven by a positive organic growth momentum. In more details, as you can see, we post 5.3% like-for-like growth for the full year and 0.6% positive reported growth with a fourth quarter stronger at 8.5% like-for-like and 3% -- 3.1% growth in reported. That is driven in Q4, both by consumer business recovery that started in the second quarter and a continued outstanding commercial performance in the Professional business. That means that our like-for-like sales growth is fully in line with the full year outlook, which our guidance, which I remind you was a mid-single-digit growth for like-for-like sales. Moving on to Page #6. That full year organic growth of 5.3% has been counterbalanced by a negative foreign exchange impact. So on this bridge, you can see the sales 2022, EUR 7,960 million, 5. 3% growth, EUR 420 million -- as a coincidence the currency effect is exactly the same EUR 420 million negative. And you see that we have a positive scope effect of 0.6%, EUR 46 million that is driven -- and that reflects the contribution from the recent acquisitions done in the Professional sector, in particular, during 2023 partial integrations. Moving on to the next slide. And to zoom on that currency impact, we have a marked impact in 2023, as we said, EUR 420 million. That's a pretty high number, probably the record number for the group. And as you can see in the little box in the middle of the slide, that has been skewed very much towards the second half of the year, whilst the first half was EUR 121 million negative foreign exchange impact on the second half, it was H1 EUR 299 million negative. When we look at the currencies, the main responsible is the Chinese yuan, the renminbi that accounts for around EUR 160 million, followed by Russian ruble, the Turkish lira, the Egyptian pound, to a lesser extent, the U.S. dollar and the Japanese yen. So very strong currency impact that were to say the truth, almost expecting because we did say that organic growth, mid-single digit would be followed and reported by the FX impact. Now when we move on the next slide, which is the sequence of our sales. This is total group sales like-for-like. We've said that we would return to organic growth in the second quarter of 2023, which we did, and that we would confirm that like-for-like growth recovery in Q3 and Q4 and we've done exactly what we said we would be doing. So the year has gone from a sales point of view pretty much as planned in our expectations. Now if we move next page on the performance by segment and geography. If we move to Page 10 directly, the summary of the year is an excellent performance in the Professional business. We grew Professional business by 32.6%, full year reported 26.5% like-for-like with a strong fourth quarter at 19.6% reported business against a very solid base in 2022. Whilst in consumer, the full year is 3.3% up like-for-like, and the fourth quarter is markedly improved like-for-like sales growth at 7.7%, posting a positive reporting at 1.4%. If we walk into a bit more details in the Professional, that is really outstanding achievements. I won't repeat the numbers. What we can say is that it's a record year, both in machine sales and in service, that growth appears in all key geographies, the 4 biggest markets in the world, China, U.S.A., U.K. and DACH regions. And that is driven by good success in large deals with top clients but also a robust flow of recurring business in smaller customers. And the Q4 performance, as I said, confirmed the full year momentum on a pretty more demanding comparison base back in Q4 2022. Moving on to the Consumer business, Page 12. We have -- I think that performance is explained by a pretty efficient product strategy that has fueled the organic growth in Consumer. As I said, full year plus 3.3 -- 3.2% like-for-like, Q4 at 7.7%. That was fed or fueled by a dynamic flow of new products introduction that has supported this organic growth in all regions. You see some examples on the chart with the Ingenio versatile vacuum cleaners or coffee machines, we'll talk about it. We have a very strong contribution from most emerging markets other European, Eastern and Central Europe countries -- Central and South American countries. We returned to organic growth in several material markets. We'll have the detail of that a bit later on. And we have a slightly positive growth in China in a pretty adverse market environment. And the same way, as I showed you the sequence -- the quarterly sequence in the total group business, we've done the same Page 13 on the Consumer business. If you move on to the next page, Page 13 where we had 1, 2, 3, 4, 5 consecutive negative growth between Q1 '22 and Q1 '23. We've come back positive in Consumer plus 5.2% in Q2 '23, moving up to 7.7% positive growth year-on-year like-for-like in [indiscernible]. I said that sales dynamism is driven by an attractive new product offering, and I'm on Page 14, where we've tried to take out some of the products that have driven or fed this growth, starting with one of our most important categories, rice cookers in China. In China, we make 15 million pieces of rice cooker every year. And we have a continuous innovation flow with the Infrared technology precisely this year that feeds the growth. We've had a pretty dynamic year in oil-less fryers, which is the most booming category in kitchen electrics. It's a dynamic product category. We've introduced a range of new product initiatives in many European markets in particular, that is driving the growth. You see here dual air fryer. We've expanded our range in the full automatic coffee machines. Here you see a beautiful machine that is especially designed by Wilmot, who is a very famous French architect, a beautiful machine under the [indiscernible] is part of a range extension that happened this year as pretty much every year. And you see here kettles, we rarely speak about kettles. Kettles is one of the largest beverage category in China and in Japan. You see here the Justin kettles, which is the most sold model in Japan. And you see a little icon and this little icon is an anti-spill smart device, which we are some of the first introduced on the Japanese market, which allows your -- just to limit the speeding at 10 millimeters when the kettle bends over. And of course, that's a safety and security requirement. And as strong leaders of the Japanese kettle market, we cannot do anything other than be the first to have this new device. So innovation in kettle, which is great. Moving on to the next slide, Page 15. We have in versatile vacuum cleaners, our flagship products, 1260, 1460, 1560, which are very successful new range called X-Force that is expanding in France, Western Europe and Eastern Europe, very successful. Linen Care is a category that has been pretty dynamic for us this year, driven again and fed by a pretty dynamic flow of innovation. You'll see here a range of garment steamers, home health garment steamers called Pure pop that has been introduced in Europe and in the United States with a pretty positive -- very positive first welcome from customers and consumers. So even linen care drives innovation and we see that -- we'll see that this category for us has been very dynamic in 2023. We've also been pretty active in fans. Fans is a very popular product, of course, in Europe but more importantly, in the Central and Latin America. This year, in Lat Am, in particular, we had the linear phenomenon that is increasing the temperatures and we fed that high demand of fan with a strong flow of innovations, both on desk fans and stand fans as the one you see on that. And last, we have a very good introduction of Ingenio concept of a ceramic coating that you can see as a picture plus a strong flow of innovation on the many product categories. For those who are attending our Capital Market Day, we told you that what feeds growth -- what feeds organic growth in the Consumer business is our ability to generate and procure innovation in many product families. That's exactly what you're doing -- what we are doing. And I think that short sample is an instruction of that together with the performance this has generated. And in fact, if I go to the next page, Page 16, which is the evolution of our product categories, you see first that most product categories have shown a good sales dynamic particularly in Q4. Q4 is the small bubble. The big bubble is the full year sales. The size of the bubble represents the total sales. And the arrow at the bottom represents the evolution between full year and Q4. I know it's a bit sophisticated but let me start again. So big bubble is the full year. Small bubble is Q4. The arrow is the trend. And the first conclusion is that we have dynamic product sales on all categories. Second conclusion is that Q4 is higher than the rest of the year, except in linen care, from a very high base 10% growth full year. The third point is that the home care and linen care category are the 2 most dynamic -- [indiscernible] home comfort are the 2 most dynamic categories that we have this year. And that's great because both are for home care obtaining a very popular and growing an important category for the market. And linen care is a very important category for us, and we found ways to reignite growth in that category. Our core categories of cookware and electrical cooking show a positive growth full year and an acceleration in the fourth quarter. We see that beverage is pretty dynamic between -- around mid-teens performance with the Q4 here again, that is stronger than the full year. And we see that even on food preparation, which had a hard time in the year, we post a positive fourth quarter on this category. Now I'll leave it up to Olivier Casanova to take us into more details of the quarter and the segments and the geographies.

Thank you, Stanislas. So let's take a look at -- in more detail at our commercial performance in the Consumer division by region. As you can see on this chart, starting in the middle, we achieved in the full year a 6.6% organic growth in EMEA, a modest 1.4% in Americas and a slight decrease in Asia at minus 0.6%. But as this chart shows, this was, in fact, the sum of 2 very different stories, very different halves. Starting with the EMEA, you can see that we had a strong 9.3% growth in H2. Similarly, a strong 11% growth in the Americas. And we return to a slight positive territory in Asia as we had explained, particularly thanks to China. And I will comment on to these regions in more detail in the next few slides. So starting on Page 18 with Western Europe. First full year, you can see that our sales, as I mentioned, are slightly negative at minus 0.4%, like-for-like, impacted by, of course, a difficult general economic environment. Although we can say that the small domestic equipment market showed some resilience and, in fact, improved in the second half and particularly in Q4. And you can see that our growth in Q4 is 6.1% like-for-like driven interestingly by France and Germany and also Spain, which has been dynamic all year. So let's take a look at our big markets first, we have achieved mid-single-digit sales growth in France in 2023 at around 5%. Of course, we benefited from a large loyalty program in cookware in H1 but if you exclude this loyalty program, in fact, the good news is we have seen a gradual improvement of our quarterly performance quarter-on-quarter, supported by a successful rollout of new products, which have driven, in particular, the growth in Q4, and we'll talk about oil less friers, versatiles and full auto. In the DACH region -- the DACH region, of course, has been weak overall in 2023 but the good news is that it turned positive -- slightly positive in Q4. We have seen some market share gains, in particular, in full auto and linen care. We have benefited from a strong sell-out, good Black Friday sales, in particular, in air friers, OptiGrill and full auto. Moving on, we have achieved a good commercial momentum in Spain, Belgium and the Nordics. And to conclude, as you know, we have been, let's say, impacted by the destocking impact by our retailers in many markets in 2022 and in the first part of 2023. The good news is that this is mostly over at the end of 2023. And from now on, we expect sell-out and sell-in to be more in line. Moving on to the next slide to other EMEA. Starting with Q4. As you can see, we have achieved, in fact, a very strong Q4 sales growth like-for-like, in line with the full year trend at above 20%. If you, let's say, take into account the FX variation, in fact, our actual sales are up only 4.5% after accounting for currency evolution versus the euro, notably the Turkish lira, the Egyptian pound and the ruble, as we explained. So overall, in this region, we have seen dynamic markets in 2023. In Eastern and Central Europe, in particular, we have seen strong sales growth on the back of close partnership with local retailers, in particular, electro specialists and pure players, and generally a strong commercial execution, both online and offline. We have improved our market positions in several core categories, oilless fryers, of course, Floor Care in all categories. Linen care, in particular, with the success, as Stanislas explained of the Pure Pop handheld garment steamer but we have also benefited from the rollout of our successful innovations such as OptiGrill, Ingenio and Cookeo. Overall, in Turkey and Egypt, we have demonstrated again our ability to pass price increases in high inflationary markets. The market in Turkey has remained very dynamic, in particular, on oil less fryers and cookware. And in Egypt, we have progressed in fans, in linen care, in food prep and in cookware with the titanium range with stainless steel cookware and pressure cookers. Moving on to North America. Overall, across the region, you can see that we have achieved a minus 2.8% full year like-for-like growth, but with an improved performance in Q4, a slightly better position. If we look at the U.S., we have seen a softer Q4 but on the back of an outstanding Q3. So overall, the good news is that we are growing 5% like-for-like in the second semester with a good sell-out performance in particular for Black Friday. We have to point out, however, that we've seen a soft replenishment after this good sellout of Black Friday. Overall, we have consolidated our leadership in cookware in the U.S. in a market that has been, let's say, characterized by soft consumption and prudent procurement strategy from retailers. And we have seen market share gains in our 3 complementary brands. T-Fal has consolidated its #1 position overall for nonstick. All-Clad remains the #1 premium brand and Imusa the #1 ethnic brand in the U.S. In Mexico, we have seen double-digit organic sales growth in a structurally growing market. But we have seen also -- we have demonstrated our ability to gain market share across categories. We can talk about linen care, cookware, blenders and also fans, of course. And we have also benefited from the successful innovation, introduction of new product in full auto coffee machines. Moving on to Slide 21. In South America. Overall, as you can see, full year, we have seen a strong like-for-like sales growth at 11.5% and with an even stronger performance in Q4 at plus 26%, on the back of strong seasonal sales of fans, in particular, in -- given, of course, the El Ninõ phenomenon in Colombia and Brazil. So starting with Colombia, the market, in fact, remained challenging, marked by high inflation, in particular. But Groupe SEB has demonstrated, let's say, a strong performance. We are, of course, the historical leader in cookware, and we have continued to gain market share. But we also interestingly gained a #1 position in SDA this year, driven by a strong performance in fans and also in blenders. Moving on to Brazil. We have seen steady growth in Brazil, in particular in Q4. As mentioned, we have benefited from strong sales of fans, driven, of course, by the again, the El Ninõ phenomenon. But we have also benefited from successful new product launches in fans, of course but also in oilless friers and a robust performance of our coffee partnerships. Moving on to China on Slide 22. First, the good news is that we have achieved low single-digit but positive as expected for the full year at 1% on the back of a more positive 3.3% growth in Q4. Overall, of course, as we've mentioned many times, the Consumer sentiment in China remains overall weak. But in decent environment, Supor has outperformed significantly on the back of reinforced leadership in cookware and kitchen electrics. Thanks, in part, of course, to our more resilient product mix, as we pointed out in our Q3 sales conference call. As you know, we are stronger in the more resilient product segment and this is benefiting Supor. We can talk, of course, about our position in rice cooker, for example, kettles. But we have also benefited from strong product innovations, again. We can talk about portable semi-auto coffee machine or the auto frying machine with a steering feature and connected or the titanium, no coating wok, which is proving very successful, including in the premium segments in China. Overall, we continue to benefit also from an excellent execution in -- of our omnichannel strategy and success in social commerce, in particular, for example, in the Douyin platform in TikTok. Finally, we're also expanding in new product segments. 2023 was marked in particular by our entry into the Floor Care segment, which, as you know, is a very large market segment in China. And we're expanding progressively our range of products. And we have also been quite successful in mugs, in the Drinkware segment driving double-digit growth in this segment. If we move on to the next slide in Other Asia to conclude. So we have seen an improving trend as you can see in Q4, overall, for the full year, the like-for-like performance is disappointing at minus 6.5% but we ended on a more positive note at plus 1.6% in Q4. So starting with Japan and South Korea, we are, of course, let's say, operating in markets which are characterized by weak underlying demand, although we have seen, let's say, a small light at the end of the tunnel in Q4 with, let's say, a less negative performance in Q4. We are benefiting, of course, from the commercial successes of our kettle range as explained by Stanislas with Justin product and a positive momentum for cookware in South Korea. We're also experiencing solid -- let's say, positive growth in Australia in Q4 with market share gains, particularly in oil less fryers, linen care and cookware. And in the rest of the region, we have seen, in fact, a mixed performance in Southeast Asia, although as I said, again, slightly improving in Q4. I will hand over now to Stanislas for the conclusion.

Thank you, Olivier. We can go straight to the Page 25. While the outcome of 2023, what is it first it's -- we've delivered our full year organic sales growth guidance, 5.3%. We guided mid-single digits. We said we would recover organic growth from Q2 onwards in the Consumer business and we've done that despite an uncertain environment, volatile environment, let's say. We would confirm a strong momentum in the Professional business and we've done that. What is changing is that we see our ORfA growth to be at least plus 15%, a 15% growth versus a year ago when the guidance was 10% growth previously and that is driven by, of course, a satisfactory top line performance but also by a continued generation of gross margin and the strong OpEx discipline that has been pursued throughout the fourth quarter. So a year that ends in line with our guidance in the top line and 15% above last year on bottom line against an expectation of 10%. Now I think we're done for this part, we can take your questions from now on.

[Operator Instructions] The first question comes from the line of Charles Scotti calling from Kepler Cheuvreux.

Yes. I have 4 actually. The first one, I know the visibility on top line is pretty low at this stage of the year. But could you tell us how are the negotiations with clients going so far on the volumes and pricing? And what do you expect also in terms of destocking, restocking impact in 2024, if any? My second question on China. If we strip out 2020, I think it's been the second worst year in terms of growth after 2012, do you think it is related only to the overall cyclical gloomy environment and real estate crisis? Or have you seen any structural changes, notably in the competitive intensity that could potentially point to a structurally lower growth there. And if you could give us some color on your sales outlook for 2024 in the country, it will be super useful. And third question, you guide for a margin closer to 10% by year-end, while the visibility on demand, I guess, remains pretty low. So I think you have at least a good visibility on your cost based. Should we expect continued raw materials and see freight cost tailwinds despite the recent uptick in sea freight cost as well. And if you could help us forecast the different building blocks, it will be also of great help. And finally, sorry, I have a long list of questions. Can you come back on yesterday announcement regarding your Professional hub in China. And if you could tell us if production capacities will only aim that addressing local Asian market or should we expect Main China import for some of your Professional brands going forward? And I think the Professional margin would probably end in the high teens range in 2023. So I guess with a more competitive setup in China, do you think provisional margin could exceed 20% as the division is gaining share as well as gaining scale?

Okay. Thank you, Charlie Louis. I will take 1, 2, and 4 and Olivier, you'll take number 3. Is that okay? Maybe starting with the fourth one. I think the Professional coffee machine market is really booming. We see a gap in the entry price products or mid-priced products in China in particular. And as we said, we want to consolidate and strengthen our leadership in that segment. So we have decided to take that strategic move and expand our production capabilities and capacities in China to precisely be able to tackle this market. We don't change our view on the global margin of the Professional coffee market at this stage. I think you should see that as a further evidence of our commitment to continue development of the Professional business and in particular, driven by the coffee market. For what regards sales outside of China, I think it's pretty premature to comment on that. We just want to make sure we cover the market and the right price segments of the market in the best possible way. Staying in China, moving on to Consumer. We haven't given -- you will have noticed, Charlie, that we haven't given the sales outlook for 2024. So you will not be surprised if I tell you that I don't even -- neither give you one for China in 2024. I think it's very premature. It's not for -- it's not because we want to be difficult. It's because it's very early in the year. We have the Chinese New Year, which is creating a lot of perturbations as you know, in the early months of the year in China. Now when it comes to China, we pretty much stick to what we said in the Capital Market Day, what Vincent Tai shared with you and I think a pretty convincing way, which is we see China as a market where middle-class households keep growing. We see China as a market where we have pretty much nondiscretionary equipment, which consumers need regardless of their purchasing power and that explains a better performance of Supor. You will note that in a quarter of Q4, where A lot of people talk about negative numbers in Supor, we posted a 3.3% positive like-for-like growth. So that confirms that Supor is doing substantially better than the market. So the market is pulled by the product mix of Supor. The market is pulled by a healthy evolution of the number of middle-class households and the market is pulled by strong innovation by Supor and our ability to cover better and faster than our competition, the changing -- the evolution of the distribution sector. So in summary, the current situation is probably more linked to the overall gloomy situation in the Chinese market, in [ '26 ] -- specific, we don't see anything specific on our categories at all. And maybe before handing over to Olivier on the margin evolution. As I said, we have still little visibility on the top line. Negotiations are as usual, difficult. I mean, negotiations are difficult when you want to put price increase and negotiations are difficult when retailers are looking for price decrease. We don't expect that to have a material implication of our business. As we said, we manage our margins and our margin levels not only pricing. So yes, we have tensions and request from retailers to drop pricing. We try to do it or we try to respond in a way that we manage and pilot our gross margin deliveries. This is what we've done throughout 2023. This is what we've done in Q4 and this is what we intend to do in 2024. Last, your question on destocking. Difficult to answer because every year, we think that retailers have stopped destocking. They are at all-time low levels on our categories. So we tend to say when I look at the numbers, except maybe a sporadic retailer in this or that country. We don't expect any material destocking effect on our business, which means that we expect our sell-out to be pretty much close to our selling or selling to be pretty much close to our sellout. Olivier, Margins?

Okay. So first -- thank you, Stanislas. First a question -- sorry, a response on the Red Sea issue. So, the Red Sea, let's say, disturbances have impact potentially on 2 things. First on the cost of transportation and secondly, on disruptions to supply chains. On the cost, we have managed to, let's say, limit drastically the impact, thanks to generally a yearly contract that we have with the shipping lines and the freight for orders. And we have been able to, let's say, mostly rely on those yearly contracts to -- in January. Regarding supply chain disruptions, the good news is that we have inventory at retailers and also safety inventory. And of course, we are relying on those. We have also managed to, let's say, transport the bulk of what we wanted to ship in January. Of course, the impact would be limited if things come back to normal after the Chinese New Year as is, I think, expected or hoped for, for the time being. But we are monitoring the situation, of course, closely and the situation could be different if it were to let's say, last for a longer period. But that's not what we are hoping for expecting at this stage. And so we can, let's say, hope that the impact would be quite limited on our profits. In terms of the margins, we have seen, in fact, the bulk of the, let's say, readjustment on both purchasing cost, but also raw material and freight in 2023. And this, of course, has helped to rebuild our margins. Hence, let's say, the expectation that was shared by Stanislas of over 15% increase in ROPA. There will be a small tail in 2024, but this is not where, let's say, the biggest -- this is not going to be the biggest driver of growth as, let's say, in previous years, this industry will continue to rely on its ability to pass price increases and to generate, let's say, a positive impact from mix improvement and this is going to drive, let's say, the continuous performance that we expect this year and in the coming years.

And just a follow-up question on foreign exchange. Are you able to estimate what will be the financial headwinds at this stage at spot market level? I think it's a couple of dozens of million euro negative.

Well, we're not going to give you a number but we say that it's going -- at this stage, we are expecting this impact to be lower in 2024. But of course, we are exposed to many different currencies, and it's far too early in the year to be able to give a precise guidance.

We have on the 22nd of February full year results presentation at the SEB, so it would be the opportunity to really dig into the bridge, understand what happened in 2023. And I think this will be the moment where we can really dig in the details of those questions.

[Operator Instructions] The next question comes from the line of Alessandro Cecchini from Equita.