SEB SA. (OTCPK:SEBYF) Q3 2022 Earnings Conference Call October 24, 2022 12:00 PM ET
Company Participants
Stanislas De Gramont – Chief Executive Officer
Nathalie Lomon – Chief Financial Officer
Conference Call Participants
Peter Testa – One Investment
Operator
Hello and welcome the SEB 2022 Third Quarter Sales and Financial Data. Please note this conference is being recorded and for the duration of the call your lines will be on listen-only. However, you would have the opportunity to ask questions at the end of the presentation. [Operator Instructions] I will now hand over to your host Stanislas De Gramont, CEO and Nathalie Lomon, CFO to begin today’s conference. Thank you.
Stanislas De Gramont
Good afternoon everyone. This is Stanislas De Gramont speaking. Thank you for joining us for this call. I would be taking you through nine-month sales and financial results together with Nathalie Lomon, our Chief Financial Officer and without further ado, Nathalie Lomon, maybe we want to get a start from you.
Nathalie Lomon
Yes, thank you very much Stanislas for [Indiscernible] everybody. So we’re starting with the Group sales review. Moving to the next slide, please thank you. In the first nine months of 2022, the Group has recorded total sales of €5,560 million. This is reported when compared to 2021 minus 0.2% and minus 4.3% like-for-like. It’s a trend of continuous growth with the exception of the nine-month of 2020 that is reported on the right hand side of this slide. In the third quarter the Group has reported sales for €1,894 million, it’s minus 3.4% compared to last year, same quarter and minus 8% when compared to last year, like-for-like. It is an increase of 6.6% when compared to 2019.
Moving to the next slide, and looking at the breakdown of our sales between consumer and professional, first focusing on the consumer business. The Group has imported over the nine — over those nine first month €5,056 million. So it’s minus 1.2% when compared to last year and €1,720 million in the third quarter, minus 4.2% minus 8.8% like-for-like.
On the threshold segment, the business has reported €504 million of sales in the first nine months that close to 11% more than what this business has delivered in 2021, 6% like-for-like and in the third quarter €174 million that closest to 6% and stable like-for-life basis.
If we move to the sales bridge and understand how sales has been developing over this first nine months, you will see that the total sales reported is very close as I was saying previously, to what we delivered in 2021 it’s a slight decrease of 0.2% of sales, but with a strong contrast between organic growth minus 4.3% and currency effects plus 229% most of it coming from the U.S. dollar, Chinese Yuan and Russia Ruble appreciation when compared to the euro in which we are reporting.
Over to you Stanislas for breakdown of…
Stanislas De Gramont
Yes, I’ll take it from there and maybe with a pretty unusual way to look at the business. As you see we have a minus 0.2% reported growth, which is essentially flat. And what’s really interesting in this year is the contrast between the performance of the various parts of the business. I’ll start maybe with the right hand side with the other countries which way for 0.5 minus 0.5 negative contribution to the overall group’s performance. To say that generally our business is very resilient, our markets are resilient our activity is pretty stable despite difficult context. I mean, I won’t elaborate too much on the economic context in the world nowadays. But what’s more interesting is to see that we have in this business in these first nine months, China weighing positive 3.9% growth to the total group, professional business weighing 0.9% positive.
Russia Ukraine, of course weighing negatively minus one point of growth, and specifically France, Germany, weighing negatively 3.4 points of growth. So what’s really interesting in these first nine months is that the performance of the group is very uneven, very contrasted. And we’ll walk through in the next five or 10 minutes through these various geographies and activities just to share with you the way business is developing.
Starting on the next slide, the next slide with France and Germany. France and Germany, account for over 20% of total group size. And over the first nine month we are faced down 17%. That comes after a record growth of 21% year-to-date, in 2021. If you remember last year, we were really satisfied with the performance in these two major countries for us. And I think the first effect is that we are up against a very high historical level in France and Germany. And in particular, there’s already been a more substantial rebalancing of consumer spending out of our activities in those two markets than in other markets.
And in fact, the market share up to date in France and Germany is down 7% year-on-year, while the overall total market if we average out all the geographies of the world is fairly stable.
The second specific point on these businesses that we have in 2021, very large loyalty programs in those two markets. That way €61 million turnover less in 2022 than in 2021. And that accounts for itself for five points of growth in these two geographies. That’s probably by the way a side effect of those LPs being very high last year impacting some overconsumption there was specific quality problems.
The third element is a category mix effect. We Euro that Small Domestic Equipment is made of cooking categories and non-cooking categories or in fact cooking categories were the ones that benefited most from the pandemic and the lockdowns why, because people stayed at home and they over consumed cooking categories. And in fact, when the total market is down 7% year-on-year the cooking market is down 10% year-on-year in France and Germany. And as a matter of fact, our exposure to the cooking segments is 25 points above the market exposure cooking 75% of our business in France and Germany, it’s only 50% of the market.
So as a result of that, we see our sales in cooking categories down 19% year-to-date or last year, the growth was 27%. So difficult market, difficult category mix with an overweight of Groupe SEB in France and Germany are those categories that perform best during the COVID days. Not repeat the loyalty program unless a very specific situation in France with a strong destocking in the regional trade which increases the exposure of trade brands to consumers and therefore the short term market share of tradebrands. That’s a pretty specific French phenomenon that we observe in our categories. We’ll come back to that shortly.
Moving on to the next slide. And I won’t spend too much time on it. The major sales decline we observed in Russia and Ukraine. Those two markets were €384 million in full year, last year, around 5% of gross sales. And our year-to-date sales are down 23% in reporting, or 33% in life-for-like, when last year they were growing by 31%. So not only we’ve we are losing a substantial chunk of the business around one point negative impact on the group’s growth. But those two countries were substantial sources of revenue growth and profit growth in 2021.
And, and later on, when we see the off average, we will share with you the fact that France, Germany and Russia Ukraine are positive contributors in terms of mix to the profit realization of the group, and therefore that weighs on the profits realization.
Now on the negative parts, we have some very positive news. Starting with China, China is the Group’s number one market and we keep showing positive momentum in China. We have year-to-date sales of 5.5% organic obviously 16% reporting but that’s because of the strength of the yuan to the euro. And when we look at that where the first comment is that those sales are 5.5% and that’s in a pretty changing macroeconomic environment. The news of full of negative ideas with China or the lockdown or the economic performance, we see ourselves extremely resilient, they’re extremely resilient, because we have a strong push on e-commerce as we had for many years.
E-commerce is now 67% of total Supor sales. And more importantly, we have stronger and stronger positions in our main stronghold kitchen electrics and cookware, but at the same time, we see some developments in large kitchen appliances and linen care. So a strong performance in a volatile macroeconomic environment. And that is also due to the fact that Supor significantly outperforms the market that is coming from a continuous policy of innovation and product offering extension and also the online sales development in particular, with checks and patents on fast-growing platforms Pinduoduo or TikTok.
I’ll move on to the next slide. I was mentioning market positions and sticking to Marie [Indiscernible]. Okay. Talking about market positions. As you know, our two biggest categories in China are in Kitchen Electrics, where Supor is number one online way, widening the gap with the number two, and we are stronger and stronger offline. And the gap is the number one is knowing we’re getting very close.
Equally on cookware, on cookware we are the undisputed leader of the market, both online and offline. And whilst being at least twice the size of contender, we are still strengthening our leadership year-to-date controlling almost half of the offline market.
So China goes from strength to strength, China is delivering what we expect from him, which is growth from 5% to 10%. And that is despite a global macroeconomic environment in China, that some people describe as a notable event in history.
Moving on to the professional business, the professional business post 10% for a 6% growth like-for-like – 10% growth like-for-like in year-to-date I think, let me check my numbers, yes. And I think confused, and that is a very satisfactory performance 6% like-for-like. So what why is it, why is it very satisfactory? Well, we have first you know that this business is made of three activities. We have major contracts. We have, I would say core machine business and then we have service and maintenance. Core contracts come and go
and we have a very, very high base in 2021 in particular in the U.S. and UK. If we take that aside, the like-for-like growth in core business is up 6% in Q3 and 15.4% year-to-date. That comes from something we describe back a year ago in the midst of the COVID crisis, we said we wanted to expand our customer base. We now have a much larger and steadier customer base. We said we wanted to grow service and service revenue is up double digit, year-on-year.
And last we said the acquisition of Curtis would allow us to grow the business with different segments in the United States. And we see Curtis achieving double-digit growth in the U.S. gaining some market positions.
Looking on deals we have a good run pipe of the Luckin coffee deal in China. You know that Luckin went through ups highs and lows in the last two years and Luckin is back in business, and we are installing new machines in the Luckin coffee in China. And we see a strong order book for Q3. We see professional business on a good track, which is double digit growth performance, year-on-year this year.
Beyond Professional coffee, we have continued development in motor equipment in Q3, still a small business, but a business that is now delivering positive growth year-on-year. And last but not least on Professional if we move on to the next slide. You’ll see in late in July that we’ve acquired Zummo. Zummo is a leading company in the design manufacture and distribution of automatic juicing machine recognized expertise 130 employees 15% on R&D, one factory based in Valencia in Spain. Revenues around €25 million in 2021, strong growth that allows us to penetrate a new segment in the professional sector that is complementary with coffee machine. You see here a picture of several restaurants with side by side Zummo juice machine together with a WMF coffee machine. It is not made up, this is a true restaurant with a true business scenario. So that that’s what we see.
In this acquisition, we see complementarity of the customer base both the ability to develop synergies, but also the ability to access to new consumers with these acquisitions, a lot of potential prospects from these business.
So this is the way our sales have developed in the last in the first nine months of 2022. As you see a very contrasting development with some parts and some places going very well. And some other parts are more difficult. I hand it back to you Nathalie to take us through the financial performance in the first nine months.
Nathalie Lomon
Thank you very much Stanislas. If we move to the next slide, sales we have commented operating results from Activity stands at €319 million compared to €528 in 2021. I will walk you through the bridge between those two numbers in a second. In the third quarter, the Group has delivered €120 million of operating results. And at the end of the third quarter, the net financial debt stands at €2,581 million. And I will give you further explanation on the trends and the financial debt as well.
So if we move to slide 17, with the ORFA bridge and the explanations between what we have delivered last year in the first nine months and what we have delivered this year. I will start with the on the left hand side of the of the chart, obviously with a negative impact coming from lower volumes sold this year when compared to last year. For you to know France and Germany, which accounts for roughly 50% of this of this negative impact. So it’s significant way on the purpose of each of the company.
Moving to price mix it is a very positive impact. It is coming from the price increases that we have been facing to the distribution to offset the increase of cost of goods sold that I would comment in a few seconds. And it is also coming with a positive mix impact. Actually mixed impact was stronger at the end of the first half and it’s not that strong in the third quarter, and once again it is coming from the fact that our business in France, in Germany and also in Russia, who are three very profitable countries for the Group is lower than what we had delivered in the third quarter last year. So this has a negative impact on the overall price mix for the company.
Then you see the increase of cost of goods sold over nine months to a significant increase that’s again, we are compensating us to a price and mix. Most of it is coming from a raw material components that we are sourcing were also impacted negatively by the sea freight when compared to last year. And direct auction [ph] as, we have made the decision to slow down our production in our site to help reducing the level of inventory. And we have a limited but given impact of energy cost. That is actually quite small, it’s €15 million, but it’s worth noting it.
Growth drivers and the selling and administrative expenses, they’re very much in line with what we had delivered at the end of the first half. Meaning that the third quarter expenses are really under control, very close to what they were in the third quarter last year. So very much in line with the ambition that we have to keep them both growth drivers and MD&A at the level of H2 in 2022.
And last but not least currencies, it’s minus €40 million on the operating profit. It’s a combination of positive impact on sales, as we’ve seen at the beginning of the presentation, plus a negative impact coming from the short position that we have, as most overall purchases are denominated either in U.S. dollars or in Chinese yuan.
Moving to the net debt. Net financial debt stands at €2,581 million. In the third quarter, we have delivered slightly positive free cash flow, which is good news when compared to a cash flow consumption that we have witnessed for the first half of the year. We still have a fairly high level of debt; it’s coming from the level of inventories that are linked feeling to the stock build up that we have done in 2021. Remember that at that time, we were building inventories, just to make sure that we would have enough goods to supply to our customers because of the low quality of supply chain and some risk in supply of components.
And this is a decision that we had made at the end late of 2020 was still valid in 2021 still valid at the beginning of the year. And as we’ve witnessed, in the second quarter a slowdown in demand, we have decided to reduce our purchasing, reduce our production. And this has obviously an impact on the inventory it will take few months, a few quarters to see this number going down.
The other items that have impacted the net debt in this quarter are the acquisition of Zummo, as Stanislas mentioned, and then you may recall that we have also done a bit of share buybacks in the second quarter of this year.
I feel the financing structure of the Group remains very healthy, well balanced. Remind you that we do not have any covenants on our financial debt. And that’s a very, very significant part of the financing for the Group is made on the fixed cost.
So that was it for the for the financial presentation. I’m moving to the next section, which is about the consolidation of the Group business in the DACH Region. So this is a plan we’ve been working on for more than one year. And the purpose of this plan is to make sure that we have the right organization and the right setup to foster growth and to deliver more synergies in the DACH Region.
So here DACH is the first European market for the Groupe, and it’s actually the second largest market for the Groupe after China with the combination of Groupe SEB DACH and WMF.
So, we are implementing consolidation of the activities in this region with an organization that will consist of a unique market company for the consumer business in DACH that will sell at the same time the SEB brands and the WMF brands. We will have also one strategic marketing entity also to deliver and to grow WMF product range and brands on a worldwide basis. So, having in mind that WMF is the premium brand for Groupe SEB with both SEB. We will have also in Germany, a single center for all support functions with the exception of accounting activities that will be transferred into our shared service center in Warsaw.
And last but not least, of course, the PCM business stays at headquarters in Germany. So Geislingen which is the place where we are currently doing this call tonight will become the headquarters of Groupe SEB’s in the DACH region. The plan is to implement the first measures of this consolidation in January 2024 for leaving enough time to have all the discussions with the workers council, the cost of implementation is assumed to be around €35 million, including €25 million that will be booked in 2022 not in the operating profit but in the net result of the company.
Stanislas De Gramont
Thank you Nathalie. I will now share with you in a couple of slides the outlook for 2022. Maybe starting with an understanding what’s what went on in the summer. Again, strong continuous performance in Professional Coffee in China. Russia, Ukraine as expected, the other markets soft but in line with the market performance despite a context that is described as the worst and we have some venues in France and Germany. And this is what leads us to revise our guidance. Slightly on the sales front, we were talking of a sales stable versus full year 2021 around €8.059 billion. Now we see sales, lounging around €7.9 billion. We mentioned an operating margin from activity between 8% and 8.5%. And the impact on the volume and on the geographical needs of France and Germany in particular, needs us to revise down our estimate to 7% to 7.5% operating profit for the full year.
That assumes Q4 sales trend which is a mix which is which would be in line with what we’ve lived through in the third quarter. We will step up the decrease in Group’s operating expenses that are initiated in the third quarter. And we see headwinds, raw materials, freight and foreign exchange of circa €300 million changing in contents, but unchanging the total sum versus what we saw at the end of July.
And maybe as a as a word of conclusion, I would like to share with you if you go to the next slide and some few considerations. The first one is 2022 is a perfect storm. We are up against huge 2021 comps. We grew sales last year by 16% €1 billion ahead of our peers. Profit was €813 million, first ever and grew over €800 million. We’ve had we have on-going at €300 million this year. And we have also already €300 million last year. So we’ve absorbed in the two years, close to €600 million of headwinds. And a consequence or a side effect of those two first points is that we were facing a difficult situation in some key markets which affects the balance of the Group’s performance.
That said, we will also look at the promising nature of our markets. In consumer, we see that our markets are very resilient globally, despite very high levels last year. And that tells us that our markets are not so impacted or affected by economic crisis, inflation than other markets are the discretionary good market that is great use of a consumer.
On the professional market, we knew that when our customers reopen their doors, we would restart our activity of selling and servicing machines. And that is being confirmed quarter-after-quarter. And we shall order. And finally, I think we are very confident in the of the Group’s business for the strength. We know that we are we have a business that is balanced between consumer and professional between the two markets and between emerging markets. We have a span of categories that sometimes affect us, as we’ve seen in cooking France and Germany or globally allow us to grow sustainably at all or market level. So we are despite difficult situation in 2022, we have already completed the fact that the current business without the roof is where it should be and then the strategy that he goes long term and midterm results.
Thank you very much for your attention. I have taken 30 minutes. We have now time and room for your questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of [Indiscernible] Please go ahead.
Unidentified Analyst
Yes, good evening, everyone. I have three questions, if I may the first one I understand the kitchen brigade on is mainly explained by lower revenues. Do you guys have good visibility at this stage on the on your cost base this year for the balance of the year? And what explains the range in terms of the profitability target for the full year?
Second question on headwinds on profit. It seems that raw materials and cost peaked in 2022. I won’t ask you for margin guidance for next year. But could we reasonably expect those headwinds to become tailwind to your profit going into 2023. And my third question on destocking, it seems to accelerate your supply and drop this year? Do you have an idea on how far we are in the destocking process of your client? And should we expect this to ease at some point in 2023? Thank you.
Stanislas De Gramont
Great. Thank you very much. Nathalie will cover your first two questions, and I will take the third one. Nathalie?
Nathalie Lomon
Yes, hello and thank you for the question. So if we look at the at the cost base, and I will start with the growth drivers and administrative and commercial expenses. We have the very strong ambition to not to grow those expenses in the second half when compared to 2021. But we still have the opportunity to adjust some of them especially the growth drivers that would depend purely on the level of sales that we think we can deliver by the end of the year.
As far as you know, cost of goods sold are concerned, we have a good understanding of the of the cost base. So if we’re to answer your question, what would expect explain the range in the guidance that’s mostly related to sell? We have made an adjustment of the guidance saying that we will plan to deliver a bit more than €7.9 billion around €7.9 billion. But then the range, the range in the guidance depends on the where we will be around these €7.9.
Then talking about the headwinds, tailwinds, you’re right we see some of the items that are impacting negatively the P&L that could ease a bit in 2023. That could be the case for us to freight and for some of the raw materials. But you should also have in mind that we have a short position or exposure on the U.S. dollar and now in Chinese yuan and despite the fact that we had in the long term, we may have a negative impact from that as the rate that they expect for 2023 should not be answerable at the one that we had in 2022.
So to make a long story short, we are just starting the budget process, we need a bit of time to work the numbers and see how things will go on in 2023. And we’ll be able to give you a bit more details regarding 2023 once we have completed the budget process.
Stanislas De Gramont
Thank you Nathalie. We’ll take the third question. The destocking is in fact impacted us somewhat this year. We see we are getting closer to nominal inventory targets in our retailers. So let’s talk about France in a second. So I would expect that effect of the stock in retail is talking to the probably closer to the end and closer to the start. Obviously this will depend this depends on the dynamics of the markets. I mean, it’s clear that destocking is a factor of how much you buy in and how much you sell out. So when the markets are less dynamic, it takes a bit longer. But I would say that we are probably closer to the end than to the start. But maybe France that is slightly late, not because of a particular behavior, but because of the fact that the market is so worse. But I don’t expect us comes to one next year to still talk about destocking as a major effect or an impactful effect on our business.
Operator
The next question comes from the line of Sutherland of Alexander Cikini [ph] of Equita. Please go ahead.
Unidentified Analyst
Hello, everybody. And thank you for taking my questions. The first one actually, on your performance in other countries in Europe, of course, including Russia, Ukraine, it seems positive in the third quarter. So I would like to, to better understand this kind of trend and the drivers. And specifically also talking about this area, other countries, including, of course, Russia, Ukraine. And if I am not wrong, there is a new regulation for bidding large and small appliances to be shipped over to Russia starting from January 2023. So I would like to better understand your point on this if it’s correct.
And secondly, my third question, sorry, it’s about your edging in terms of raw material and components. I would like to better understand that your current policy that you have for these? Thank you.
Stanislas De Gramont
Thank you Alexander. I will take the first two questions, and Nathalie will cover the third one. We’re starting with the second one. I’m very surprised by this ban of imports of Russia from Germany [ph]. First, we haven’t talked about it. So we will further investigate and I would be very surprised of that probably we are aware of. On your first question on the other countries it is very competitive. And we have some countries which perform well. Some others that don’t perform well.
The U.K. is going through a very nice year Italy, Spain are good. We see Poland very good in the first four or five months of the year. Not good in the last two months, I think is very contrasted and it’s very, very, very performance. And this is why I didn’t elaborate on any specific trends. What we see maybe just to help you is the bulk of the counter performance in Western Europe is driven by France and Germany. Before speaking I would say Belgium as well. But usually we see the same transit Belgium as we see in France. In the Central and Eastern European countries, we see as usual, a stronger dynamic than the rest of Europe with inflation that hits a bit. That is a bit higher than it is in Western Europe. But overall I think I mean, when you look at it from some distance, you see that the other countries are probably going smooth curve or maybe 10 times a week that used to be delayed. But at the same time, the comps are very high. I think in Eastern Europe, some markets were 40% growth year-on-year, last year in 2021. So it’s, it’s difficult to draw any negative conclusions, but as you say, they are resilient, they are a positive for several of them, and that that just tells us that our industry is resilient that we seem to put negative economic situation. Nathalie, you want to cover the point on hedging?
Nathalie Lomon
Yes. So, we have a long term strategy regarding hedging and that is valid for guarantees and also for some of the raw materials that we supply for the Grouping, aluminum, nickel, and polypropylene. Those hedges are placed over time. And obviously, it is a way to help our business and our markets have enough time to adjust their pricing and not see the P&L being immediately impacted by changes in rates or in process. So this policy applies to what I mentioned previously, to the exposure we have on the U.S. dollar on the Chinese yuan, but also on our raw material purchases.
Unidentified Analyst
Okay, thank you. About to the Russia story, I know the news from large appliances. So that is I mean, it’s, it seems to be real. I was just guessing that if it’s done for larger appliances at the same time was much more slices. But this was just my guess. And I tried to ask you on this point. And finally, if I may on the energy costs, could you quantify how much is the headwind for energy costs, I mean, the your €300 million of guidance.
Nathalie Lomon
So we have not included, energy cost and our headwinds, and how headwinds, we will include the negative impact of Forex, we’re including the increase of sea freight and the increase of roadmaps and components. But for you to know, at the end of this, at the end of this first nine months, it’s a negative impact of €15 million, when compared to last year. So it’s not nothing, but it’s not the bulk of the cost increase that we are facing.
Stanislas De Gramont
We are not energy intensive activity. So it impacts us as everyone but it’s not a major part of our cost structure. Thank you, Alexander for your question on Russia. We’ve just checked and what is at stake is a double use age goods and, and others. We haven’t had any specific — on the. That said I mean, we are now at the back of function. So we are extremely aware and careful of any decision that is made by the authorities. So we will triple check and make sure that we do business in compliance with the regulators.
Unidentified Analyst
Okay, thank you. Thank you very much.
Operator
The next question comes from [Indiscernible].
Unidentified Analyst
Yes, for good evening. Thanks for taking my question. I have a couple of one. So the first one is on the pricing and the environment which is that your industry is running quite a fairly high level of event. So I was wondering, how is the pricing environment? I think that you will ensure the price high container join to free how each company went and do you plan to further increase prices down the road? That is my first question.
The second question is on this Forex is backed up, so if I’m not mistaking the freight impacting the [Indiscernible] was almost neutral and really clever. So I’m just wondering how much of a delay we’ve seen in your P&L in terms of capturing the moving they got on the run since the beginning of the year? Thank you.
Stanislas De Gramont
I’ll take the first one, and Nathalie will take the second one. So if I can rephrase your question of the first your two questions. In fact, what is the relationship between the willingness to reduce inventory levels and the ability to maintain or food pricing through? And the sub question is, what would be your prospect in terms of further pricing down the road?
On the first one, I think it’s a very, very valid question. We have passed through a price increase in September to March and we have a third one that is probably in mid-September. There is, of course, a balance to be found between pricing and activity management volumes, market tariffs as well. We have through and you see that in our bridge, most of all, the pricing, what if it was to the first waves, we are now maybe a bit more prudent pricing Group to find a good balance between understanding and listening to consumers motivation, but at the same time protecting our margins, which is essentially what we’ve been doing the course of the 9, 12 months.
Again, let’s remember that we had 300 million rows of headwinds. Last year, we take another 300 million of headwinds this year. The pressure on us is very, very substantial. And pricing has been a substantial contributor to messaging that impact on our bottom line. Down the road, we see the balance between pricing and nice to move much more towards a product mix. In terms of adding value, we see pricing, we’re probably close to the end of our pricing initiatives and talking about pricing initiatives in mature markets. I mean, we keep raising prices in the volatile currency markets in Russia, Brazil, Turkey, as those are very sensitive, very sensitive to currency evolution, we have to follow that. So we expect major or — rules, or decent pricing from these in the forthcoming few months. And Nathalie, ways to discuss foreign exchange.
Nathalie Lomon
And Mahad [ph], so the impact is, you’re right, it’s almost neutral in the third quarter. It’s a combination of negative impact coming from U.S. dollar and Chinese yuan for the same short exposure, I have commented previously, and a positive impact coming from the Russian ruble. You’re benefiting, you know, from the application of this currency, and we have a long exposure in Russian ruble with the same that we do in this country. And this is a mix of the two that makes it almost neutral in the third quarter.
Unidentified Analyst
Thank you. Thanks.
Operator
The next question comes from the line of [Indiscernible] of Societe Generale.
Unidentified Analyst
Yes, thank you. Two — me half my questions. The first one is about the level of inventories. You mentioned that you have to take decision to diminish the production and the stocks at what time? Do you believe that you will see this impact in your net debt position and the second one is about your premium strategy? You have launched during the first half some iconic products like the vacuum cleaners sold with a very high price and also the coffee machine in Germany. Are you thinking to just adjust your strategy and probably to have more second or third quarter all products in order to meet the actual demand?
Stanislas De Gramont
Nathalie, you take the first question on the inventories and I will take the second one on innovation.
Nathalie Lomon
Yes, I know. Yes, so regarding inventory what I have mentioned is that setting at the end of the second quarter, we have made the decision to slow down the products and then also to slow down the supply of sourcing products. This decision, as already an impact on our working capital, as we see less funding coming from external suppliers. It’s not moving the inventory down as fast as we were expecting, because as you have understood, we have recorded lower status than what we were expecting in the third quarter.
Having said that, the plan out there, they’re very ambitious. And we will see a reduction in the inventory that will not be offset by a further reduction in the industry suppliers. And that will positively impact the working capital requirements in the fourth quarter. So there will be a positive impact on the net debt at the end of this year.
Stanislas De Gramont
And don’t you see the reduction of inventory is a factor of the reduction of the supply, base and dynamism of sales. So if we have uncertainties on sales, it’s difficult to have certainties of the inventory level. Thank you, Nathalie, your question, we have two questions in your question on innovation. But let me rephrase it on one specific question on the X-O and WMF coffee machine professional, which I will answer in a second.
And the second question, which I think is broader and more general, which is, in this context of colleague constraint, purchasing power, do consumers keep training up and keep buying or devaluing products.
I will start with the second one. When in fact, when we see the more dynamics segments of the market, it is about full automatic coffee machines, what we call meet two cups coffee machine, it is about versatile vacuum cleaners. It is about robo vacuum cleaners. It is about taking food processors, reasonably despite a very high soulful number. And we see that in this context, consumers keep on being attracted by high quality, innovative offers. And that’s I think, what we keep doing and that’s what we will keep doing and keep pushing. We have a pretty substantial innovation plan and pipeline for the next six months and we will be — to stop bringing added value innovative products, premium products on the market.
When it comes to awareness [Indiscernible] and X-O, X-O had a good stuff in France, we have some technical challenges to fix, which we are doing now. We are re-launching in Q1 with a second version, which we think will allow us to get better current, very high and positive wake up from French consumers. When it comes to WMF Perfection, WMF Perfection has been launched in Germany at the middle of the second quarter, this year, which is low peak season; we are now attacking the high peak season. We understand better and better the conditions in which an €1800 machine can sell. We have some very positive experience in some of our stores. We have positive experience in some very upmarket department stores on to the Galleria with strongly immunity and with the right support to have a coffee machine set. We will expand the range of WMF cup coffee machine in Q1 and Q2, completing the range with machines ranging from €1200 up to €1800, €1900. So we are more than ever confident that this will be this is the way to build and develop our business. Does that answer your questions?
Unidentified Analyst
Yes. Thank you.
Stanislas De Gramont
Okay, thank you.
Operator
The next question comes from Peter Testa One Investments. Please go ahead.
Peter Testa
Hi, thank you for taking my question. I’m just wanting to understand a bit about the guidance for the year. Because if I do my math correctly, you’re implying a margin in Q4, which will be roughly flat year-over-year and obviously last year was in a growth year. Am I correct in understanding that on pricing and mix you’re still expecting a positive performance but less than what come?
Then secondly, if you look at the you talked about expense benefit in Q4 from steps taken in Q3, but you also talked about maintaining the guidance and growth drivers and admin. I was interested if you could give some sense of what sort of expense benefit you’re expecting and from where?
And then lastly, you’ve talked about drawing down inventory in Q4, and you’re still expecting sales to be down. And we’ve seen an important negative impact of volumes on Q3. And I was wondering if there’s something else that we should understand on the volume impact or if you give us any sort of sense as to how that stabilizing? Thank you.
Nathalie Lomon
Yes. For many, many questions, starting with the, with the, with the profitability, we expect in the fourth quarter, that should be your right a combination of positive price impacts. When compared to a fourth quarter last year, we have what we would call an inbox effect of all the prices increases that we’ve been placing over time, since the end of the fourth quarter last year, that will have a positive impact on our profitability, and that will help us offset a significant part a very large part of the of the cost increase that we still tend to face when compared to Q4 last year.
Regarding the cost drivers, we found to well to keep them more or less in line with where they are at the end of the third quarter meaning new, new increase, or no significant increase when compared to last year, and maybe depending on the level of sales, a small decrease. And that would be the same for the structure costs.
So this is how we are building the fourth quarter profitability. And obviously, that will depend on the on the level of status, as I’ve said previously, we said that we will be on the full year around 7.9 billion, so then depending on the range that you will deliver, that will have an impact on the operating margin. And that’s why we’re guiding full year between 7 and 7.5.
Peter Testa
Okay, but you’re going expecting a Q4 sales performance year-over-year similar to what you had in Q3. And we’ve seen what a significant €100 million negative impact on volumes. And I was wondering if you could give a sense as to whether there’s something else which is substantial on the cost or otherwise, which will manage that and when you’re still drawing down inventory?
Nathalie Lomon
No, I think that’s you, you’re catching all the all the big items. In our assumption, we said that we’d expect in terms of trends, for sales and for mix, including country mix that has an impact on the overall profitability, the same trend that we had in the third quarter. So that’s very much in line and potentially, as we said that we don’t want to increase because I was in MG&A when compared to last year that will also benefit to the profitability of the other fourth quarter.
Peter Testa
Okay, thank you. If I could add just one other please just don’t work in capital sales. If you go back to prior to the pandemic, it was sort of the sort of 16%, 17%, 18% of sales. Do you think you’d be able to make it to that level this year?
Nathalie Lomon
No. I think that that would be quite a challenge to go back to the level that we that we had prior to the pandemic by the end of the year. As I have commented, we’re adjusting our production and our sourcing, but it is taking time to you know, adjust inventory, especially when there has been some uncertainty on the level of sales.
So we will be back on track. That’s more something that we will be able to deliver, hopefully, in the course of 2023. But there will be anywhere a significant decrease at the end of the year when compared to the level that we have disclosed in detail at the end of June.
Peter Testa
Okay, that’s great. Thank you for the answer.
Operator
The next question comes from [Indiscernible]. Please go ahead.
Unidentified Analyst
Yes, look I’m sorry. I don’t want to take too much of your time. I have two follow up questions. If I may, the first one is on the market shelf wide level product levels. Do you have an idea of their market share? And is there is any big difference between cookware and modems cabling and seas? And basically what’s your strategy to face a stiffening competition from any range player.
And the second question on the consolidation of the data activities, you give a precise guidance on the cost of the restructuring, not on the benefits. How much cost savings or synergies can we expect from that from this restructuring? Thank you.
Stanislas De Gramont
I’ll take the first one. Of the private label share, if you if there’s not one case, in the electrics in smaller basic appliance, it is usually substantially below 10% per total market, which maybe this will be dependent on the weight of food stores or…
Nathalie Lomon
Metric data on…
Stanislas De Gramont
Metric data in the market, because metric data tends to be stronger on the table. But even in a country like France, where metric data is important, it is around or below 10%. When it comes to cookware, it’s a bit more usually a market leader, a beat rather than a product level. But it could be a product level, it can be a BCD brand. So it’s difficult, but it is stronger in cookware. And that it is it’s fundamentally compliance. And Nathalie, each of your bearings of the plan.
Nathalie Lomon
Yes. So, as I have mentioned, we will look at the end of the year a significant chunk of the cost to implement the plan. But it takes some time especially in Germany to complete all the negotiation and discussions with the workers counsel. So we do not plan to start implementing this reorg in this consolidation before January 2024. And we think that we should get positive benefit from that, between 2026 and 2027.
Stanislas De Gramont
So that’s from the you will understand easily why we don’t want to communicate the benefits. And maybe another dimension of that plan is that that should allow us to strengthen our commercial position in Germany. So we also see that as a way to strengthen our friends. In Germany, we are going to create a business that is in Germany already close to €1 billion in sales. And that is important in a market that is very competitive.
Unidentified Analyst
Okay, perfect. Thank you very much.
Operator
We currently have no more questions on the line. [Operator Instructions] We have no more questions on the line.
Stanislas De Gramont
All right, I will, I will give you a couple of sentences. In conclusion, we are, we observe that this year, up against a very, very high performance in sales and profit in 2021. We have a sales position that is holding up quite well. We won’t come back on Russia and Ukraine. As we see we have some stability issues in France and Germany. And these lead us to review our guidance on driven by these two markets in the volume indices like they have on the top of business. We are confident that our industry is resilient and our markets are resilient. And we observe that in in many mature markets and in many emerging markets. We confirm that China is a sustainable, very strong support of the Group. We see professional business as what its role was when we acquired WMF in 2016, which is balanced activities of the Group between consumer and professional.
Also, it’s a difficult moment, because we revise our guidance, but it’s a moment where we see in the drivers and the performance of the various segments of the Group’s activities, a lot of reasons to be very confident in this model’s ability to deliver sustained growth and profits. I’ll finish by thanking you for attending this call and hoping to see again during roadshows or for the communication of year-end results. Thank you very much everyone and wish you a nice evening.
Nathalie Lomon
Thank you.
Operator
Thank you for attending today’s call. You may now disconnect.
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