Earnings call transcript: Esprinet’s Q1 2025 results show cautious optimism

Esprinet reported its Q1 2025 earnings, revealing a slight increase in gross profit amidst a challenging market environment. The company’s earnings per share (EPS) came in at €0.01, and revenue reached €962.37 million. The stock saw a significant decline of 9.94% to €4.71 during the open market, reflecting investor concerns over future profitability and strategic transitions. According to InvestingPro data, the stock is now trading near its 52-week low, with a P/E ratio of 8.53, suggesting potential value opportunity for investors willing to weather the transition period.

Key Takeaways

• Esprinet’s gross profit increased by 2% compared to Q1 2024.
• EBITDA was impacted by high general and administrative expenses.
• The company is transitioning from volume to value-added distribution.
• The stock price fell by nearly 10% post-earnings announcement.
• Cautious EBITDA guidance for the full year of €63-71 million.

Company Performance

Esprinet’s Q1 2025 results indicate positive sales growth across all regions, with a 2% increase in gross profit compared to the same quarter last year. The company’s EBITDA was affected by elevated general and administrative expenses, highlighting ongoing operational challenges. The transition from volume to value-added distribution is a strategic shift aimed at enhancing long-term profitability. InvestingPro analysis reveals the company maintains a healthy current ratio of 3.05, providing financial flexibility during this transition period. Notable is the company’s attractive dividend yield of 9.41%, offering shareholders compensation while the strategic transformation unfolds.

Financial Highlights

• Revenue: €962.37 million, reflecting robust sales performance.
• Gross Profit: Up 2% year-over-year.
• Gross Profit Margin: 5.65%.
• EBITDA: 10.8%, pressured by high G&A expenses.
• Cash Conversion Cycle: Stable at 24 days.

Earnings vs. Forecast

Esprinet’s EPS of €0.01 fell short of market expectations, contributing to the stock’s decline. The revenue of €962.37 million, although strong, was not enough to offset concerns over profitability. The nearly 10% drop in stock price post-earnings reflects investor apprehension about the company’s ability to meet future earnings targets.

Market Reaction

Following the earnings release, Esprinet’s stock dropped 9.94% to €4.71, significantly below its 52-week high of €6.09. This movement suggests a cautious market outlook, influenced by the company’s strategic transition and ongoing cost pressures. The stock’s decline contrasts with broader market trends, indicating investor skepticism specific to Esprinet’s performance and guidance. InvestingPro has identified several key factors affecting the company’s valuation, including weak gross profit margins and significant debt burden. For detailed analysis and additional insights, investors can access the comprehensive Pro Research Report, which covers over 1,400 US equities with expert analysis and actionable intelligence.

Outlook & Guidance

Esprinet has issued cautious full-year EBITDA guidance of €63-71 million, compared to €69.5 million in 2024. The company remains focused on working capital management, cost optimization, and potential acquisitions in its Vivali and Zeliotech segments. Despite geopolitical and macroeconomic uncertainties, Esprinet anticipates low to mid-single-digit market growth, driven by recovering consumer demand and solid investments in cybersecurity and AI.

Executive Commentary

Alessandro Catanisi, a key executive, highlighted the company’s transitional phase, stating, "We are transitioning and therefore there’s still quite a drag on our numbers." He also noted the unpredictable nature of the market but maintained a positive outlook: "The market looks good, extremely variable, unpredictable, but trend line is very positive."

Risks and Challenges

• Geopolitical Uncertainty: Potential impacts on operations and supply chains.
• Macroeconomic Volatility: Could affect consumer demand and investment.
• Inflation Pressures: May increase operational costs and reduce margins.
• Inventory Challenges: Vendor-driven pressure to stock products.
• Market Unpredictability: Significant volatility in sales performance.

Esprinet’s Q1 2025 earnings reflect both the challenges and opportunities facing the company as it navigates a complex market environment. While the transition to value-added distribution presents long-term growth potential, immediate concerns over profitability and strategic execution remain at the forefront of investor considerations. With a beta of 1.03, the stock shows market-like volatility, potentially offering a balanced risk-reward profile for value investors. Discover more detailed financial metrics and expert analysis through InvestingPro’s comprehensive research tools and real-time data.

Full transcript - Esprinet (PRT) Q1 2025:

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Good morning, everyone, and thank you for joining the Esperato Group Q1 twenty twenty five Results Presentation Call. I’m Giulia Perfetti, Investor Relations and Sustainability Manager of Esperanet. And with me is Alessandro Catanisi of the Group. Before going into the details, please note this webinar is being recorded. And after the call, the podcast will be posted on the Esperanet website in the Investors section together with the presentation.

During the speech, your lines will be on listen only mode. But at the end, there will be a Q and A session. Please note again that this presentation contains forward looking statements. So I would like to draw your attention to the regulation note on Page two regarding the information contained within the document. I will now turn the call over to Alessandro to present and comment with you the Q1 twenty twenty five results.

Alessandro Catanisi, Group Representative, Esperanet: Thanks, Julia. Hi, everybody, and welcome to this new presentation for our Q1 twenty twenty five results. So let’s jump into the numbers. The highlights of the quarter start with one positive news. This news sales performance was pretty positive for the group.

And this is confirming our positioning in the key markets where we operate. What is even more interesting is the fact that the Q1 data market wise confirmed that the overall ICT spending environment is in good shape. We have recorded and reconfirmed the recovery in consumer demand, the return of growth of the PC segment and the excellent performance of the market in the Solutions segment. Even more noteworthy is the performance of the Iberian Peninsula, where last year we recorded a minus 12% market wise and this year we have sharp growth, double digit. So things are moving on pretty well.

We grew in all regions and essentially in all product and customer service. We’d like to draw your attention on Vivali, our value added distribution branch and Zeliatec, our green tech distribution branch, which respectively grew 1216% against last year. As you probably know, we are we have embarked into a multiyear transition from a volume distributor into a value add distributor. And the numbers in this area, both at the revenue as well as profitability level performance are pretty good. We are transitioning and therefore there’s still quite a drag on our numbers from the volume numbers, the area distributed under the brand Esperant.

So screens, PC, smartphones and devices, more or less everything else, consumer electronics, accessories and printing devices. Gross profit was up 2% against Q1 ’twenty four with the gross profit margin at 5.65%. The challenging portion of our numbers is at EBITDA level, EBITDA adjusted and EBITDA are the same, there’s no adjustment, 10.8% and that was impacted by the high growth of our G and As. And I’ll come back later on more color on what’s happening in the cost section. There’s a huge impact on inflation on the EBITDA as well as EBIT margins linked to the, on one side collective bargaining agreements that have been raised quite sharply in the second part of last year.

And so this first part of the year and definitely first quarter is impacted by this year on year inflation on wages. There’s also index cost on our rents that are then converted into both depreciation and financial charges according to the IFRS 16 accounting principle. And so we are experiencing a lot of pressure in that area. We have also had some seasonality in our cost structure, but I come to that in a moment. Cash conversion cycle is pretty much stable at twenty four days, two days compared to Q4 ’twenty four, but that’s mostly seasonal and unchanged compared to Q1 last year.

And therefore, there is as usual a sharp increase in the net financial position of Q1 against end of the year. And return on capital employed is unchanged against March. Looking forward, data for the market as of April preliminary data are pretty good. Italy apparently market wise grew 1.6% and Spain Four Point Five Percent Four Point Six Percent and Portugal double digit. And we have recorded solid growth, really solid growth.

And this will be a sort of a theme, a narration that we will have probably during the rest of the presentation in the year. Let’s move to the sales evolution and let’s comment on this. We continue to execute the business strategy well in terms of volumes as well as gross profit margin. Portugal, after restructuring is back on growth, profitable growth this time, having shared a portion of low margin and high working capital absorption businesses. Morocco is still outgrowing the market.

Italy is flattish in terms of market share and Spain is down in terms of market share against the market, but essentially because of the smartphone performance. Without the smartphones, we would have grown more or less in line with the market. And again, you see down on solution and services and green tech, we don’t have the market split into the two areas. But as you can see, we are growing in line with the market. And again, the what we are seeing in the market is a market that is recovering.

And by the very, very challenging and confusing macro environment, The expectations for the year are still pretty good in terms of market performance and of our performance within the market. What is challenging is the inflationary environment we are dealing with and the unpredictability of the market, which is creating a number of extraordinary pressures to our vendors. They don’t know how to allocate their budgets across the world. So there is a disproportionate pressure on sending products to Europe. And so we’re fighting hard to predict the market and keep the working capital at bay.

The unpredictability is absolutely outstanding, incredible. Just to give a figure, we recorded high double digit decline in February revenue wise followed by high double digit growth in March. So it’s really tough for the channel to forecast what’s happening and therefore manage what is already difficult in normal times to manage our working capital. So that’s the thing. That’s a bad thing, but also a good thing because having a healthy environment and having a sales and marketing strategy that is performing well is good news.

We have to work internally on addressing this inflation and the working capital issues. And this is something where we feel more confident we will be able to do it because it’s part of our DNA. But we’ll see it in a second. So let’s look at the three pillars or three dimensions, Esperant that means volume distribution, PC and smartphones in the screens area devices, so consumer electronics and printing and accessories. Then vValet, value add distribution solutions, service storage, networking, software, cloud, cybersecurity and services.

And then the green technologies distributed by Zeliotech. Revenue wise, as you can see, we have pretty solid growth across the line. The EBIT adjusted is affected mostly by the higher wave of the fixed cost on revenues, which drag on all product lines. Gross profit wise, all the lines of businesses grew with the only exception of devices, which keep being extremely challenged, especially in the TVs as well as white goods area. But everything else grew in terms of gross profit margin.

And even though there was a higher level of cost associated to the business, you can see that there was a pretty, pretty good performance. Take GreenTac, for instance, Zeliotech, they even grew against the first quarter last year. Zeliotech has a very peculiar distribution of gross profit performance across the year. There’s a lot of so called back end margin that is linked to volumes and which is from accounting principle perspective accrued only when we have 100% certainty of getting them and that normally happens either in Q3 or in Q4. But like for like, we are growing in terms of gross profit pretty healthy considering that they had to absorb as the rest of the businesses, quite a big amount of costs.

In devices, we also have our own brands. Our own brands run a budget of advertising and we had a concentration of costs in the first quarter. So also the Q1 is burdened with disproportionate amount of cost advertising cost compared to the rest of the year. What I can say is we are in as of Q3, we are above budget in terms of performance because of this seasonality. Okay.

If we go to the P and L summary and we dig into the cost structure, we see that the gross profit was down essentially nine basis points, mostly linked to mix and especially to the lower gross profit margin in devices. This is particularly noteworthy because we have been using more factoring. So there were more cost, the factoring cost booked into gross profit even if the factoring cost percentage wise were down because of lower interest rates. On the other side, we had another big impact of inflation on freight, especially in Italy. And although we had all these impacts, the big net effect on gross profit margins was essentially related to the different product customer mix.

And as I said before, all product lines with the only exception of devices and in devices mostly linked to TVs and white goods were up in terms of gross profit. SG and A. SG and A is impacted mostly by a sharp growth of our personnel costs linked to this collective bargaining agreements increases that were active since Q2 last year. We added the advertising expenses on our own brands, which I mentioned before. We had some higher impact of variable cost on sales.

We grew sales, so there’s a little bit of impact also on variable costs. Variable costs account for roughly 50 basis points on revenues. And then we add to bear cost linked to regulations, ESG regulations. And then we also add to beef up our cybersecurity costs. And we’re starting to deal with certain artificial intelligence projects, mostly aimed at improving productivity.

We’re now going live in Q2 with some of these activities, which should bear result bring results during the course of the year. As you can see, we have roughly 34 basis points of higher G and A on sales and that is reflected on the mostly on the lower percentage of EBITDA. In terms of EBIT, we have the higher depreciation of the right of use of the new warehouse in Tortona, which was fully operational in terms of cost since Q2 last year. And we bear also here the higher impact of depreciation linked to the revaluation of the rents that we pay linked to inflation. In terms of net financial expenses, you see the higher impact of IFRS 16.

This is partly linked to the cost of the Tortona logistic hub in Italy as well as the level of utilization of sorry, the level of higher rents that I mentioned before linked to As per the other financial income and expenses, interest rates started to decrease. We will probably see improvements during the course of the year. We have a positive effect linked to short term financing, we have also a bunch of mid and long term financing, which expired and progressively is renewed at higher levels of cost. Here, we add essentially higher cost because we used a bit more of average working capital during the quarter. And then we had gains on foreign exchange against losses of last year.

Income taxes are substantially unchanged as long as there’s a different mix and weight of the different companies, nominal group rate is higher. And that’s for the P and L. If we go into balance sheet, here we can see the performance in terms of working capital. There are basically two effects. One is linked to inventory.

We had higher inventory against last year. We are facing a monumental pressure from all vendors to ship products. They are convinced that the market will absorb them. That’s an enormous question mark on where exactly and when. I mentioned before, in Q1, February was down double digit, March was up high double digit.

So it’s very difficult to forecast. We’re trying to balance the situation with our suppliers. And we are also having a different mix with more sales in the value spaces or value add where we normally run lower levels of inventory and so lower levels of financing from vendors. Here we are in the middle of a major and ambitious project to completely redesign our inventory planning methodologies where we have trained all the people in our group, more than 200 people in purchases. We are working with a consulting firm.

We’re buying new software to work on working capital management. And so we expect working capital management metrics to improve during the year, albeit the variability that we are experiencing in the market. We have grown in volumes, revenues in the retailer space. And so we have increased our factoring programs accordingly. If you look at the numbers, here we go back to 2018 in terms of the graph, you see clearly the evolution in time, the level of inventory was down during the pandemic years, then was up, we’re basically back to around 2018 with a very different mix.

We have got a very high support from vendors that moved from fifty five to close to ninety days in terms of payment terms. But we had to bear higher DSOs because moving towards value add distribution over there, so far, we’re not being able to factor receivables as we did and as we are doing with the consumer portion of our sales. If you look at the following slide, the quarter end metrics, you see the high variability. We’re back to thirty seven days against the 26 of last year, forty one of Q3. So and mostly linked, as you can see, to partly DSOs and lower support from vendors mostly linked to product mix.

And this eventually impacts on our return on capital employed, which is back to the period of pre pandemic period. We are working on redesigning, as I said, we began last part of last year redesigning completely the demand planning processes and the interaction with vendors. Because with the new distribution setup, we have more skewed towards value add distribution. We think we need to change the dynamics and this will hopefully bring good results in time. So now let’s focus on what’s happening in the future in our view.

So first and foremost, the backdrop, we have already discussed about what’s happening. Even if there’s a major, major uncertainty linked to well known American policies, both we and the sector analysts look at the future which we think should be good. There’s been no fundamental changes in the overall structure of the industry and we all remain pretty positive for the current year. As a matter of fact, the performance of the market of the first three months and our performance in the market in the first three months as well as the preliminary figures of April and what we’re seeing by the way in May all point in the same direction. The market looks good, extremely variable, unpredictable, but trend line is very positive.

And that’s driven by the same things, which keep on being reconfirmed time and again. We have seen and we keep on expecting good growth in the PC segment, where we have the refresh cycle after the pandemic. And we have also the Windows 10 end of life. We have witnessed a recovery of consumer demand, which for our bad volume distribution portion, which is still huge, it’s a good point. And more importantly, investment by companies and governments in the digitalization of their processes, the investments in cybersecurity, the first projects in artificial intelligence, they are all running well and analysts keep on estimated low or mid single digit growth for the current year for the market.

And things are moving in that direction. And what is about pricing policies from vendors? We’re not impacted by tariffs, But actually nobody really knows what the heck is happening with tariffs. They keep on going up and down. So anyhow, assuming that there will still be a tariff war, This is not impacting us at all directly because almost nothing is really manufactured in The U.

S. There are very, very few exceptions, supercomputers, for example. But vast majority, if not everything that we distribute, although sold by American companies is manufactured and shipped by their Far East or Eastern Europe subsidiaries. So no impact on tariffs. And less component cost increases over time, Apple apparently is thinking about a price increase, which is not really linked to tariffs, it’s mostly linked to the components costs.

The real question mark is whether there would be a recession or not or a slowdown, if not a recession, a slowdown in growth. And that is an indirect effect of the incredible volatility and uncertainty in the market. So far, consumers are still spending. Most of our customers are telling us that the demand from their end users, companies in this case is still pretty solid, even if, of course, everybody is extremely worried. And those companies that are either heavily reliant on exports to The U.

S. Or are invested in The U. S. Have no clue whatsoever what to do in the future. And that could be a drag mid long term on overall demand, but not in a sense a result of the IT sector as such, but more broadly an impact on the economy.

Data for April, as I mentioned before, are pretty positive and we have recorded very solid growth. So we’re seeing a sort of schizophrenic behavior in our group. We’re having top line and gross profit margins that are performing pretty healthy in a reasonably good environment, which is still forecasted to be pretty solid and growing. And then we have this uncertainty impacting the behavior of suppliers on demand and therefore on working capital planning on one side. And then on the other side, we have inflation that we are addressing.

That’s what drove our 2025 group guidance. If we split again our activities within the three branches of our group, We have the Esperance segment, so screens and devices where our focus is on improving first and foremost working capital with all the big project that we have in place to improve the situation. We are in active discussions also with vendors to have them share the burden of this uncertainty and not trying to push it down the line and therefore on us. And then we keep on working on optimization of our cost structure. It’s already streamlined, but we keep redirecting people from Espirant to Vivali or Zelletik whenever and wherever is possible.

And there’s a number of AI tools that we’re delivering into operation, moving into operation that hopefully should address certain activities that are semi manual and turn them to a more dramatic structure. The Vivali segment, so solution and services, here we are hitting on all cylinders and our focus here is getting new distribution agreements, growing market share, possibly also targeting acquisition in either geographies already covered or new regions. We keep on being engaged in discussions. There’s a lot of uncertainty, so we are really cautious on where we move, but we see opportunities of growth. Zeliotech, the Green Tech segment is advancing in its accelerated growth.

We’re sizing market opportunities and we’re looking at expansion also through acquisitions. Zeliotech is definitely focused that expansion not only in Italy, but out of Italy of course. We have Spain, Portugal where we need to move as soon as possible and hopefully other regions of Europe. The real big point that drove us to issue a guidance, which we consider in brackets prudent cautious is the fact that we have this very uncertain geopolitical and macroeconomic scenario. Things are moving well, but we don’t really understand what’s going to happen.

It can turn suddenly to an excellent year if worse stop and the tariff worse subside and new agreements are reached and stability is back on the table of decision makers among our suppliers, our customers and the end user market, especially or it could still be a challenging environment. We are faced with a challenge on absorbing the inflation costs. But here, let’s say, cost management is part of our core competence. I think we will be able to do a good job in the coming month. We are redesigning working capital and having also a decrease in interest rates, we should be having improvements during the course of the year.

So for this reason, we have provided cautious guidance between 63,000,000 and $71,000,000 compared of EBITDA adjusted compared to 69,500,000.0 of last year. And within these targets, we have strong objectives of both cost optimization and definitely improvement of working capital. We really are focused 100% on this area. So that’s basically where we stand. And thanks, everybody, for listening to this presentation.

And let’s start with the Q and A session. Julia, up to you.

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Thank you, Alessandro. Yes, we can start with the Q and A session. First question from Mr. Storr. Mr.

Storr, please go ahead.

Mr. Storr, Analyst: Thanks, Giulio, for taking my two questions. The first one is on your guidance. Basically, I understand that the picture on revenues is very much unpredictable at this time. But on the other hand, we are probably much more control on your cost. If I’m not wrong, the additional, let’s say, below gross profit costs in Q1 were €5,000,000 What is embedded in your guidance for the full year on this, let’s say, between gross profit and EBITDA costs?

The second question is on Q1 results. The performance of Spain, a good rebound, but we are still well below Q1 twenty three. And I was wondering the reason for that. You mentioned weakness on smartphone is just something related to this product category? Or is there anything else we should be aware of?

Yes.

Alessandro Catanisi, Group Representative, Esperanet: Thanks. Well, on Spain, it’s mostly smartphone. We have been working on reducing our dependency on especially Chinese smartphone manufacturers. We had very bad working capital in those areas and we sharply reduced our exposure to those brands. And we had less market share on Apple as well, mostly linked to market decisions that we took because we are pushing our operations more into the value add space, slowly balancing the two components, but adding working capital in mind, return on capital employed essentially in mind.

But it’s, on Spain, it’s mostly a smartphone situation. We are really doing fine on the other areas. In terms of guidance, the cost or gross profit, we are forecasting growth in terms of revenues and gross profit for this year. We have embedded a cost inflation, some of that has already been there during Q1 and there would be some other during the other quarters, less so we expect. The big question mark is how much in terms of higher gross profit we will bring home.

Because from a competitive standpoint, we are really well positioned. Gross profit margin are pretty solid. They actually grew during Q1. If you look at our gross profit margin now and you compare it to the gross profit margin five years ago, we’re definitely and significantly up. And the big uncertainty is will we be able to get the market share that we have in mind in an healthier or less healthier environment.

That’s the big question mark. If the market will ultimately be better than what we have forecasted in our And our midpoint projections are not forecasting a particularly high growth of our revenues, then we will probably trend towards the upper portion. If the market will be much better, well, then things could be even better. But in this moment, any forecast on the performance of the market is complicated. And so we prefer to be cautious and hopefully to give good news during the course of the year rather than be bullish, especially after a challenging quarter, especially in terms of costs and risking having bear the, let’s say, pressure on us now and then even complaints later on because we were too bullish.

So that’s basically where we stand.

Mr. Storr, Analyst: You.

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Welcome. Mr. Paladino, up to you for your questions. Please go ahead.

Alessandro Catanisi, Group Representative, Esperanet: Ahead.

Mr. Paladino, Analyst: You for the presentation. I have two questions. The first one

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: the I’m sorry.

Mr. Paladino, Analyst: Maybe you can hear me better now?

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Yes. Now

Mr. Paladino, Analyst: yes. Okay, sorry. Yes, thank you for the presentation. I have two questions. The first one is regarding the devices segment.

So we saw a decline of 6% with negative EBITDA margin. And I was wondering when do you expect volume stabilization or margin improvement if there will be? And the second one is related with the first one is, maybe I didn’t catch it because you were talking about the role of your own brand strategy and seasonal investment in advertising. But maybe can you clarify the drivers specific to this cost impact in Devices segment?

Alessandro Catanisi, Group Representative, Esperanet: Yes. Well, Devices is made up of two big areas. Consumer electronics, excluding smartphones that are recorded in screens and so TVs, smartphones, audio, video products in general, gaming and printing, printing and PC accessories. Printing is flattish in terms of sales. We outgrew the market.

We got market share there. But it’s a flat rather declining category. Margins are pretty stable. The accessories, we did well. It’s a market that is pretty unpredictable.

Sometimes there are higher volumes and lower ones. The real impact is on consumer electronics. And consumer electronics is made up of two areas. The vast majority is what we sell of standard brands, I don’t know, Samsung just to mention one, all our own brands. The performance of TVs and white goods in the market has not been good so far.

And we have underperformed also because the conditions in terms of working capital and profitability are not really good. And it’s hard to turn them into really profitable areas. So we are in active discussions with most vendors to see if we can improve the overall situation profitability and working capital management or if we have to progressively withdraw from certain areas. So I don’t expect, frankly speaking, devices to have sharp increases in volumes unless these negotiations end up well or unless there’s a particularly good surprise in the market, which frankly speaking in this moment, we don’t really see. Margin wise, the situation will stabilize gross margin wise once we will have a stable and defined set of markets that we will address, combination of vendors, products and customers.

As per the advertising, it’s 100% linked to our own brands. Our own brands, Celli, Neelux, Muy Tomas, we import from China and with very high gross profit margins. We’re talking about double high double digit, but then we bear all the cost of being a manufacturer. So we bear, among others, the cost of advertising. Advertising costs are a significant portion of the margin.

I could say that we are talking about few million euros per year. We had last year advertising cost in Q1 of roughly €1,200,000 We overshooted with advertising in Q1 this year and we had closer to $2,000,000 Normally, this cost spread more or less equally across the year, actually second part of the year a little bit less. We anticipated to the first portion of the year advertising cost to accelerate growth in this product segment, which is having very high gross profit margins is very sensitive to volumes. If volumes grow, this can contribute significantly. So we hope that during the course of this year, they will add value.

Celli is performing extremely well. It’s making a good profit. It’s Niloxo, which is Niloxo Sport in particular, which is still a challenge because it’s still heavily reliant on e bikes. And e bike market has been a disaster across the board for everybody. And that’s why we had a portion of the drag on the devices margin is linked to that area.

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: You very A question from Mr. Rivaldi. Mr. Rivaldi, I give you the floor.

Mr. Rivaldi, Analyst: Thank you. Morning, Alessandro. Good morning, everyone. A question, Alessandro, about the inventories. I’ve seen inventories going up sharply compared to the end of first quarter twenty twenty four.

You said there was a lot of pressure from the vendors. But in an environment such as service, such as stable, why you didn’t resist more in increasing inventories? Not because you were already in a situation where you have to bring down inventories following higher sales. And our expectation was higher the lack of inventories through higher sales because the market was expected to recover. Instead, we are seeing an increase of inventory and in fact, the number the day of products is back to 24 from 2022%.

So I’d like to understand what’s behind what you said before the pressure from vendor? The second question is that in The U. S, most of the big player like Apple, HP are facing a lot of cost increase because of the import tariffs from China. It’s to be 140%, but it’s going to be around 40%. AirPod alone is moving their production to India.

And so overall, it’s very possible that they said that they will increase prices in The U. S. In the following months. So what we expect, we expect now that the selling price of The U. S.

Vendors to increase going into the second half of the year or not? These are the two main questions. Thank you.

Alessandro Catanisi, Group Representative, Esperanet: Okay. Thank you, Luca. On prices, we have asked all major vendors. I had discussions at either European or worldwide at quarter level with all our major vendors. And the answer is essentially no, they will not raise prices in Europe.

The only notable exception is Apple, is considering price increases not only in Europe everywhere, mostly because they claim they had higher manufacturing and component cost. Here is a technical aspect. The products are all manufactured in either China or other Far East countries and assembled some of them in either Eastern Europe or in Mexico. So, the tariff is an issue for the American market and for what we know, there has already been an increase in end user pricing for the American consumers. The worry we had is, will the vendors raise the prices less than needed in The U.

S. And compensate this loss of margin in The U. S. Raising prices in other regions of Europe. And apparently, nobody is doing that because the first one that is doing this will be outpriced in Europe or in other markets and not The U.

S. So nobody is doing that. And they are all raising prices and transferring more or less entirely the cost of tariffs into pricing just for the American consumers. That’s what we have heard. As a matter of fact, that’s what we have witnessed so far.

It’s not by the way, it’s something we will see in time whether there will be still tariffs or not. That’s a big question mark. Anyhow, the impact on tariffs out of The U. S. Is negligible so far.

Again, for this specific reason, nothing is really manufactured in The U. S. Is sold by U. S. Companies through their overseas subsidiaries and manufactured by third parties outside of The U.

S. So on prices, we don’t see this. Will it happen? Yes or no. As a matter of fact, given the system of pricing of a distributor in which we get a discount on the suggested end user list price and we sell with a discount on a suggested end user list price, Any price increase, if volumes stay the same for us is an opportunity of having higher revenues without having higher cost because our costs are essentially linked to quantities.

The big question mark, if they raise the prices, which we are not doing so far, is whether demand in terms of quantities would stay the same or not. That’s an unknown. But it’s something theoretical because nobody is doing it so far. Inventory is a more nuanced point. We have basically two areas, one which we call vendor driven and one that we call company driven.

We have sales that are mostly spread on multiple customers and where the ultimate decision maker on whether to buy 100 or 50 or 150 units of a specific product is the distributor. And over there, we are working with improved techniques and we’re not really measuring increases volumes. And then there’s the so called vendor driven, so called VIAAS vendor driven. That means large deals, especially in the retail space, but also government and sometimes special bids on large end users. Over here, you sit with the vendor and the vendor says, I needed to bring you these products into the market.

Are you playing with me? Yes or no. And here, we are essentially making a trade off and we are asking the vendor if we raise our inventory, you have to finance us more. And that’s the challenge. The point is how much can we resist, much can we accelerate on the sellout.

And those are the decisions, the more structural decisions that we’re taking and that are behind also our guidance, which is indirectly affected by decisions that we’re taking in the volumes that we will make in this in brackets vendor driven, whether we will play this game or not, will influence the level of revenues and profitability and the level of working capital. So we’re working on this trade off and we have not yet final answers from all vendors and final decisions taken on all vendors by our side. So it’s a pretty complex equation and we’re working on that and we’re confident during the course of the year, will have improvements. But it’s this variability in the expected volumes is not happening because we have these vendors that are in some cases really sort of, I wouldn’t say hysterical, but really troubled because they have global allocations where they have the American volumes that are a tremendous question mark. And so they are trying to find ways to achieve their targets by pushing in other regions.

So it’s a big discussion ongoing. Ultimately, I think we’ll have good result, short term we have rough seas to say.

Mr. Rivaldi, Analyst: Alessandro, thank you very much. Clear answer. Just one follow-up on the vendors’ pressure on new product they want to sell. When you say they will allow you better financing, it only financing means that you can pay longer pay time? Or is also things that if you don’t sell, you can give back goods you don’t sell?

Alessandro Catanisi, Group Representative, Esperanet: No. The giving back products is something that sometimes happens, but pretty seldom because the otherwise vendors would incur into issues with their revenue recognition. What they do when there’s a pile up of inventory and they’ve done it with the industry, not only with us multiple times, they put a lot of money on the table to discount and let the products go. And that’s the way they fix this problem. And that’s the reason why they are also so challenged because we’re working with them on forecast and we say be cautious because if you overshoot and then the market slows down, then you will have to spend a fortune as you did in 2022 and 2023 to clean up the inventory of your partners.

And so there is this big discussion ongoing. And some of them prefer to be more cautious, other are more aggressive and we’re evaluating also on the basis of who’s giving us the best kind of protection in terms of payment terms, margins, support in different ways. And based on that, we are making our decisions of allocation.

Mr. Rivaldi, Analyst: Okay. Thank you very much.

Alessandro Catanisi, Group Representative, Esperanet: Welcome.

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Mr. Naji, a question from you. So please, up to you.

Mr. Naji, Analyst: Hello, everyone. Thanks for the presentation. Just two quick question from my side. The first one is on the cost structure. So we have seen an increase in SG

Alessandro Catanisi, Group Representative, Esperanet: and

Mr. Naji, Analyst: A cost that, however, are expected to normalize over the remaining part of the year as the impact from the increasing collective bargaining agreements started already in April 2024. So, to this point, it would be appropriate to consider that the Q1 figures would be a sort of proxy for the full year run rate, assuming, I don’t know, roughly 85% of these costs are fixed costs? And the second one is on the revenue trends. You have mentioned about an increasing unpredictability. However, the underlying trends remains positive.

In terms of business divisions, might we assume the organic growth to remain similar to what we have seen in Q1, for example, for ZelleTech and Vivali divisions that showed, again, a double digit year on year growth?

Alessandro Catanisi, Group Representative, Esperanet: Well, on cost structure, as I mentioned, variable cost on revenues are roughly 50 basis points. Then we have advertising, and I mentioned the number and the rest is fixed cost. On fixed cost, year on year comparison, we think we’ll do better in time. But with these three numbers that I gave, I think you can work out the model. The on the predictability, well, the, we have not released the figures on revenues, the general expectation is that on ZELIATEK as well as Vivali, we are seeing pretty well, on Vivali we’re seeing and forecasting a pretty vibrant market and our target is to outgrow the market at least a little bit then.

We’ll see if it will be a little bit, a lot or whatever. On ZELIATEK market is so far we are in Italy alone, it’s a more muted situation. Here, we have both the, let’s say, industrial commercial and industrial as well as the residential market for solar panel installations. The residential is more challenged. It’s heavily dependent on government incentives.

The commercial is pretty healthier and here we are trying to outgrow the market and we are outgrowing the market. But here the plan is to accelerate by moving also in other nations, not only staying into Italy. The market here is pretty much European. So we with Zeliotech in time, we need to be a European player and not an Italian one. That’s what we have forecasted.

So that’s for Vivele and Zeliepik. The volumes are linked to Experient. And here we have PCs that are forecasted to grow pretty well and we are outgrowing the market by the way. The big question mark is around smartphones. Have walked away from most of the Chinese brands.

So which portion of the market will be taken by Apple, Samsung, Motorola and others and which portion by the Chinese vendors? Unless we find good agreements with Chinese vendors, which is always an opportunity. But past experiences were not successful, very little margin and ridiculous absorption of working capital. It all boils down to, in this area, to devices performance. But as I said before, I don’t expect particularly good performance of the consumer electronic market where we are working, not because the market is not doing well, but because we are not getting the right return on capital employed in this area.

So unless we fix it, we will have sluggish, if not negative performance in terms of top line growth here, mostly because we are walking away from these businesses. And so all in all, the market is difficult to predict. There are a couple of areas which are pretty solid in the view of everybody, PC performance and cybersecurity and to a lesser extent software. Those are solid areas. Electronics, I don’t think it will be a great area of growth.

Zeliatec, we are growing aggressively and then there will be market share growth from our side. And we are doing pretty well, pretty well in Spain, in Italy. We’re growing, especially in terms of profitability in Africa as well. So during the course of the year, if the market stays healthy, we should have a good top line performance. If the market overshoots because the situation improves, so we could have good news.

Otherwise, we have tried to prepare the market today and swallow the bitter pill today with a lower guidance in case the market will turn more sour in time. That’s more or less the idea. Thank you. I’m very happy to. You’re welcome.

Giulia Perfetti, Investor Relations and Sustainability Manager, Esperanet: Okay. There are no more questions. So we can we can end the call. You for participating, and see you next

Alessandro Catanisi, Group Representative, Esperanet: time. Everybody.

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