Esprinet S.p.A.

Once again, good afternoon, and welcome to EspritNet's FirstQ 2020 conference call. As mentioned, I am Federico Nasta from EarTop Consulting, and we are the investor relations advisors of the company. I would remind that the FirstQ press release was issued yesterday, and as reported, the email is available on the company's website, as well as the presentation that will be used. Today's call is also being webcast and will be available on the company's website. Joining me for today's call are Mr. Alessandro Cattani, CEO of Esprinet, and Mr. Valerio Casari, CFO of the group. So with that, I'll turn the call over to Mr. Cattani to get started.

Well, thanks and welcome everybody to our Q1 2020 results call. And I hope everybody is safe and never this pandemic. which has been truer and important than in this complex COVID-19 times. Let's dig into our investment case. We are part of the IT supply chain, which is a strategic pillar of the overall industry of IT, as well as the overall general environment of all governments. and states. We are part of a strategic industry and within this industry we are market leaders with more than 25% market share for both in Italy and Spain combined. So our strategy relies, our investment case relies on three pillars. The first one is a solid foundation. We are working in an environment in which during Q1 we posted very solid results with sales up 4 percent, return on capital employed growing from 8.1 to 8.7 percent, and net financial debt, including IFRS 16 effects, sharply down to 127 million euros. against more than 250 last year. And this is connected to another strong full year 2019, where sales grew 10%, ROCI was up close to 10%, and we closed the year with a strong cash position. During these hard times, again talking about our foundation, we had business continuity ensured in all geographies because of a long-term plan of contingency that we were able to activate immediately as soon as the emergency was clear. And on top of this, we have an history of liquidity risk management based on the utmost prudence. We have worked all 2019 with returning capital employed as our guiding light, working hard to reduce working capital absorption and, in general, capital absorption, and that ended up with a very, very strong balance sheet that is providing us in this time of challenge with really adequate, in our view, financial solidity and flexibility. Clearly, we are facing a challenging 2020. Not only us, all the economies worldwide. And what's happening here is... we have been able to provide full business continuity throughout the lockdown period. We have been through multiple challenges during our history, and we'll go quickly through them. And we think we know how to manage challenging times. So during this period, we had 100% of our office workers in smart working since March 9th. because we already were working with these procedures before. And we put in place very strict protocols saying that protecting our employees, which are one of the key pillars of our strategy and especially of our future. We are clearly trading in a challenging environment. Trading began to be impacted by COVID in late March, but it was mostly in April that sales were impacted. They were down 19%. due to weak demand, especially in the retail segment, but also on a shortage of products which were still in demand, are still in demand, but were not yet coming in from Chinese, especially Chinese factories. IT distribution as a whole was down 14%, and we were more impacted than others probably because of our strict working capital control, especially in the inventory side. We'll come to that later on. We immediately put in place ad hoc initiatives on costs, dividend, buyback to further strengthen our liquidity profile. As per the next month, the key word is uncertainty. Uncertainty on the impact that COVID-19 will have on fiscal year 2020. Also, due to the fact that our business relies on strong seasonality, Q4 weighs roughly 33-35% of our total sales. So there's chances that we can recover pretty well, but if the pandemic will show a resurgence in the last period of the year, we could have further pain. In terms of our mid-term strategic pillars, nothing has changed. We do believe that on top of our first pillar, which is people, and the second pillar, which is strong balance sheet, our strategy relies on a strong focus on customers by means of implementing our customer satisfaction policy. We want to consolidate our leadership in the Iberian region by growing, especially in Portugal, but filling the gaps that we still have in the data center advanced solution space in that region. And then we want to implement our business model with added value areas, such as advanced solution, everything as a service, and outsourcing. New markets, as always, white goods is an opportunity. We're looking at electrical mobility, but there are opportunities in future, also robotics, AI, 3D printing. Okay, please, slide number six, where we will look into our market. So, our sales evolution. Q1 posted a 4% growth rate with Italy up 3% and Spain 6%. IT clients were down 1%, mostly affected by the shortage in notebooks that we experienced during especially the first part and to a certain extent also the last part of the quarter. Consumer electronics was up 21% with the good performance of smartphones, which later on were affected by the shutdown of retailers. Resellers and retailers were up more or less the same way. So, a pretty balanced mix of growth. We experienced a decline in advanced solution, and here again there's a mixed picture with hardware down and software and cloud solutions sharply up. So that's for the market. Fiscal year 2019, we went through it already. It's been a fantastic year, both for the market and for us as well. And again, a balanced year in terms of growth in the market for IT resellers and retailers. But we'll see. We expect this picture in the market to change in terms of dynamics, but also weight, short term at least, of the different components of the market, which are affected in different ways by the pandemic. So please, let's move to slide seven. Q1 2020 results were pretty solid. It's the 14th consecutive quarter of year-on-year sales growth. And we posted very strong EBIT performance at 24% growth. What is interesting is that not only the EBIT was up, but the EBIT margin was up as well. So we are closer in a normally seasonally not so favorable quarter to almost 91 basis points of a bit margin and this is a very good good start obviously the market is changing but just let's focus on the key message here we are delivering we have been delivering on our promises of turnover, of turnaround of certain aspects of our business. And this can be seen especially in the return on capital employed performance. We are at the sixth consecutive quarter of grosses sequentially above our corporate weighted average cost of capital. And this is mostly driven by the cash conversion cycle days. They are down seven days from a year ago. They were 27 and they went down to 20. But if we look at the peak we experienced in Q1 2018, 34, and we are sharply down against this low point in terms of performance. Rossi, which goes through seasonality as well, is down sequentially against the last year, but is sharply up again. against the Q1 last year. So again, we are improving. And what is more important, the hard work we have been at in improving our cash position paid off with very good performance in terms of net debt, which pre-IFRS 16 was down from $168 to $20 million. So we entered the pandemic with probably our best balance sheet ever and a very oiled machine which was crunching cash generation at the right speed. So on page eight, this is just to remind that we have posted an historical stable flow of profitability since 2001, even during market downturns. We highlighted our performance in 2002, the year after the Twin Towers disaster, in 2009 after Lehman Brothers, and 2012 after the or during the sovereign debt crisis. Yes, numbers are, to a certain extent, affected, but much less than what you might expect. And during this period of time, we have generated 440 million euros of accumulated net profit, distributing more than 100 million euros of dividends. For the first time ever, we decided to cut the dividend just as prudent, as a cautious way of retaining profit to withstand any possible risk that we might see in the future. Slide 9 is an highlight, a graphical highlight of our performance in terms of balance sheet management and return on capital employed since Q1 2016. And as you can see, we went through a hard time during 2017, picking 34 days of cash cycle and having our weighted average, sorry, our return on capital employed going down to 6.7%. From there on, we worked hard in improving market, but we worked hard with our procedures to improve our working capital management. And as you can see, and Valerio Casario will dig more into details in this, we went down from 34 to 20 days in two years. So a very strong performance here that led to a strong recovery in our return on capital employed. As I said, that's been our guiding light, and it will be our guiding light. Preserving our balance sheet is one of the key strategic pillars to ensure not only the survival of the company, but the possibility of grabbing any possible opportunity that the changes in the market are and will even more offer to the fittest and the more adaptable players in the market. And we think definitely that we are fit and will be adaptable as we were in the past during other downturns. So let's look into the challenges we are facing during 2020. So let's move to slide 11. What's the impact that we are seeing and we foresee from this COVID-19 pandemic? Well, the first thing that we have to say is that we put in place in time a number of technological and operational procedures to deal with different emergency situations. And that paid off full time, big time. First and foremost, that guaranteed us the possibility to move from literally night to the following morning all people in the office space to 100% smart working performance. And we are talking about roughly 1,000 people. We put immediately in place strict safety protocols and controls protecting our employees in our logistics and our cash and carry. And that, on top of the fact that the IT supply chain was declared a strategic industry, both by the Italian, the Spanish, and the Portuguese government, and allowed us to keep on operating, allowed us to keep our machine up and running, and minimize the impact of the lockdown, which is strongly affecting many other industries. Obviously, what we experienced in Italy, Italy went into lockdown one week before Spain and, in general, one or two weeks before the rest of Europe and the States. that helped us bring quickly the experience that we made in Italy to our other countries. And that gave us a net start against this pandemic, saving probably lives, but definitely getting the business up and running. Liquidity risk management has always based on the utmost prudence and That happened year after year after year. Our banking partners, our vendors know us as very cautious managers of our balance sheet, and that translated into strong financial soundness and flexibility. What we did since late March, practically, was to put in place further cost controls which will be in place since beginning of second quarter onwards. And we are talking about reduction, cost reductions, both at the employee level, the cost of rent, the cost of all other general expenses. But this has also been made in a way that is allowing us to guarantee the best performance in terms of operational capability. We got from our major suppliers certain deferred payment schemes which we use to supply our customers with deferred payment schemes as well. And we, so in a sense, shielding part of the impact of cash requirements that are flowing upstream from the market. In order to save cash, we have proposed to the shareholders meeting, which is due by the end of this month, to renounce the distribution of 2020 dividends and to revoke the buyback authorization, which was approved by the AGM a year ago. And all that was done to strengthen an already solid bond. and strong financial structure. So key message is we know how to manage emergencies and we have the plans in place. We acted swiftly and in an organized and cautious way to preserve the cash, guarantee flexibility, save our people, and guarantee a stable flow of support to our customer and vendor base. So, what is interesting is probably to highlight the seasonality of our business. In this chart, page 12, you can see that here the sales are more or less equal between Q1, Q2, and Q3, and have a sharp increase in Q4. And you can see also the seasonality in terms of net financial debt, which is strictly linked to the working capital seasonality. What's notable is the performance in terms of net financial debt in Q1 this year against Q1 previous year. What should be seen is that in previous years we had no impact from IFRS 16. So, the numbers should be adjusted for that effect. So, like for like, it's 247 down to 127. but there's more than 100 million euros of self-liquidating, self-funded IFRS 16 liabilities. Okay, so that speaks space for the impact that Q4 has on our numbers. We do believe that we will face hard times as an industry in Q2 and probably Q3, There's a big question mark on the impact of pandemic on Q4. And if the pandemic will, to a certain extent, slow down in Q4, we could have a better number. Otherwise, the number could be more severely impacted. So now for the current trading conditions. Generally, there has been a shock on demand due to the escalation. Trading started to be impacted by the emergence from late March, initially in Italy and then in Spain, Portugal. Sales in April were down 19%. That has been impacted both by the weak demand, especially in the retail segment, which accounts for 48% roughly of our total sales. retailers tried to switch to online, but they could not offset completely because online sales are a small portion compared to the offline or brick-and-mortar sales, and retailers were basically shut down. They were legally allowed to be open, but as long as there was no traffic because people were locked at home, they eventually closed the shops, which have been reopened this week in Italy and will reopen during this week and probably since next week in Spain. The other effect that we experienced was the shortage of products, especially notebooks and smartphones. The factories had been closed during January and February because of the pandemic in China, The startup was slow, and then they had issues with the shipments of products. By the end of April and now the beginning of May, the situation is more or less back to almost normality, and we do expect since next month to be essentially stable. But during April, they impacted our volumes. And as long as we were working hard on keeping our inventory low, we were probably impacted a little bit more than the market. The estimations on GDP impact in Italy, Spain, and Portugal for this year range from minus 10, minus 9%, depending on the forecasting entities. It will be definitely a hard time with most of the impact forecasted for Q2 and, to a lesser extent, Q3. Recovery is not only depending on the duration of the lockdown measures, but also on the capability and effectiveness, capability of governments and central banks and effectiveness of the policies put in place by governments and central banks. Bureaucracy is not helping in this sense. We'll see if the overall combined efforts will be able to mitigate the impacts. All these sum up in still a very unpredictable economic scenario. which we do expect should become clearer in the next month. So as soon as we will have better visibility, we commit to update our 2020 outlook and provide guidance for the year. We do expect this in this moment, probably sometime late July or beginning of September, depending on the indications that we will get from the government and from the scientists that are driving the fight against this pandemic. If I look at slide 14, A little bit more in-depth in the numbers, you can see that the market declined 14% and the trend was different by typology of customers. IT resellers were less affected. They experienced quite a reasonably good month in terms of especially shipments of notebooks and tablets for the education and for the smart working industry, the retailers and e-tailers were hardly affected, affected mostly for the reason I outlined before, because of the shutdown of the operations and the lack of traffic in their stores. We do expect the May in which retailers should get back to a higher level of trading. And we'll see what resellers will be able to do because we are seeing them affected in the especially advanced solution, the data center portion of their business, which is under pressure because most of the big companies, big end users are closed or are struggling to cope with the pandemic. And it's hard to sell a new complex project in this environment. Let's dig into our strategy on slide 16. So, we have a solid foundation. We are coping with unprecedented turbulence in the market, but we have a history of good capability of dealing in complex times. We have excellent people which we defended during the crisis by means of implementing strict protection protocols as well as the smart working for almost 1,000 people over 1,300 total. The remaining ones working in our warehouses and shops. We have... a very solid balance sheet, which helped us in the past to weather particularly strong storms, and this is a strong storm, and we have a set of very solid relationship with the vendor community, the customer community, given our position and our history of consistent performance. Times will be tough for the future, but our strategy is clear. And mid-term, we see opportunity arising from our strategy of first addressing an ever-improving customer satisfaction program. The idea of providing an improved and state-of-the-art level of customer satisfaction has been at the bottom of our strategy since last year, and that helped us drive the resilience in our gross profit margins, was one of the elements driving the resilience in our gross profit margins during this Q1, and will definitely help us during the next quarters and, even more important, in the future to come. The second pillar is our... consistent plan of consolidating our leadership in the Iberian region. We are, not only we want, but we are achieving size in Portugal. We won some major contracts. We are hitting on all cylinders over there. We're pretty pleased of what is happening there. And we think we will do even more both through organic growth and we think in time this pandemic will create the right conditions for interesting opportunities in the M&A area. In terms of profitability, we are not only addressing strict controls on our cost structure, but we are pushing for better gross profit margins that will come from a higher weight, among other things, of our advanced solution business. The advanced solution business is particularly challenged in this period and will be particularly challenged in this business in this next coming month in the industry. There's a lot of worry in this sense. But we do think long term there are opportunities, especially for companies like us, that they have a lot of opportunities in terms of new vendor to add to the portfolio. And on top of that, we are pushing hard on leveraging our web platform to be an aggregator for the overall everything-as-a-service world. So infrastructure, software, managed print services, and device-as-a-service contracts. Last but not least, we keep a close eye on the opportunities that might arise from the changes that will definitely happen in the market with the vendors hardly pressed to slash costs and hence go through a revised distribution go-to-market model. White Goats is a clear example. There's an opportunity if the Tier 2 model will spread into the industry. And we keep a keen eye also on new opportunities. Electrical mobility is more and more looking like a promising new market. Well, an existing market, but it will probably become a really big one. And robotics and also sanification will probably be a driver of further opportunity in the future. As per our everything as a service or cloud strategies, just to wrap up my comments on the quarter, we do see the cloud market as one of the hottest growth opportunities in the advanced solution market segment. The pressure that all companies are exerting on the IT distribution industry, on delivering smart working solutions, is impacting not only the sale of PCs and tablets, but also the IT infrastructure. There's a growing need of dematerialization of the workspace. No paper, so everything should be stored online. A lot more need of video conferencing systems, collaboration software, and obviously with all this remote work, a lot more cybersecurity solution. There's an example with Microsoft recently announcing the launch of a 1.5 billion euro plan in Italy to support the cloudification of Italy. And that's an example of the strong interest of big tech companies in the areas, Italy and Spain, where we do operate and where digital divide is It's an opportunity. It's a challenge, but it's an opportunity. We think that we are operating in a market which will grow really, really big time. There's another comment here. End customers, especially companies, will be short of liquidity, but on the other side, they will desperately need top quality IT infrastructure. So what's best than device as a service or cloud solution paid in installments on a consumption base as a way to provide a solution to this need? We'll be not a provider of cloud solution, meaning not a managed service provider, but we will be an aggregator or enabler of cloud providers and do expect from us a number of initiatives, both in the cloud provisioning platform space, improving our capability of delivering in an easy and comprehensive way cloud solutions and in general consumption-based model solutions to our reseller base. We'll deliver solutions in the device as a service, as well as push hard to enhance our current portfolio of cloud solutions. So stay tuned. That's part of our strategy. Now, I hand it over to Valerio, our CFO, so that he can dig a little bit more into the Q1 numbers. Thanks, Valerio. Up to you.

Valerio?

Are you hearing me? Yes, we are hearing you. Okay, sorry.

Thank you. Good afternoon. Thanks, everybody, for your time. I'm going to comment a bit more on the Q1 main economic and financial results. Going to slide 19... As Alex already pointed out in the previous sections, we reported strong quarterly results, which are, by the way, still not affected by COVID-19 outbreak, and which are supported by operational continuity throughout all geographies of presence, Italy, Spain, and Portugal. mainly thanks to business recovery and contingency plan that we put in place since the very beginning of the crisis. If I can summarize key points of our sales, first of all, they were up 4%, mainly due to growth in Spain, plus 6%, and Portugal, plus 45%, where Italy shows a bit more moderate pace and growth. was limited to 3%. Topline performance is positively impacted by strong momentum in smartphones, smartwatching, and remote learning-related products, the like of PCs, tablets, consumer printers. By the way, we reported an excellent corporate profitability, gross profit at €42.3 million, last 5%, with a percentage on sales which is boldly stable at 4.68%, whereas in Q1 2018 it was 4.68%. EBIT is €8.3 million, with a growth that is quite relevant, plus 24%, with an EBIT margin of 0.91%, or... 13 BIPs at this point over 0.76%, which was reported in Q1 2019. In this respect, I would like to point out that EBIT would have been even higher if we considered the minus 0.5 billion euro negative differential contribution of CELI because it basically expanded its operations starting in mid-March due to them not being an essential activity as it was for the rest of the group. Net income was up 44% at €3.9 million, also benefiting from a reduction of €0.7 million in financial expenses that was due both to lower use of average debt along the quarter and lower gross cost of funding. Net financial debt stands at €127 million, with a debt-to-equity ratio of 0.35 times. And without considering IFRS 16-year liabilities effect, the net financial position would have been €20 million, and the debt to equity of approximately 0.06 times, despite an unfavorable working capital seasonality as compared to December 31, 2019, and to each year as Alex was mentioning. was saying before. Divorce on capital employed was at 8.7%, which means especially down, as expected, because of technical and seasonal reasons, from 9.8%. But significantly, significantly up, here we are, compared to Q1, Q1-Q2 level of 8.1%. Turning to slide 20, where we put down the main balance sheet key indicators, as you can see, there are reviews that we are healthy. We are likely enough to be in a good financial shape. Net invested capital, at 31st March 2010 at €489 million, and discovered by Sharonda's equity, including non-controlling interest, of €362 million, which were €359 million at the end of 2019, and made financial debt €427 million compared with the net cash of 2,072 million euro posted at year-end in the previous year. The worsening of the net financial position, we were saying before, was entirely due to the working capital seasonality, which typically drives a low at year-end. Net of the hyper-R16 effector meaning so eliminating the liabilities accounted for, net debt would have been around $20 million. And this is a typical unfavorable working capital effect because, as probably most of you already know, the ICT distribution is characterized by a high degree of seasonality. whereas one-third of business volumes is normally concentrated on Q4. And accordingly, capital invested in supporting ordinary business is subject to relevant fluctuations. In particular, networking capital shows a significant difference between the situation at year-end and the labor situation at 31st March, because of the impact, the positive impact of the channel financial support plans, which are typically implemented by all the main suppliers during November, December. As we were saying at the end of the day, we can say that leverage is totally under control because of that situation, which is... far from being in a range, in a roaring range. If we go to slide 21, as you know, we are used to measure the solidity and good shape of our balance sheet through the working capital measures. And we can say that the soundness of our financial structure is mostly based on working capital discipline. We are used to measure it for the cash cycle-based evolution along the year, which allows us to neutralize, in a sense, the seasonal impact on capital employment. Let me spend only a few words to remind you the methodology used to calculate cash conversion cycles. Basically, we use the average of the cash formation cycle of the last four quarters, each of them calculated by taking the ratio between end-of-quarter values of inventory, produceables, and trade payables on quarterly sales multiplied 90 days. All that said, Q1 must be considered the best quarter in the last three years. continuous reduction in the case of the base, which may be attributable to the increase in turnover indexes, and also to the positive outcome of negotiation on longer suppliers' payment terms achieved. At March 31st, I took part in what I think is the main strength, actually at the base of Improving both sequentially, minus four, and in particular, minus seven. Compared to 2019 metrics, we can see that inventory days decreased minus three. VSOs slightly increased, but less than one day. And VPO increased plus four days. So a total improvement in V. If we go to slide 22, the discipline of the working capital employed is reflected in the ROSI trend that we try to depict in the chart. You can see the relevant year career improvement in Q1 to avoid control, we are experiencing a strong rebound from the historical points in Q1, Q2, and Q3, although with some things along the interpolation. As mentioned before, the performance in World War II must be better evaluated on a linear-linear basis, Because of the speed and style of each year and related to the behavior patterns of suppliers, we are the hottest Black Friday Christmas campaign. In this cycle, the 8.7% SHIB Q4 shows a very significant sequential improvement versus Q1 2018, and Q1 2019. After the Rossi calculation, in the following slide, we elaborate a bit the Rossi concept. Again, I must remind the way we used to calculate this relevant value creation metric in our view. We are replicating the common practice a common market practice, at least among our international peers. And so Rossi, at each quarter, came in as the ratio between the 12 and 12-month no-profit net operating profit after taxes, where figurative taxes are based on a tax rate equal to the effective group tax rate, on net working capital that is calculated on the average of the prior five-quarters values at quarter end. More specifically, if we go into the Q1 2020 figures, the TTN EBIT amounted to €40.7 billion for a slight decrease, minus 3%, compared to the same figure for the first quarter of 2019 41.9 million euros, while the net operating profit with adjusted taxes is short.

Valerio, we have lost you.

Excuse me, this is the operator. We are trying to reconnect here. Is the line dropped? Just a second, please.

Well, it's me, Alessandro Catani, taking over, if we can reconnect Valerio. And we were basically over with this part of the presentation. And in case he gets back, he could end it up. But I would take... the lead and go to the final remarks, which is the following slide. Let's face it, we are facing an emergency where the length and depth is unknown. So it's really difficult.

We have just reconnected Mr. Valerio Casari.

Okay. Thank you. Sorry, sorry. Go back. Okay. Can you hear me? Yeah? Okay. Yeah, we were saying, okay, we were digging into the ROC calculation. I was saying more specifically the PTM EBIT and the net operating profit less adjusted taxes show the decline, but the average net invested capital, which is measured, in our view, before the effect of IFRS 16, shows a greater decrease, minus 9%, mostly due to the lower average net working capital. So in the end, the cash conversion cycle in life has already seen a continuous improvement trend and stands at 20 days. Final result is is that De Rossi stands at 8.7% and confirms to be steadily above company-weighted average cost of capital. The cost of capital in this perspective, that is 8%, is based on stock analyst consensus on our company, and the weighted cost of capital that we adopted in the annual impairment test is as the weighted average of the cost of capital of the cash generated units to which reported yield is allocated and which, considered together, compose the aspect group. So just to conclude, we think that we are in a good financial shape and We are ready to face the tough environment that we are expecting for the next month. And I shall sound this. Flexibility basically originates from the liquidity risk management framework, which is historically devoted in our group to the atmosphere of prudence. We do have and enjoy committed credit lines, not revocables, for €330 million, including the maximum amount of the three-year locked credit receivable SEC program of €100 million, and which was basically made up of revolving facilities and loans granted by primary credit local and international institutions, both on syndicated basis and bilateral basis. The average maturity of debt profile is aligned to the duration of funded assets, which are mostly, as you know, composed of working capital, without considering self-funded IFRS 16 right-of-use assets. In this perspective, the net equity covers more than three times the total fixed assets, so the financial structure and the balance sheet is quite well balanced. from this profile. Good quality of inventory of receivables is demonstrated by protection schemes which are generally provided by suppliers and are reinforced by the risk transfer, the credit risk transfer through non-recourse sales of receivables, and also to comprehensive credit insurance policies that we historically activate. We have been also adopting a number of actions aimed at safeguarding our liquidity situation. We have been assigned several of the third payment schemes by many of our major suppliers. Last, but not least, we decided, as Alex was mentioning before, to propose to the AGM on next May 22 to redounce the distribution of dividends and to revoke current buyback plan approved last year. Finally, we said that we are also investigating both in Italy and Spain some additional options to further lengthen the average life of our financial debt. So my time has elapsed. I leave the floor to Alex for the closing remarks.

Okay, thanks everybody. The experience of this remote working is driving investments and will drive even more investments. We all know that with these lines that keep on dropping, we all need to improve our IT equipment. So let's hope to sell even more in the future. Well, jokes apart, we are facing, as I was beginning to say, an emergency whose length and depth is hardly understandable. What we can say is that we are in this moment sailing through very rough waters. Q2 took off with a very difficult April. Most probably it will be the toughest quarter of the year because of the impact of these full lockdown measures. And let's hope there will be no further containment measures in fall, as some doctors fear. cross fingers, let's hope nothing will happen. We are modeling our different scenarios and, as I said, hopefully by the end of July we'll be out with our forecast for 2020. If the outlook will be difficult to see, it might be that we postpone it to September. These are the times in which we are living, unfortunately. We have a solid company. There are good midterm opportunities, and we have put in place prompt actions to control costs, work in capital, and strengthen our group financial solidity. still favorable mid-term expectations because the ICT market is a strategic industry and we do believe that the distributors should be even more used by the tech business system, by vendors in future. We'll stick to our most valued relationship our people and our customers and vendors, pushing hard to protect our people as well as to improve our customer satisfaction programs. And even if short term, probably for a few quarters, one or two, let's hope not more, the effects will be probably negative, if not very negative. we do believe in a better future. And because of this, we confirm that we are not suspending our M&A activities because we want to be at the forefront of any consolidation process that might happen in the next quarters in the industry. So that's for our Q&A, but even more important, I think, what we are experiencing and we think we'll experience in the next month. And with this, I hand it over to Colescol for the Q&A session. Thanks, everybody.

Excuse me. This is the Colescol conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Gabriele Berti with Marcaini. Let's go ahead here.

Hello, good afternoon, everybody. Thank you for your presentation. I have just a couple of quick questions. You mentioned that it is reasonable to expect that this crisis is going to accelerate the consolidation of your market. What about your customers and suppliers? I mean, in your opinion, is it likely that this situation will boost also consolidation process for IT resellers and retailers and or for smaller vendors? And if yes, it would be positive for you or not? The second one is about working capital. I would like to know if, since late March, are you experiencing significant delays in the payment of receivables from your customers, and do you expect any impact in terms of bad debts in the coming months? Thank you.

Okay. Well, thanks. On your first question, definitely, yes, we do expect that there would be consolidation across the board. both at vendor level as well as customer level. This will be probably driven both by financial needs. There will be weaker players that will seek the shield of a stronger balance sheet of somebody acquiring them. And probably others will simply be part of the acceleration of, especially I think at the reseller level, of the handover of the business to other to other owners from people that will take this opportunity or this time as a way to manage the succession plan and in terms of what the impact on us well we have been through multiple downturns consolidation and In general, I would say that it's neutral. We'll cope with whoever will deal with us and, in general, stronger partners are, generally speaking, better partners. So, hopefully, it will turn out for the best. As for our working capital performance, we got support from vendors and we offered some support to our customers on a selective base. So far, the situation looks basically under control. Obviously, the bad debt is a is a worry for everybody, I would say. In this sense, the support from government and from central banks with these programs aimed at providing liquidity to the businesses through banks with support of SACE in Italy and ICO in Spain are a fundamental piece of the equation. closely monitor the situation. We have a lot of experience in dealing with a lot of customers. We have a lot of information about our customers and we are shielded by a good set of procedures as well as credit insurance, as Valerio mentioned, credit insurance or factoring solutions. Definitely, it's one of the areas that we are monitoring closely because it will be an issue for all industries, I think.

Thank you very much.

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