Esprinet S.p.A.

Good morning. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the SBIRNET fourth quarter and full year 2020 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference Over to Ms. Giulia Perfetti, Investor Relations Manager of EspritNet. Please go ahead, Madam.

Good morning and welcome, everyone. Thanks for being with us. I'm Giulia Perfetti, Investor Relations Manager of EspritNet, and with me is Alessandro Cattani, CEO of EspritNet. Today we have the pleasure to share and comment the preliminary data for Fiscal Year 2020 announced last Monday. I would like to remind everyone that the relative press release, the presentation that we will use shortly, and the podcast of today's call will be available on the ESPRIT website in the investor section. I let Alessandro start the call and present the preliminary fiscal year 2020 results. Alessandro, over to you.

Well, thanks, Giulia, and thanks, everybody, for joining us today. There's always a word of notice about the usual regulatory notes, which you can find here on page number two. So, well, let's dig immediately into our preliminary numbers and results. Well, it's been a really great year for us, both for the fact that we celebrate our 20th anniversary But even more, because not only we consolidated our market leadership in Southern Europe, but definitely we celebrated the best year ever for our group, with a very strong performance in P&L, beating estimates, with the strongest balance sheet ever as well. But let's look into the numbers. Well, we exceeded our 2020 expectations. Sales were up for the whole year 14 percent, with a total growth of more than half a billion in revenues, topping almost 4.5 billion as total revenues for the group for the year. What's even more remarkable is the performance of our profitability. A bid adjusted grew to roughly €69 million, up 24 percent against comparable numbers of 2019. It's been an year of growth in all our geographies. Italy grew 9 percent, Spain 21 percent, Portugal 75 percent. And even better, we grew market share in all countries, and we recorded the best market share in recent years. After a long time, we had double-digit growth also thanks to the excellent performance of Q420, which recorded an increase in percentage on sales against the Q419. a big change in the evolution of one of our key metrics on profitability. Basically, all product lines grew in terms of gross profit margin. So we're pretty pleased to see that the activities that we put in place In terms especially of customer satisfaction but in general all the activities aimed at improving our profitability are getting traction and providing good results. As I said before, strongest balance sheet ever. We focused in 2019 and in 2020 in improving our return on capital employed, mostly through better management of our balance sheet and for the second quarter straight in line. We recorded a cash cycle of eight days, so in line with Q3 2020, with an improvement of 16 days compared to Q4-19. That drove an improvement in the net financial position, which at the end of the year stood positive for roughly €300 million, that after roughly €100 million of impact of IFRX-16 numbers. a really solid number with an improvement compared to December 2019, where we posted a positive position of 272 million euros. And last but not least, return on capital employed, which has been the metric on which we have built our strategy, marks a significant increase, standing at around 24 percent, compared to 9.8 percent in 2019, and weighted average cost of capital of around 8 percent. A couple of things worthy of remark. Well, we believe that we have achieved these numbers mostly thanks to a team which is now standing at around 1,600 people, 1,600 professionals. And I want to give praise to this great team, which show the ability to cope with a very difficult environment. And we supported it by a strong and active inclusion policy that led us, among other things, to achieve the Great Place to Work certification in Italy, and we want to aim at the same certification for the other regions where our group is operating as well. That's one of the targets for 2021. I'm pretty pleased to say that we have been a source of stability for both our customers as well as our suppliers in very difficult market conditions. We provided funding to our customers. We provided stable business continuity, delivering products, and to our vendor partners, I think we have shown the capability of being a reliable partner, which in times of difficulties has been able to support their policy, driving products, driving marketing initiatives down into the market, aiming always at providing the best customer satisfaction. And last but not least, we have, in the middle of the pandemic, executed three strategic acquisitions in the advanced solution market. that gave us a strong boost in the growth of our advanced solution business in Italy as well as in Spain. So, digging into the numbers of the sales evolution by geography, as you can see, Italy grew 9%, Spain 21%, Portugal 75%. Overall, we grew in market share. I want to remark especially Brilliant performance of our Portuguese team. We are getting really traction over there. We began our journey in the Portuguese market a few years ago with the Greenfield operations. and we really are growing nicely, and there's a lot of excitement. We're really happy of what's happening there. Obviously, we're doing very well in all our other areas. If I look at the performance by product category, IT clients, which means PCs and printers, were the hottest growth area for our business, driven especially by the strong market demand of PCs. But we had excellent performance in consumer electronics and we outpaced the market in advanced solution as well. And last but not least, we kept on growing in our share in the retailer and e-tailer market, but even more remarkable is the acceleration that we had in the coverage of the IT reseller and system integration market, marking a clear path. towards growth in more profitable areas, and testimony to the good work that our team has been providing and doing, especially around customer satisfaction metrics, which has been a key driver of our strategy in these last years. Let me drill down one second on the advanced solution market. Advanced solution is an area which is particularly interesting in terms of profitability. There are other areas that are even more profitable, such as certain areas in consumer electronics with accessories, for instance. But definitely advanced solution is the key area where we, it's the only area where we are not yet the market leader, so we are putting a lot of attention here. I'm pretty pleased to say that if we combine our organic growth with the acquisitions of the GTI Group in Spain and Portugal and in Italy and Spain as well, with a small presence in France and Germany, Our performance sales in the advanced solution market for 2020 exceeded 780 million euros. It's a great achievement. We are really excited on what we are seeing in the market, the momentum that we are getting, and we do believe we are more and more a driving force, especially in new areas such as the cloud space, where we'll launch a new proprietary cloud marketplace propelling the growth of this area. And we are really active and will soon deploy in the market also our solutions for the devices and service offering. All in all, providing new solutions in this advanced and higher margin area, which is really of paramount importance for our strategy. Let's have a quick look at our financial structure. easy to say, we have never, ever had such a strong balance sheet that is giving us lots of flexibility and opportunity of accelerating our growth, providing security to our vendor community, as well as to our customers, where we can stand right by their side, supporting them in their growth programs, and obviously to our financial partners. Our cash conversions cycle closed at eight days. eight days as we had in Q3 20, and 16 days better than Q4 19. We had very, very good performance in inventory days, good performance in DPOs, and substantial stability in ESOs. We're now in a maintenance mode here. We don't believe there's a lot of improvement possible. We're even ready to trade off between the cash conversion cycle and profitability, if needed, always aiming at return on capital employed improvement. Net financial position positive by €300 million, €400 million pre-FRS-16, and return on capital employed at 24 percent. If we look graphically at the evolution of the four-quarter average evolution of our working capital metrics, you can see that since we kicked off in late 2018 with the implementation of this return on capital employed or ROSI-driven strategy, The first target to optimize the cash cycle has been definitely achieved. We are now at 40 days inventory, 40 days of inventory. But that's the average of the last four quarters. In reality, the last quarter closed at 26 days. And we had stability in our DSOs that stood at roughly 37 days. We got support from our vendor partners. We reverted part of the support from our vendor partners down into the market, either as proposed and sometimes accepted longer payment terms or extra discounts for those who preferred margins rather than payments. The support ended essentially at the end of Q2, and then we had the normal seasonality of Q4. But definitely we're pretty pleased in what we achieved in terms of working capital metrics. You can see it on a quarter-by-quarter basis. metric here. You see that in Q4 we achieved 26 days. DPOs stood at roughly 72 days and marked a decrease against the 77 days of the previous year. But we had the special support, and we want to thank our vendor community in Q2. We expect our running DPOs to be between 60 and 70 days, being the 60 days end of month more or less the average now with the vast majority of our vendor community. No particular news on the customer and good performance as said before in the inventory days. Well, obviously, the increase in profitability teamed up with this strong performance in terms of balance sheet draw significantly up our return on capital employed at 24 percent is the best return on capital employed track in these last four years and more, and so definitely The best. All year combined is the best year ever. I think we hit on all cylinders and we're pretty pleased of the results that we achieved. The ROCE-driven strategy, as you know, is the pillar of our, is the guiding light of our day-to-day action. In terms of capital employed optimization, we have already We don't expect major improvements. We could even accept certain tradeoffs if better margin is coming, provided that the tradeoff improves our return on capital employed. We are all focused on profitability improvement. Customer satisfaction is one of the key aspects of our strategy, as you know, and it's paying off. We improved our profitability of a few basis points. The gross profit margin was up a few basis points. line of business by line of business because we provided the superior quality of service to both our vendor community as well as to our customers. And we want to double down on customer satisfaction activities. We contained our fixed costs and we were therefore able to profit from the higher volumes coming especially from PCs and smartphones And we do expect, at least for the first part of this year, to have additional volumes coming. And we will keep a tight control of our cost structure to profit of the operating leverage. And as you have seen with the acquisitions, but expect more activity moving forward in the advanced solution and the high margin niches of consumer electronics. We are looking at acquisitions. We are looking at organic growth. Cloud in the consumption model area is one of our key strategies. And obviously, devices as a service and management services are other areas where we want to invest and grow. We have already deployed our cloud platform. And very soon, we'll be up and running with our devices as a service. And then we're looking at outsourcing. Let's close this quick analysis of our numbers with the outlook and the final remarks. We outpaced the market, and we achieved numbers better than our expectation in 2020, mostly because we received more volumes. than the ones that we expected. So we were able to ship more products and overperform our top line. And then we had above expectations performance in the gross profit margin, keeping a tight lead on cost. So those are the key reasons of our overperformance in 2020. And if we look at 2021, Well, the year kicked off with a very solid backlog in PCs. And generally speaking, the demand of mobile computing devices is still hot. And we believe it will be hot, at least for the rest of H1. For the rest of H1. the PCs and even printers, and generally speaking, all products, are still showing low product availability. That's apparently due to a shortage of components, which is forecasted to last probably, we have said, until late spring. Well, there are visions that say even into summer. But definitely, we will still be as an industry constrained by the shortage of components and so the shortage of product availability. But still demand, especially mobile computing for the first part of the year should be still stronger. Last year, infrastructure spending, so advanced solution in the hardware area, service storage specifically, was particularly weak. But there was a sort of recovery, especially in Q4, which we expect to continue in H1, even if volumes here should be still a little bit subdued compared to history. We are noticing, anyhow, a very strong resilience in the cloud model and in cybersecurity spending, and we are active in this area even more now after the acquisition of GTI, so we want to profit from this trend. If we look into H2, we think that consumer spending on one side and mobile computing sales on the other could reduce their growth rate. Most probably this could be linked also to the hope that the pandemic, thanks to the vaccines, should come to an end or at least to a reduction of the constraints to open market. And in that case, we expect households to spend more in travel, entertainment, and reduce the quota, the share of wallet dedicated to PCs especially, but TVs as well. And we expect public investments in education, in digitalization of public administration and health system to be a major driver in the second half, as well as the area of corporate spending. So, all in all, we expect to have a favorable environment for demand with stronger fundamentals in the ICT market. The IDC 2021 predictions, quote, growth in digital investment will outstrip the GDP recovery by a factor of three. So we have entered an era of accelerated digital spending, even more in southern Europe, where historically the ratio of IT spending on GDP has been historically lagging behind the same ratio of northern countries or the U.S. So there's a huge opportunity to close this gap. Things are happening, and we are at the forefront of this change, so we have a positive outlook moving forward. We'll have to fight harder to grab the opportunities, but opportunities should be there. In May we will present the guidance for the year and most probably the three-year strategic plan with the related economic and financial objectives for the following time. Well, that's all. We have a packed agenda of upcoming events, which you can see on slide 14. Our team, Investor Relations team, is available for any kind of information you might need. And with this, I hand it over to the operator for the Q&A session by thanking everybody for your attendance.