Esprinet S.p.A.

Good afternoon, this is the Coruscall conference operator. Welcome and thank you for joining the EspritNet first quarter 2022 results presentation. 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 Miss Giulia Perfetti

Good afternoon and welcome everyone. Today we are pleased to comment with you the Q1 2022 results and we are sharing the business outlook for 2022. Before we start, please note that this presentation contains a forward-looking statement, so I would like to draw your attention to the recommendation note on page 2 of the presentation, which provides all the details. Let me remind that after the call, we will post the presentation and the podcast on the ESPRIT website in the investor section. I'm Giulia Perfetti, investor relations manager of ESPRIT, and with me is Alessandro Castani, CEO of ESPRIT. Now I pass the call to Alessandro to present the Q1 2021 results. Alessandro, over to you.

Thank you, Giulia, and welcome, everybody. I hope you're all fine. We're here to present our Q1 2022 results, and I would definitely skip immediately to slide number four and dig into the numbers. This slide represents the results in a snapshot. And if you remember our comments back in February when we presented the full year results and gave a flavor of what was our focus for the year, we forecasted a very tough Q1 because of the supply chain issues we all know. waiting for a slightly better Q2 and definitely a strong improvement in Q3 and Q4. Well the year kicked off better than expected, better than our expectations against the backdrop of continued disruption and I would say of even bigger disruption than expected, mostly arising from the effects of the war as well as the inflation. But on this, let's look into the numbers. Let's remember that Q1 2021 was a record quarter for us. So we had a very tough compare year on year, but Q1 2022 P&L performance, in our view, was very good. The sales were down 2% against last year, but advanced solutions, our, I imagine, areas where we have a lot of focus in our investor plan, in our strategic plan, was up 8%. The most important piece of news for us was the continuous improvement in our gross profit margin, which reached the 5% barrier up to 5.05% compared to 4.81% of Q1 last year. And that gave us a significant boost to profitability because this gross profit margin have to offset the decline, the slight decline in sales volumes. And what's more important is not only we add a better product mix, more skewed towards higher margin product lines, but more or less all product lines marked an improvement in profitability. So we're really pleased on what's happening. as I said, in a rather tough environment. The adjusted EBITDA was down 3%, even if the gross profit in euros was up against previous year. Last year, we made 56.1 million euros of gross profit. This year, 57.6.

So in absolute terms,

On the other hand, we had more operating costs, more SG&A, mostly linked to investments we made in people to address, I imagine, projects in the upcoming future. Some of these people were hired last year and during the course of the year, so this year we have the full impact of their cost. We had some other impacts here as well. We had some slightly higher cost of the IT expenses and some further expenses in advertising to boost the growth in our brands, Nilox and Celli. as well as some advertising to kick off the renting project with the S3 rent. You might have noticed in Italy some advertising on financial magazines. If we turn to the financial structure, no real big news. Cash cycle is again the moving average at 15 days as it was for the last two other quarters. And it's eight days more than Q1 2021. We'll dig more into this. Net financial positions is negative by 89 million euros compared to 71 negative of March last year. And that's all essentially due to the working capital performance. And the return on capital employed stands at 15.2% compared to last year. Again, even if we add more NOPAT, we add proportionately more investments in capital employed, mostly if not entirely due to working capital. If we look more in detail into the P&L evolution, apart from the comments that I already gave, I think it's interesting to say that the high margin product categories increase their weight on revenues to 43% against the 39% of last quarter. So we're now having in this first quarter PCs and smartphones down to 57% on sales. Just remember a couple of years ago, they were 66% of our total revenues. So we are really pleased that slowly but constantly our relentless focus on shifting the company towards an added value distribution model is taking traction. The transport costs are impacted by inflation, but they are embedded into the gross profit, and as you can see, the gross profit margin is up anyhow. It means that we were being able to transfer to a larger standard these higher costs downstream to our customers on one side, but on the other side, we were able to improve profitability as a whole at the gross profit level. We already commented on the SGMA. We had these personnel costs and the advertising as well as some technology costs, investments here. If we look at the net financial expenses, they're down mostly because a significantly lower forex exchange rate charges. we had, on average, a better cost of the different sources of bank finances due to the different mix between short-term and long-term lines and a slightly more average invested capital. Tax rate essentially unchanged. If you look at the sales evolution, Now, we had Italy down slightly more than the market, and in Italy we lost a bit of share. Essentially, we lost the share in the printing space, but we have improved significantly margins up to a point that Even with less sales, we add more profitability, and that's in line with our strategy of walking progressively away from low-margin businesses. In Spain, we gain market share in a declining market, and Portugal, which is still performing very well in the market, we really beat the market with constant growth. In Portugal, we keep on growing. growing pretty fast. If we look at the sales by product category, we had this underperformance in IT clients. Here in the PC space, which is the main category within IT clients, we did well, but especially we improved our margins, the gross profit margins here. Printing was more challenged. In the consumer electronics space, we have been able to outgrow the market significantly in the higher margin niches of this market. And collectively, thanks to this better mix with lower weight of smartphones, which still are the biggest category, within consumer electronics for us and for the market as well, we kept our gross profit margins more or less stable. In the advanced solution space, we performed more or less in line with the market. We lost some volume in the software area, but mostly because we walked away from really high volume, low margin businesses, but the focus on more complex stuff was really paying off the overall profitability in this area gross profit in years was higher than previous year, even if software and cloud sales, especially software sales last year, were higher in terms of volumes. And last but not least, in terms of customer space, we gained market share in the retailer and e-tailer market. And we have been able to grow our share in the high margin areas, especially of consumer electronics and to a certain extent in PCs as well. IT resellers were growing more than us in the market. Over here, we had an issue on printing and in software where we walked away, as I said before, from certain really low margin businesses. And that's what's behind our sales evolution. After the balance sheet, we have already given an eye level highlight. We're cash negative by 89.2 million against the 71.6 last year. shareholder equity stands at 396 against the 399 as of last year. due to the buybacks and dividends paid. And as of April, we paid 54 cents per share in dividends with a total distribution of 27 million euro. Our dividend policy was set at 50% payout ratio, but we tried as to retain the same absolute value of dividend against the 2021 where I remember we paid both the 2021 as well as 2020 dividend as long as in 2020 we didn't pay dividend for kosher as a way of creating a cushion against the risk of COVID which in reality didn't really materialize. We had a tremendous year. If I look at the key driver of our balance sheet in terms of working capital metrics, as you can see, we have been standing at 13 days. What we are experiencing is stability at the DSO level and an equal increase in inventory as well as payment by suppliers. You can see it better in the following slide. where you can see the quarter-by-quarter performance. We had a spike again in the level of inventory, but a spike in payment terms as well. Let me give you a little bit of color here. You know that we are, as an industry, we are in the middle of a two-year-long issue with supplies. The situation has improved significantly. But still vendors are having a real hard time in planning their manufacturing as well as their shipments, and we as well. So we are getting products in a really random way, I would say. It's very difficult to plan what is coming in of what we order as well as when it's coming in. And we have certain vendors that deliver partial shipments. Instead of shipping all the components needed for certain projects, they just ship portions of it, essentially filling up the inventory of their distribution partners, be them distributors such as Esperanto or sometimes even resellers. So we are getting extra support from vendors, many of them, to cope with these issues. It's fair to say that anyhow, we had a couple of vendors, I would say probably three vendors in the consumer space, or mostly in the consumer space, where we were too eager in terms of getting the products, fearing of shortage, and in reality, The shortage of certain product lines, I think of PCs and smartphones especially, is not that the problem any longer. We still have issues, but really fading away. But on the other side, we witnessed a slowdown in consumer sales, especially in Italy, especially in the first quarter. And to a certain extent, we are still witnessing it now. and we pile up a certain amount of inventory, especially these three main vendors, and we plan to clean this excess of inventory by the end of this quarter. As I probably mentioned in the last call, we're all surfing rough waters in terms of forecasting needs of customers as well as arrivals from vendors and to be fair that's the same for our suppliers and that is something where we will have to cope with but luckily vendors are helping us with not all of them but quite a number of them with the special support because they know that they are transferring issues downstream and they are trying to help with special payment terms. We hope in time to get the situation more under control. Probably we'll have a bumpy ride in this area for at least all of this year, even if things are getting better, but we'll come to that in a moment. If we go to the return on capital employed evolution, This worsening of the return of the capital employed linked to this higher level of inventory has reduced the return on capital employed from its peak. But as we said multiple times, we're trying to run a balance keeping inventory cash cycle days below 18 days so that we are essentially cash positive before IFRS 16 effect, which I remember it's roughly 100 million euros. And on the other side we are trying to improve and we are getting there our gross profit and moving forward our EBITDA margin So we are balancing these two areas and we keep on delivering double digit return on capital employed. But definitely the extraordinary support we got from vendors back at the beginning of the pandemic with very long payment terms and no product hard to get in a world that is getting more in brackets than normal. So that's for the comment for what happened. Let's dig a bit into our strategy and execution. We have a first slide on our strategy. No news here. It's always the same. Return on capital and pride driven strategy. I wouldn't dig any longer on this slide. And we confirm our strategic plan 2024. We keep on seeing 125 million euros of adjusted EBITDA for the 2024 year. Now if we go into a little bit more color on what we experienced in our environment during this first quarter and what we see moving forward, As for the supplies, I know it's a hot issue. China goes on with their zero tolerance COVID policy. It's furtherly disrupting the global supply chains. We have also issues with Russia-Ukraine conflict with invasion and aggression of Ukraine by Russia. This has twofold consequences. One is the fact that the train lines that go through these territories are in geopathy, so shipping is mostly by sea or by air. But also, Ukraine is a major source of certain gases that are used in the manufacturing of semiconductors, so the suppliers are having even more trouble in getting components. Even if the components manufacturing is getting better by the day, Assembly has been troubled lately by the shutdowns of the factories in China, but they are more or less coping with these further issues. The big problems are still related to shipping with big congestions in ports, with big issues in the container movement around the world. We are monitoring the situation. We still expect, as forecasted, some disruption to availability during this second quarter. PCs and smartphones are slowly normalizing, even if we have these further challenges that we read by almost every day. The value products, service, storage, networking, and To a certain extent, printing as well is still under duress. So we still have issues here. And as forecasted, we expect the third or even fourth quarter to have this mess sorted out. So no real big changes against what we forecasted. We were already embedding this scenario in our forecast at the beginning of the year. Yes, we do think that there might be second quarter perhaps a little bit more challenging than what we expected. But in this moment we think that the issues in the market are more on the consumer demand and mostly in Italy. The decline in consumer confidence in Italy especially, much less in Spain, is something that we are witnessing. Retailers and even worse e-tailers are having a hard time or a harder time than before. We have on the other side some strong counter forces, high level of private savings, there's a lot of fiscal stimulus, and there's still strong job creation. Nevertheless, inflation is also eating consumer confidence. The war news flow is not helping at all. So consumer confidence and demand is an issue. Luckily the high volume items, PCs and smartphones are the highest, the worst hit end. We are not having the best margins ever in this line of businesses. And as you have seen, this is helping us turn the mix towards better margins. If I look at inflation, yes, there's a bunch of issues with inflation. What's important is that, as you have seen, the transport costs, we have been able to move them downstream to a larger stand. and we are coping with them gross profit margins are up so happy about that we are not yet facing major issues in the wage area and neither we see it coming short term so in this area as a distributor we feel As a matter of fact, we even have certain opportunities because this extra stock that we have, some of that is coming with, is there with purchase prices which are now lower than the purchase prices that we are experiencing in the market. And this might give us some opportunity in terms of gross profit margin. Good news on the business and government demand. Well, the NextGen EU funds are helping and a lot. There's a lot of tenders active both in Italy as well as in Spain. But the stimulus is also in terms of tax subsidies for companies that invest in technology. And business demand is really, really in good shape. So this is really good news. It's helping the market to cope with the difficulties that we experience on the consumer side. And luckily so because the business area provides better margins definitely. If we look at what we did, that's the market, the execution, well, I remember once more that the Q1 last year was a record quarter, both for the market as well as for us. And last year we had pretty good product availability compared to the constraints that we are facing in this quarter, the one just closed, and in the second quarter as well. If I look at our strategic program on ranking, In April, as forecasted, we launched the program in Spain as well. We are working hard in strengthening the organization in Italy. We are fine-tuning our activities and we're working hard to improve the product service that we offer to customers, adding new features to our contract and There's a lot of good recognition by our customers. The pipeline of offers is in this moment well north of 1 million euros and growing and the contracts already signed and contributing to our bottom line are already in the order of a few hundred thousand euros on top of the offers. But what's more interesting is the fact that more and more resellers are signing up and we think that during this year we should be able really to provide a solid foundation for this program. We are more and more confident that this could be the strong contributor to our long-term performance that we expected when we launched the program last year in November. Advanced solution is an area where we keep on having a strong focus. Sales topped 223 million euros, growing 8% in Q1, and plus sales were up 27%. We have now advanced solution weighing 20% of our total sales against 18% of last year. And if I look at the performance, very good one of this quarter, Q2. It could be that very soon Advanced Solutions could climb to the second position in terms of the second largest contributor in terms of sales within our group just after the PCs and beating smartphones. We have been working hard here and we keep on beefing up our structure. We have made a lot of investments in people. but we're seeing it getting momentum month after month. More news to come here. We're working on a number of initiatives, but we're really excited on what we're seeing in our advanced solution space. M&A activity, while you are all aware that last Friday, last Saturday we announced that our group has submitted to the board of directors of Cellular Line a non-binding letter of intent in the launching voluntary public tender offer with the aim of delisting the company. Cellular line, there's some more comments on this in a second, is a company which is focused on accessories. And on the other side, we keep on analyzing the expansion in other geographies, especially in the advanced solution space. More news to come here. We are actively looking at some targets. Not big ones in this moment, but we have a lot of opportunities in that space as well. So now if we dig a little bit more on the cellular line, the strategic rationale behind this move, well, First and foremost, this is completely in line with our strategic plan. If you go and look at our wording back then, we said that moving forward, we see two parts of value creation. On one side, the renting space paving the ground for mid-term stronger focus on services, and on the other side, growth in the value added distribution space, which for us is mostly done, made up of advanced solutions as well as I imagine businesses in the accessory space and mainly our own brands, Celli and Neelix. Now, Cellular Line is a clear leader in the area of accessories for mobility, where we play with Celli, which is much smaller than Cellular Line. So we are, with this move, moving in the direction of strengthening our strategy in the value added space not only in the business segment where, as a matter of fact, we find a lot of competition, lots of companies are focused there. We see lots of potential in the consumer space as well, obviously not in volume business, but there are interesting high margin niches and the cellular line is a clear leader in one of these niches. We do believe that this move, joining forces with Cellular Line, would allow us to launch a multi-brand approach to the market. We see a market that is going through multiple changes, both in terms of In a sense, the way in which products are sourced, but there's also changes in terms of demand. There's a need for higher critical mass to fund product innovation. There's a need of product innovation in this area as well. There's a need and a growing need from customers in terms of better customer service, such as higher levels or better levels of category management. There's a need of demand generation with lots of money to be spent in communication. And with this operation, with this deal, we think we could have a better critical mass to address these changes. We think also that we could bring our expertise in dealing with the financial planning, with cost control, and working capital control into these operations, profiting from general line expertise in managing branding and customer relations. Following the transaction, we intend to preserve the organizational structure of both Cello Raman and Celli division. We will keep the people working in regional media as well as in the mercate. They do have offices abroad and those by definition will stay the same. We are in a post-COVID world where the physical location of people is less important than it was two years ago. We were already a smart working company, but much more now after two years thriving in a complex world having lots of people working from everywhere. So that's the strategic ratio and what we see Also, in terms of possible synergies, we do believe that putting the brands together will allow us to create a better offering for the market. We have more questions than answers. That's why we asked for the possibility of having a confirmatory due diligence limited. We want to gather a couple of information that are needed to work out some details, but definitely the integration and the way we will adapt it to the market will be better known if and once we will have the companies pertaining to the same group, to our group, and in that case we will be able to better design the future We might think of having two brands, one for, I don't know, the domestic market, but for export, or one for certain product, certain customer categories, and the other one for others, or one brand premium and another one used as an entry-level price. There are multiple options, but until we have full access to the people, especially, and their strong expertise, we won't be able to draw a real marketing strategy. We see that there's anyhow a lot of things that we could do together. In terms of pricing, we are offering 4.41 per each share. Again, I remember it's a non-binding offer still, and this is including the dividends in cash and in kind that Cellular Line announced and which is to be paid by the end of this month. And so 16 cents per share. So we are essentially talking about 4.25 plus this 16 cents. That's the premium of approximately 27.5% compared to the closing price of Cellular Line as of May 5. as well as roughly 18%, again, the weighted average of the official prices of the last three months. So we think NFT premium in a company, for a company that in this last two and more years has definitely struggled with lots of challenges in the market, But we do think that that's a good foundation by joining forces and using also some of our expertise, as I said before, in cost control, financial forecasting, adding also another brand and our expertise, which we are the one after years of working with the Chely and acquisitions we made years ago. We think that we could turn the tide and have really good numbers for the future. In terms of timetable, well, we want to perform a limited confirmatory due diligence. We expect, we have asked to receive an authorization within the next 10 days. And we hope by the end of this month to to start due diligence so that by mid-June, hopefully, we could launch, evaluate the results so that we could launch the offer before the summer break. The offer, as you have read, is subject to a number of conditions precedent. We want to delist the company, so the offer, if and when will be launched, should come with at least 90% of the shares delivered. We expect no material adverse change, and of course, we needed to have the antitrust and golden power authorizations by the government, which you don't expect to be a real issue at all. And that's what we can say now around cellular line. We close with a comment on our outlook. 2022, we have a number of challenges, but a good number of opportunities as well. There's a lot of geopolitical instability. For the first part of this year, at least, we definitely see the shortage and supply chain constraints being in the market. And that's a certain amount of inflationary pressure. But on the other side, digital innovations is up and running at full steam. Government stimulus and private savings are tremendous opportunities. cybersecurity is driving a host of opportunities and investments in companies as well as in consumers. So our guidance, we expect to deliver and adjust to the bid prior to any possible effect of the acquisition of cellular line. We don't know if the acquisition will be executed. So, in case we'll have it, we will have to review our guidance, of course. So, at constant, on a like-for-like basis, we expect our adjusted EBITDA to exceed 93 million euros. We are, of course, conscious and keep on looking into the geopolitical instability. We have, I think, commented at large the risk of shortages for the next quarter, so for this one and the upcoming two others, and we are already putting this analysis into our adjusted EBITDA forecast. We have a very good competitive position, very good financial shape, and we think there's a lot of opportunities in the market that we hopefully will be able to grab. There's a very, very favorable midterm outlook in the market, especially in the business segment. And although we have been witnessing a growth of our SG&A in Q1 because we keep on investing, steering our company towards a more sophisticated added value distribution-driven company, But we are keeping a constant and expert eye on our costs so that we do believe by the year's end that we could not only offset the impact of inflation but also transfer most of the top line and gross profit gains into bottom line. We have a priority, optimize our EBITDA margin. We are in the middle of a journey where we are walking away from certain that potentially could be adding some EBITDA, but they would defocus our people from the task at the end, moving towards an added value distribution. It's a very careful balancing act between providing volumes but on the other side improving the portfolio of customer and vendor and product mix. So to improve mid-term our EBITDA margin. So certainly especially in PCs and smartphones where margins are excessively low, we are working away from them. And based on that, we expect still top-line growth, but especially an adjusted EBITDA exceeding 93 million euros. Well, that's it for the presentation, and now I would hand it over to the operator for the usual Q&A session. Thank you, everybody.

Thank you, sir. This is the Core Risk Conference Operator, and 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 Nicola Storer with Kepler. Please go ahead, sir.

Good afternoon, all. Thanks for taking my questions. The first one is on Q1 results. Alessandro, if you had to guess which could be the contribution from next generation funding project to Q1 revenues. The second one is on guidance. You gave up giving guidance on revenue, so which is the level of revenues which you see attached to the 93-plus million EBITDA you are targeting. The third one is on cellular line potential tender offer. On this one, which you think is the largest cost area for synergies and related to that I see that the company is currently returning very little on capital and so probably at this stage this deal could be dilutive for you. So any comment on that? and any color you can give us on this fund. Thank you.

Yes. Well, on the NextGen EU funds, we don't have a specific measure because as you probably know, that's part of the contribution that comes in terms of direct government sales. They're up, not enormously, but they're up. both in Italy as well as in Spain, and there's a whole lot of new contracts that are new tenders that are launched by the government every day almost. What is the second area is the fact that there's a whole lot of tax subsidies that are offered to companies and individuals alike. to run their digital innovation as well as their green transition activities and most of the green transition is enabled by digital solutions. Here there's a tremendous amount of money involved. We have almost on a weekly basis seminars and webcasts made with customers where we try to teach them and enable them on transferring these opportunities downstream to their customers and sometimes using these opportunities by themselves. So what we really see and what we get but it's more on a qualitative base from our resellers is that the impact of all these tax subsidies in terms of the willingness of customers to get involved into new digital programs is very high. Unfortunately, as I said, it's very difficult to have a clear number, but if we compare the performance of the consumer segment, especially in Italy, where these tax subsidies are not so strong, we see that there's really, you know, like day and night, the consumer is struggling, is afraid, the business is launching programs one after the other, and resellers are really full of opportunities. So sorry to be qualitative about the, I'm pretty sure if you talk to public resellers or system integrators on one side and retailers on the other, they would confirm, one, that they are having a hell of a lot of opportunities, and the others would probably tell you that they are struggling with less than forecasted store traffic and opportunities. On the revenues, we have not issued this specific guidance, but generally speaking, we expect it to grow probably low single-digit, I would say. There's still a lot of uncertainty there, but our focus is mostly on the product mix and the opportunities at the gross profit margin level, so we are not so focused on revenues. But we expect growth altogether, so probably low single-digit. On Cellular Line, well, we have seen the absolute value of cost of GNA on revenues. And we have a fairly good knowledge of that business because years ago we bought Chelly, which is a significant competitor of Cellular Line. So now we know intimately the way you run this business. We do believe that there's a potential in their GNA structure. It's not the key area that we want to explore, but one of the areas or questions that we're asking in the due diligence request is to have a little bit more color on certain breakdowns, for instance, in their GNA to get a feeling if there are areas that are more prone to synergies than others. Again, as I said, this is something that we'll probably get during the course of two or three years while we learn how to deal with them. It's more important to retain volumes rather than start from cost, but definitely there are opportunities there as well. we lack the information to have a better picture here. And here comes to the return on capital employed. Yes, they have been having a poor return on capital employed. They have been plagued by a number of issues, mostly claimed or related in their opinion from the market, probably so to a certain extent. We still think that by joining forces we could do a different and better job, especially in the area of the commercial performance. And we really believe that together we could have in time a significant improvement in the return on capital employed, definitely. But in this moment, yes, we are aware that they have issues, and we have to work on that. But until the moment we will have certain information, and especially the deal done, we won't be able to address them fully.

Thank you. And maybe a quick follow-up, again, on the general line and Celli. Did I understand well? You said that you aim at keeping both brands maybe differentiated positioning and you do not see the risk of cannibalization.

No, not at all. We have learned how to work with the brands in these last years after the Celi acquisition. Remember that we also run a separate line of business with Nilox. And so we do believe that a good brand position could add a lot of value. So, we definitely don't see a risk of cannibalization quite the other way around. We think that with the proper positioning, we don't yet know which is the proper positioning. I mentioned, for instance, in geographical or customer or price positioning of one brand and the other, having, for instance, a premium brand and a low-cost one, we could address in a better way the market. Absolutely. Absolutely. Thank you. Thank you, Alessandro. If I may, one comment here. We are selling billions in the retail space dealing with hundreds of different vendors. We have by our business as distributor a constant flow of information on the evolution of the consumer market. And we have ideas of certain evolutions in the distribution in the retail or telco or the e-commerce that could or should be addressed in a different way. That's an advantage that we have as a distributor that would turn into a stronger vendor with this deal. And of course, we have this because of this work we do, and they don't have it because they don't do this business. They are mostly, if not almost exclusively, in the area of manufacturing their own business. an area of expertise that we could bring to them. And they have a dang good team, so we think that joining forces could add rather than reduce the strength in the market. Okay.

The next question is from Francois Robillard with Inter Montesima. Please go ahead, sir.

hi everyone good afternoon thank you for taking my question first one is can we have a trading update on the market situation seen in in april uh how have the shortages keep kept on impacting your b2b business and especially on the advanced solution part and yeah how can we expect this to to evolve in the second quarter uh then just another uh follow-up question just on this first one which is pretty much looking at sales guidance. Is it fair to assume that most of your top line guidance will remain driven by these high margin activities and so can we anticipate still slowing down retail demand until year-end even if in the more easy comp second half. And the second question is on your first quarter figures on the working capital movement. We saw a similar move in inventories and payables, although we also see that your factoring has spiked quite a lot in the first quarter too. Can you just comment on that and give us some more color on how the current tense supply situation affects the conditions for payment terms both with vendors and with customers. Thank you.

Let's start with the April figures. The market has been sluggish, I would say, but also consider that we had two working days less in April compared to last year. Advanced solution sales, at least at home here in Esprit, were good. We keep on executing on our strategy and it's doing fine. Could be even better if we had more products, especially in the server and networking. That will be still a challenge, as I said, probably for the whole of the year. But it has been since last year, second part of last year. And still, as you see, we keep on delivering on the numbers. So over there, we are fine. The market is performing better in Spain than in Italy. The consumer demand, in terms of volumes, the consumer demand is weaker here in Italy. and uh smartphones certainly standard but even more pcs are challenged and on top of that we are trying to execute as i said multiple times we are trying to walk away from certain these that are low margin so that's for april um in terms of working capital well i can only reiterate to say once more what I said before. It's a messy situation out there for vendors and as a consequence for us and for our customers as well. It's very tough for vendors to forecast what's happening in their supply chain, even if things have improved. For instance, the chip shortage in itself is mostly solved with the exception of low-end chips that are still affecting mostly the car industry. Manufacturing has improved as well, but those products that are mostly manufactured in certain areas of China are constantly exposed to the risk of sudden shutdowns. The big issue is still on shipments. All that said, the vendors are having a hard time in shipping. So we do expect that there will be a certain amount of problems moving forward in getting a clear picture of when products will be available. Therefore, in this situation, we have both vendors as well as ourselves that are trying to overstock certain items because if you have them, you sell and your competitors not. And in other cases, we overstock not because we want, but because suddenly we get shipments that are suddenly unlocked wherever they were locked along the supply chain. Vendors are aware of this situation and are trying to contribute by giving extra opportunities. We had a particular good quarter in the consumer side. is typically affected by heavily skewed seasonality during the month with lots of sales for whatever reason, I don't know why, retailers tend to ask them at the end of the month. Sometimes we also have an issue because we don't recognize the revenues because we have shipped, but it's not yet in the customer's premises. That happened a lot at the end of Q1. I hope I have answered the question. I'm ready to give more color if needed.

Thank you.

You're welcome.

The next question is from Andrea Bonfa with Banca ACRUS.

Please go ahead.

Hi, good afternoon, everybody.

My question are two, essentially. One is on your overall results, and you can't quantify the inflation components on your top line performance. So if you can break down that minus 2% between volumes and inflation, if that is possible. The second one is more a generic one on your bid for cellular line. I'm wondering if you, I'm sure you consider that, if not that, if it's not the case that cellular line clients might consider you as a potential competitor. Of course, your industry has changed a lot since the last few years, but in the past, I'm sure that MediaWorld and UniEuros use yourself as a supplier. I'm wondering if there is any kind of this relationship and the fact that Maybe your purchase of CellularLine might not be well received, but from CellularLine's main clients. Thank you.

Well, I start with this last question. We are not their competitors. They are our customers. We don't sell to the end user. I mean, CellularLine, as well as Chelly, well, I should say about Chelly, I've seen some data of cellular line, but they claim to be selling direct with their retailing business. But I don't know their volumes, but that's not the market. I mean, we would sell to retailers. The end user, direct end user sales are nil, and there's no way whatsoever in our view that, especially in that area, you can have a success. I don't know if they, well, I know some of what they have declared. I know a lot of what they have declared as a matter of fact, of course. But I know that they have been talking about this end user strategy online, but we don't see it as a real strategy. We would definitely walk away from that. So no risk whatsoever that our customers and their customers would see us as a competitor. They will be our customers. We will be their supplier. That's the point. As for inflation, I don't have the real figure. Some products are starting to get more expensive. Also, seeing a question by Luca Ribaldi of Banner that is asking, do we expect some price increases in the next quarter? And I think I could put the two questions together. One is backward-looking and the other one from Mr. Ribaldi is forward-looking. Historically, our industry was deflationary, so prices were going down. What we are witnessing now is essentially price stability. Prices are not going down any longer. In some areas, there's a little bit of increase in pricing. On toner and ink cartridges, we are seeing something. Vendors are desperately struggling to keep a lead on price increase. And what they are doing is basically selling as premium a line that in the previous market would have been considered a mid-range product. So that's what's happening and yes there are some increases but not as much as we would expect. The other point that we see is that there's an official list price and then that the net sales price, which includes special discounts to move the products. In a sense, I think especially in the consumer segment, given the excessive inventory that especially retailers are having, we might expect some price reduction, net price reduction. Not at least the price reduction, but net price reduction for the customers because probably certain retailers and certain vendors alike will put some money on the table to reduce the level of inventory that they pile up expecting a steady flow of purchases that in reality in the consumer segment have been lower than expected because of fear of the war and inflation. So probably quite the other way around. Probably there could be price increases in the projects for companies because over there products are more in demand and there's less availability and so over there I don't expect an excess of promotions, but on the other side of the bench, on the consumer, could be that there would be promotions.

Thank you very much. Very useful. You're welcome.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone.

Once again, if you wish to ask a question, please press star followed by 1. Mr. Cattani, Mr. Fetti, there are no more questions registered at this time.

OK. Well, thanks, everybody. It's been a long hour and 10 minutes. Thanks, everybody, for joining us. And we'll see you in the upcoming events around Italy and Europe. Sorry, now I think there's a last question from Mr. Marco Corsiglia of Intermonte. How is evolving the cost of factoring? What could you do to mitigate the risk of further interest rate increase? Well, the factoring cost is embedded into the gross profit margin. And normally, and normally if the interest rates go up, we will have to give less discount to customers. And we don't expect to have a major impact there. The overall cost of factoring on our total sales is measured in few basis points. So there could be some hike, but so far, the impact of transport has been much, much higher. The financing overall of the company is mostly done with fixed rate funding. And that's another question, how are you going to finance the acquisition of cellular line? What cost do you expect it to pay? Well, I guess the cost is linked to the cost of the financing. We already have the financing. We have hundreds of millions of euros of available credit lines, and the financial sector is pretty, what we have heard, they're pretty eager to enter the discussion. We received multiple calls from banks. that are eager to look into this acquisition and fund it. But we already have the funding. What we will do as always, we will try to adapt our financial structure to the needs of the left side of our balance sheet. So if we will get into this acquisition, we'll probably try to beef up furthermore our long-term credit lines to get even more stability in our funding structure. But all in all, we already have the funding and as per the cost of new funding, if we will get one, we will look into it with the cost of structure that we will experience at that moment. It's something down the line anyhow, not now.

Apparently, no other questions.

Okay, so thanks again everybody and let's stay in touch and speak to you at the next call. Thank you and bye-bye.