Esprinet S.p.A.

Good morning everyone and welcome to the ESPRIT H1 2024 results conference call. Before we start, please note this webinar is being recorded and after the call, the podcast will be posted on the ESPRIT website in the investor section together with the presentation. For the duration of the call, your lines will be on listen-only mode. However, we will have a Q&A session at the end of the presentation. Please note again that this presentation contains four all key statements So I would like to draw your attention to the regulation note on page 2 regarding the information contained within this document. I am Giulia Perfetti, Investor Relations and Sustainability Manager of Esprinet Group, and with me is Alessandro Cattani, CEO of Esprinet. I will now turn the call over to Alessandro to present and comment with you the H1 2024 results. Alessandro, over to you.

Thank you, Julia, and welcome everybody for this H1 2024 results call. I hope you all had a nice summer. Indeed, we are out of a good quarter. Not only for our numbers, but mostly because of change in the market. The ICT distribution market in Southern Europe, after a slow start, especially in Spain in Q1, recorded a significant growth or improvement, generally speaking, in Q2. And that was confirmed by the preliminary figures of July. And the group keeps gaining market share, so we are happy about the performance of our team within this market. Signs are encouraging. Of course, we'll probably still have some bumpy road ahead of us, but most probably, What all analysts have said so far, the worst is behind us and we should see further recovery in the coming months and definitely next year. A bit adjusted is back to growth quite healthy in the second quarter of this year, 9% growth year on year. And for the fifth quarter in a row, we measured a reduction of our cash cycle and hence of our net debt. So all in all, Q2 is really something we're pleased of. If we dig a little bit more, as we will in a moment, we'll see that the team is performing in terms of commercial activity with market share gain. We had very strong cost control and that drove profitability. And in terms of the net financial position, we are down nine days of cash conversion cycle down at 22 days against Q2 23 and two days sequentially compared to Q1 24. So all in all, we think we have a nice trajectory. But let's look a little bit more into the market, which is something that is probably most interesting for everybody. We have been waiting after this long winter in the market for signs of recovery. And as you can see in the chart on the right side, the sales distribution trends in Southern Europe, Italy, Spain, Portugal. First column, the blue one, is Q1, 24 against 23. The second one is Q2 versus previous year. And then we also have July figures. We don't yet have solid August figures from context, the data provider. that is serving all the European industry. So Italy was down 3% as a market in first quarter, up 1.2% in second quarter and 7.2% in July. With a mixed bag of screens recovering, mostly in the PC space, mostly in the PC space, we're seeing still pressure on smartphones. Devices still challenge. We have especially TVs as well as white goods and mobility. And to a lesser extent, we have also pressure on printing. Printing is a sort of secular trend. And it was the solution where in Italy, down in first quarter and up in the second, and they showed a certain acceleration in Q3. Spain was the culprit of our below par performance in Q1, recovered from a minus 12% performance of the market up to minus 3.8 and close to zero. in July. Screens, devices, solutions, everything was bad in first quarter. We had devices back in slight growth in Q2, and solutions still declining less than before. Spain, must be noted, is highly influenced by government spending, much more than Italy. And because of the let's say, turbulence in the coalition that is running the Spanish government. The budget has not, the government budget has not been approved yet. So they are still running on the old budget. So they face quite some constraints in their overall spending. But some regional budgets have been approved and that drove certain improvements. And the consumer spending was better as well. Portugal, although still small for us, was the economy that grew the most. And so all in all, you see really a nice trend with the southern Europe closing the second quarter more or less flat, minus 0.3%. Screens slightly up, devices still down, mostly for the reasons that I said. And in Q2, the solutions market was flat. It took off well in July. Preliminary figures are softer for August, and we'll see moving forward what time will bring. Well, if you look on the left side, we more or less hit on all cylinders if we exclude Portugal, where we are in the middle of our transition from an heavily... consumer-driven business model to a more business and corporate-driven one. And we're seeing signs of improvement lately in that market as well. But everywhere else, be it country, be it product category or customer, we have beaten the market and quite substantially. I would like to draw your attention specifically on the solution and services market, which is the highest margin area of our business, as you might know. We outperform By far, the market in Q2 up 17% against the Fletish market. And if we look at the overall first half performance, we were up 12% against a market that down 3%. The value-added distribution that we run under the brand V-Valley, the reorganization we had in Italy, some troubles of some of our competitors, they all conjured for a really good performance. We are pretty pleased of what's happening. What's noting as well that the retailer market saw a measure of consumer spending was flattish as a market during Q2 against the first half down 6%, and we overachieved with a growth of 19%. That, of course, diluted a little bit the gross profit margin, but added volumes of gross profit in Europe. So, all in all, that's for the market. We tried to add this pitch given a number of questions that we historically received from our investors and analysts. And our last comment on markets is that the analysts still foresee for what any forecast in such turbulent times and unpredictable ones can provide. They foresee a second half with Italy growing 4% and Spain slightly above zero as a market. So a good recovery which should be confirmed as a trend in the next quarters. All this gave us the confidence on our top line to reconfirm the guidance, but we'll dig into it in a moment. Okay, so that's for the sales evolution. If we move at, let's say, at the market challenges and the opportunities moving forward, So we raise our head and look more long term. We see a bunch of opportunities. As I said, we might still have some bumpy road ahead. It might happen that we have quarters with the market less performing than what was this last one. But all in all, as we said, given the projections, given the trend, given the fact that we seem to see a recovery also in private consumer purchases and a quite healthy performance still of the business segment, We believe that we're in a stabilization phase, but we should see growth in the coming years. IT spending is indeed forecasted to grow in the coming years. We have AI on one side and the the 2020 expenses it expenses refresh that are key drivers of this of this forecast probably ai short term is a bit overhyped still mostly focused as the consumption in the large very large enterprises but slowly the technology is getting accessible and the applications are hitting the ground. And more and more, we'll see AI spanning in its different variations, be it spanning in software or infrastructure or personal devices. You might have heard the launch of the latest Apple devices and the round of innovation hitting the PC space, well, all of that will turn into good momentum in terms of growth in the next years, outpacing the average GDP growth, which is a clear indication historically of what the performance of the IT market should be. Normally, we always see IT spending a few percentage points, IT spending growth a few percentage points higher than the GDP growth in that period. We see also a rebound in the PC market after a very, very challenging 2023. We're seeing AI-capable PCs. Even these PCs apparently are 14% of the total amount of PCs shipped during Q2. We're just at the dawn of a new era. Probably PC growth will, in the short term, be mostly driven by the product refresh cycle. Next year will be in the fifth year after the burst in PC purchases subsequent to the onset of the COVID pandemic back in 2020. So this will be a strong driver. But as a number of software applications are more and more getting into the market and More and more SMEs, as well as individuals, will see applications, AI-based applications that they deem useful. The amount of AI-capable PCs should grow, and that not only should drive volumes, but they should sustain at the average selling price as well. Well, we also are seeing improvements in the retail channel. Of course, we have witnessed a strong impact on consumer buying patterns by the cost of living and probably the revenge spending in terms of the travel and entertainment after the COVID years. We're seeing more and more signs of stabilization and of people also because of the very high inflation in travel and entertainment restaurants and whatever. We're seeing a more balanced mix moving forward and therefore more money allocated by individuals to the renewal of their in-house devices, among which we'll see, of course, traditional IT products such as PCs as well as smartphones. But definitely, we'll hopefully see a rebound also in TVs and the other consumer electronic devices, namely electrical mobility as well as white goods. And last but not least, we're seeing inflationary pressure, interest rates, well as probably the geopolitical instability that should hopefully ease and that should drive both an acceleration of growth as well as have a positive impact on our p l if we think of the impact of of 25 basis points of interest rate reduction just on our average outstanding factoring costs. We normally have an average between 300 and 400 million euros of factoring. Those are automatic contracts. a reduction of 25% turns into a few hundred thousand euros of lower factoring costs, which we book according to IFRS standards into the gross profit margin. So those should help our gross profit improvement. Well, that's for what we see moving forward. So pleased what we're seeing in the market. Of course, we are not completely out of the blue, but things are getting definitely better. And it's still probably a transitional year in terms of market and, of course, indirectly our performance. But we see growth moving forward as well as really big opportunities for the next year. If we dig into the H1-24, so now we dig into aspirin more than on the market. Well, in Q2, thanks to the growth in revenues and a very strict cost control, notwithstanding the inflationary pressure, which was particularly strong in the wages, we recorded an impact on our cost of personnel, which is the biggest portion of our overall SG&A, because of the standard bargaining agreement negotiated by the government, which drove increase. And notwithstanding this, we saw a 9% increase in EBITDA adjusted. And as I said, also, fifth quarter in a row of cash conversion cycle sequential improvement. Gross profit grew in percentage, gross profit margin, 567 against 553. As I said, due to worse sales mix with higher retail sales, gross profit in Q2 was slightly down from 575 to 559. But in absolute terms, we saw growth a bit adjusted, was up 9%. And that allowed us to recover almost entirely the gap that we had against the previous year in Q1. And what is interesting is our negative net financial position of 164 million is definitely much better than what was the previous year, 207, and sequentially in March, where it was negative by 188. Worth noting that we used more than 30 million euros less of factoring. So the number would have been even better if we had not managed to use even less factoring. And Rossi's return on capital employed is up sequentially, as we forecasted, given the constant improvement of our of our profitability but especially the cash conversion cycle we should see return on capital employed improving in the coming quarters as we drop all the quarters with worse numbers and we add in the average new quarters with better numbers But let's look more in detail to our P&L with our usual view on the five pillars. Here you see Aspirin. As you remember, we have now basically two major legal entities in all countries, Aspirin taking care of screens and devices, including our own brands, and Vivale taking care of solution and services. And in terms of performance, as you can see, we had a good and healthy as reported revenue growth of 4%. The solution market in particular is affected by IFRS 15 to a large extent because we do sell quite a good chunk of cloud and software that is recorded as agent and not as principal. And therefore, our gross sales are significantly higher and we stripped them down. That's why we see 4% growth. But in reality, gross sales were up 9%. In terms of EBITDA, we had an improvement more or less on all lines. The only area where we suffered was devices. Devices suffered for a number of reasons. The own brands, Nelox Sport is still challenged. West Chile is really out of the game. say, the problems, and it's growing with growing profitability, Neloxport is still suffering the slow demand in electrical mobility. And then we had a particularly challenging market in the TV, gaming, and white goods space. And we had allocated more costs. So both a little bit less margin, gross profit margin, and there are more costs to move these bulky products. Everything has improved, and if we see the H1 numbers, we see stability in solutions and services with a better mix, more skewed, more and more towards the services. and we see the the weight of this tough q2 on devices that dragged a little bit down the profitability the a bit imagine of of the aspirated area but all in all as you can see the A bidda margin of the value added distribution portion of our business, so the value is 365 against 57 basis points. of Esperanto total. We do have a lot of seasonality, as you might remember. And in terms of profit, the value-added distribution is now by far the biggest contributor in terms of euros. Okay, that's for the five pillars. If we go to the If you go to the P&L, we have summarized the numbers here, just a couple of words on the On the SG&A, we have exerted a very, very strict control. And as you can see, though we are growing in terms of revenues, even more so if you consider gross revenues, which are the real driver of costs, our cost base is down. And that's even more noticeable, more noteworthy if you consider that last year we canceled the the accruals we made for the long-term incentive plans for the directors, they had long-term incentive plans in place, and we have withstood the impact of more than half a million euro of the increase related to collective bargaining agreements. Despite all of this, we had a very healthy cost control. We are controlling inflation. In terms of interest charges, as you can see in Q2, as well as in the entire first half, We had significantly lower expenses, and now you have to strip out of the 9.5 million of this quarter and 11.8 of the half, roughly 6.9 million of... of the interest related to the tax dispute that we settled last year. So in Q2, our net financial expenses were down compared to previous year. And that's basically the result of, although with year-on-year worsening of our average average interest rate because we still had last year the carryover of older financing schemes with lower cost. We had significantly less average financial debt, so pleased to have this under control. We still had some exchange losses. But as the euro is recovering against the dollar, probably the situation should improve. As a matter of fact, we had good numbers, for instance, in July. And we had a one-off impact by the cancellation of some tax assets in July. In this quarter, it is something that, apart to the adjustments that we do during the year, we don't foresee anything special by the end of the year. We should have the average tax rate between 26 to 27. That's what we present. That's what we see. And last but not least, the impact of financial charges of the non-recourse credit transfer programs increased 7%. basis points within the gross profit. And we were able anyhow to grow the gross profit in the half. So that's for the P&L. And if we go into our balance sheet, well, I said before, we had an improvement, which is all linked to the operating net working capital. Here you can see from H123 on the right side, moving quarter by quarter till June 30 this year. The evolution, and we'll see in a second the cash conversion cycle days, the factoring programs, which are mostly for retailers, were down to 334 million against the 364 of last year. So the working capital is even better if you consider that we sold 30 million euros less of factoring. And if we see the numbers in terms of cash conversion cycle, please, Julia, if you turn the page, thank you, you see that sequentially Since the peak that we experienced in Q123, where we hit 32 days of cash conversion cycle, or 877% of working capital on sales, we added for... For our investors and analysts, also the metric of working capital on sales. Basically, if you multiply that number by 365, you should get the cash conversion cycle. Internally, we are used to the cash conversion cycle. And we are sequentially down two days. As you can see, no really big changes in the last year in inventory days as well as the light worsening. But we got more and more support from our vendors because we are rebuilding inventory for a very aggressive end of the year. And hopefully that will turn in above par performance in this last part of the year against the subpar, significantly subpar performance of last year. So let's see if this will turn into reality. That's part of the assumptions that were made while preparing our report. best and worst case analysis for the end of the year, given the numbers that we know as of yesterday, well, day before yesterday in terms of sales. And we expect, thanks to this activity on inventory, we now have less pressure on reducing the inventory We have more support financially from vendors. We do expect to have the products to fulfill the back to school as well as the Black Friday and Christmas Eve campaign. And therefore, hopefully, we should have the volumes that should drive a good performance in terms of bottom line as well. And if we look quarter by quarter, you see the trend as well. We hit in Q2 2022, 31 days down to 29 days last year, 22 this year against the 16 in 2021. And two, in the exceptional performance that we had in 2020 when we were in shortage of products and vendors gave extraordinary support. for the COVID period. We are not where we want to be in terms of cash conversion cycle, cash cycle days. As you know, we have an ambition to be below or around 18 days. There's still room to go. We have long-term plans in place to redesign and overall completely our procurement processes. It will be a long-term process that will go well into next year. And that should drive improvements, all things equal, in the inventory days, which are not yet as good as they could and they should be. There are still areas of inefficiency. That's a bad piece of information, bad news, but good news as well, because there's room for information. We are tackling it. And it's mostly training and redesigning of certain procedures. We have done it already in the past. We are honing our skills thanks to new tools available also out of business intelligence and AI on which we're working. So in time, we think that trend should go on. As I said, there might be spikes along the road, but the path is well designed. And last but not least, in terms of return on capital employed, we eventually see a rebound, and hopefully we should see, as this is the average of the last five quarters, As we move forward and quarter by quarter, we lose the worst ones back in 2023. And we enter more and more with the newer, more recent ones. Hopefully, with also the help of improved profitability, we should see a rebound of our return on capital employed. Okay, that's the four comments and final remarks. It's just a quick summary. Well, first message, market apparently is back to growth. And this happened in Q2, and this trend continued in July. As I said, might be that some months or quarters might be softer than others, but the trend is defined, and there's let's say, a structural positive trend that should drive growth in the next years. Market share is growing. we furtherly grew our market share in Q2, and we were particularly good in solution and services and IT resellers. The market over there is more and more understanding that we are no longer the new kid in town in value-added distribution. We are more and more an established and solid player And hopefully we could see good momentum moving forward with the new openings of contracts and growth in this area. And we were good also in recovering the contracts. portions of the market that we lost last year in consumer segments because we were so focused in cleaning up our inventory. We were not with the best inventory in terms of inventory days in the market, but given the support we have from vendors and the possibilities that we see out there, given the performance of most of our especially smaller competitors, we see an opportunity and we're chasing this opportunity. Cost control is always, of course, of paramount importance. We were, I think, very good in offsetting inflation and all the headwinds that we faced. despite increased sales volumes, and that contributed to growth of EBITDA, and we improved our working capital, and we have long-term plans to keep this under control in a more structural way moving forward. We have made our analysis. Of course, we need to do a hell of a lot of sales in the next four months. But based on what we have seen so far, performance of the market, our performance also in this current quarter, which so far is pleasing us in terms of volumes, Well, we foresee so far an EBITDA between 16 and 71 million euros. We'll have an update, of course, in November when we report our Q3 figures. We'll be with a very clear picture of where we'll stand also in terms of demand in the market by that time. But in this moment, we have a certain degree of positivity. And we are even more positive long-term because we really see the evolution of the market as well as the evolution of our group going very well in the right direction. Long-term digital transformation trends will continue to drive strong increase in spending in technology. There's this AI momentum, which although overripe, probably short-term is definitely a defining moment for our market, probably as it was the introduction of the World Wide Web back in the early 2000. So it would be a strong driver of structural growth moving forward. This greater digitalization is creating more and more complexity for end users and for system integrators and retailers alike. And so they'll need more and more, and vendors more and more, in need of distributor-provided services. And that should drive good opportunities for us in the very lucrative market of those reseller-related and retailer-related services that we provide. And not big volumes, but extremely high profitability. And there's a bunch of opportunities that we are already chasing stemming from the convergence of some sectors toward technology. I think, we think in particular, the digital and green transition, which is driving major opportunities for all of us. And that's it. So we are more upbeat during this quarter, mostly because of the market and because we're really seeing the group doing what we expected. It's been a long journey. This year and a half has been strong and tough. We're not yet over, but we're much more confident than before. And with this, I turn the world back to Giulia for the Q&A session. Thanks, everybody.

Thank you, Alessandro. We can start with the Q&A session. Mr. Storer, you're the first.

Please go ahead.

Hello, thank you for taking my questions. The first one is on the consumer space where you have seen big increase in Q2. I was wondering if you have a sense on the level of stock at client level and whether sellout and selling are moving in sync or we are still in a phase where sellout is weak and selling maybe is a bit stronger. The second one is on your profitability in services which I know that we are talking about small numbers but it was heavily down here and here in Q2 and I was wondering if is there anything to highlight here or it's just a blip Third question, a clarification. You showed figures from July. You said probably August is not as good. I guess those figures are not adjusted for selling days because July was probably two days more compared to July last year. August was one day less. So just to clarify this. Thank you.

Yes, well, yes, on the last question, they are not adjusted. Numbers adjusted are showing growth anyhow. That's what context NGFK provided to us. So the numbers are better. And overall, July-August preliminary figures seem positive. Again, as I said, we're not... completely out of the doldrums, but things are getting definitely better. We no longer see a constant slide of the market. Neither the forecasts are going that direction. On services, I think you referred to the percentage more than the absolute value. Yeah, yeah, yeah. Okay, yeah. The absolute value grew. Well, services are a mixed bag. We have services where we have more of a... of an activity with the factory being aspirated, and others where we outsource a part of the activity to third parties. There was a bit of this mix, which impacted mostly the gross profit margin. And looking at the numbers, we had the cost structure was the amount of cost allocated to the services was lower. because we had more services that were purchased in brackets and hit the gross profit. As I say, it's a matter of mix. We have, for instance, data services and logistic services where we use our facilities so more or less each year of revenue is with exception of the with the people involved which normally very low there's a lot of automation there in data is almost 100% automation that's not that much of a cost so it's almost all profit then we have a certain digital services or maintenance and installation service that we provide on behalf of system integrators that are more people intensive and we needed to purchase that. That's why there's this percentage, but it's really depending on the mix. Volumes are not big yet, but it's good to say, this question is good also for one point, we are really investing a lot in this area. So we have plans to roll out strengthening of our structure over there. And that is another reason why we are very positive for the long term, because we think if we could grow these services as we plan, that could add not so much revenues, but definitely profitability. On the first point, the consumer space level of stock, we have visibility, but up to a point. If we cross-reference GFK sell-out data with the context sell-out data, Context records our sales. GFK has two services. They record our sales, so it's a copycat of Context, but they do have a service, which is their main service, in which they record the sellout of the retailers especially. rather weak in the sell-out of system integrators, but very, very strong in retailers. To the extent that we have visibility, it looks like they are sort of aligning sell-in with sell-out. So it should not be a build-up of stock by retailers. If you cross-reference with the performance, stock performance of retailers, MediaMarkt with their recently released data as a economy. And you look also at the numbers of Uniero in Italy, you should find a match. But for what we see, and again, I say it loud and clear, we have not a full visibility of what's happening over there. We have mostly

third party third hand information apparently there's no particular beat up of inventory over there hello good morning thanks for taking my question so the first one is about the reference market so considering In QQ results, the July and August update and the positive market sentiment, it appears there is a solid foundation for recovery in market demand in H2. The point is, given the more favorable comparison base, so in H2, in 2023 revenue, we're down 17%. would be a reasonable growth that might we expect for the rest part of the year? Or say it in a different way, might we expect S-Penet to keep outperforming the reference market also in the second part of the year? The second question is about the cost structure. So in terms of COGS, considering again a potential rebound in the consumer space might we expect some margin dilution in terms of gross profit in H2 while on the OPEC side in H1 you effectively managed operating expenses keeping them nearly flat year on year. It's reasonable to expect a similar trend also in H2, so allowing for a higher degree of the operating leverage. And the last question is on the networking capital and cash generation. You were able to further reduce networking capital, also thanks to a greater recourse to factoring if compared to the Q1. But at this stage, what we expect the trend to remain consistent with also in H2, or a potential rebound in consumer feed could require some networking capital absorption. Thank you.

OK, thank you. So on second half, well, Yeah, we outgrew the market. Last year, we supposedly lost the share, especially in the consumer segment and not only there, because we were mostly focused on inventory reduction. We are regaining some of the share that we lost because we were tactically focused on cleaning the stock, which we did. we will structurally lose certain deals. If you see the performance of screens, it's a mixed bag. Very good performance in PCs and a fairly poor performance in smartphones because we structurally walked away from certain deals which we think, and certain vendors that we think so far are not possible to manage in an efficient and profitable way. Yes, we do believe that there's an opportunity in terms of market share gain. In our different scenarios, we plan, of course, to keep having an outperformance with a healthy growth of our top line against the previous year. The numbers otherwise would not be possible. That's where we stand. So, yes, we do plan growth. And this is connected to the last question in working capital trends, in a sense. In growth, we see growth also, and your question on GP dilution, in growth, we see also growth in retail and some consumer-related products, namely PCs, but not only PCs. and that could dilute percentage-wise our gross profit performance. We are doing very well on the value-added distribution spaces on solutions with Vivali, both in terms of top-line growth as well as in terms of gross profit margin performance. But If we will, as we expect, regain a part of what we left on the table last year in the consumer space, and especially more, even more so, if the retail market will rebound by itself, there will be some potential gross profit margin dilution. Not big in our forecast, because otherwise, again, the forecast would not be possible. but it is a possibility. We hope that Overperformance in the V-Valley business could offset what might happen on the other side, but we will see what happens. Definitely a reduction of the interest rate could also give a little bit of help in this sense because retailer sales are mostly factored, and if the interest rates go down by 25 basis points, that could have an impact on Q4, which we estimate, if you do 400 million average times 25 basis points divided by four, so to have a single quarter, we should end up having something around the 300K, 250 to 350K. And that would go into the gross profit and therefore helping in this sense. As per the cost structure, so the trend in working capital, sorry, might be affected by a higher usage of of the factoring, but also if we improved our performance in the retail space with PCs and to a lesser extent with other consumer-related products, consumer electronics-related products, including smartphones, that would improve the stock turns. And having received quite good support from vendors, that should not impact significantly the working capital in terms of cash cycle days. Those are the assumptions. Then again, in the next month, we'll see execution and see what the market will bring. Last but not least, the cost of structure on GP, gross profit dilution I spoke. On the fixed cost, we are exerting an extremely tight control on our fixed cost. In our plans, we plan to have a cost structure similar to the one that we had last year. It might be slightly more, slightly less, but more or less we should be there. The big question mark is the level of achievement of the target bonuses of our people. That could be a matter of a few millions, some of which last year were not paid. We hope to pay them. So it's the balance if we achieve higher gross profit. Then we hit the margin and we pay the bonus. Otherwise, there might be less cross-profit, but less bonus. So it's a balance mix. But all in all, it looks like we are having the cost structure fairly under control. Crossing fingers, of course.

Perfect. Thank you. You're welcome. We have another question. The question comes from you. So please go ahead.

Yes, hi, good morning. Thank you for your presentation. Just a very general question regarding PCs and smartphone market. I was wondering what the potential pace of the recovery in screens could be over the next few years. Also considering that, as you mentioned, the natural replacement wave should be boosted by AI products. I mean, do you see a gradual steady recovery in demand or do you see a sharp increase in demand concentrated, I don't know, in the next couple of years and then a return to normality? So which is the trajectory you see?

Well, there's a ton of debates around this. I invite you to listen to the investor calls of Lenovo and and HP were held recently, we are, of course, mostly relying on them. They give a broader picture of the evolution. But if we look at what we're seeing here, the discussions we had with vendors at global level, as well as European, and to a certain extent, of course, national as well, Probably the initial assumption of a strong boost driven by AI is now more perceived as changed over by a strong boost by AI. product refresh. So next year and probably the following one, we should see a major, major refresh, both because we will be five and in 2026, six years from the 2020 burst in spike in PC purchases. as well as because we have Windows 10 end of life. Meanwhile, there's a driving force which is represented by AI. And AI, so far, use cases that are really compelling enough to force people to open their wallet and put money on the table to change the devices or to purchase a new software are mostly in the enterprise space. There's some nice activity going on in very consumer related demand. So probably smartphones could have drive because certain applications related to sound and image to a lesser standard to online translation are already available. They do nice things. And so they could be the driver of tech refresh of smartphones that historically in consumer space have a shorter cycle than PCs and smartphones in the corporate space. And And therefore, over there, AI could be the driver much more than refresh. AI refresh... in corporate or small enterprises will probably be more, in our view and the view of most of the analysts, a sort of driving force, like a long wave that will sustain sales in time. We might expect hopefully a strong growth next year and the following one. And then instead of bouncing down again, as we did in 2022 and 2023 especially, we might have a more sustained pace because the investments on AI will be a sort of long-term wave that will drive the market, especially because these products come with an average sales price which is higher. They have the narrow processing unit on board. They are more expensive, intrinsically more expensive. So, summing up, Probably a refresh-driven spike next year and the following one in corporate spending. Longer-term sustained growth driven by AI, whilst in consumer space, probably especially in smartphones, AI could be more of a shorter-term driver, and then corporate will follow later on. That's what we have heard and that's our vision. Then, as we always say, if we were so good at forecasting the future, we would have never missed a target we gave in our history and probably we would be so rich that we would be on the other side of the call investing billions instead of here trying to make money for our investors.

Okay, so there's another question from Mr. Longo. Please go ahead.

Good morning and thanks for the presentation. Just one curiosity. Do you think that the smartphone market will go, probably, this is related to the presentation of the new products from Apple, for example, And the fact that they said that the Apple intelligence will be available in Spanish before then Italian. So for the end of 2024, probably it's going to be available while in Italian probably is going to happen after. So in 2025. so do you see or do you have an idea of the fact that there could be a stronger smartphone acquisition trend in in the Iberian region and maybe that in Italy this can come after or what how do you see what do you think about this potential dynamic

Well, yes, theoretically it's possible. AI is made up of the model and the devices and the training. Spanish is a language where there's a lot more let's say, literature available than Italian. English, of course, is the largest market, at least in the Western world, but not only. Spanish is, with Chinese, probably is the second largest language. So, naturally, I think, The Spanish language has a structural advantage in terms of training the model because there's more papers available in that language. So yes, it could well be that given the availability of these AI devices, the Spanish market could be faster. But on the other side, I would also say that consumer spending normally is the result of two things. The share of wallet that is allocated by individuals, by families to a specific product category, be it IT, be it travel and entertainment, be it fashion or food or whatever. And on the other side, on the spending power of families. Now, spending power of families has been definitely impaired by the double blow of inflation and raised interest rates, which hit hard on the budget of families that do have a mortgage. Now, that apparently should improve the share of wallet which was disproportionately skewed on in-house spending during COVID and then disproportionately skewed towards outdoor spending, so travel and entertainment after COVID, now probably will bounce back to a more balanced way. I think personally, given the experience we had, that the key driver will be the spending power and the share of wallet disposition of Spaniards against Italians. Then, of course, having more appealing technology in Spain could be valuable. further drive, but if the Italians have more willingness to spend and more money to spend on technology, they will probably spend more on technology. Perhaps they will buy something which is not the Apple AI smartphone, but they will buy something. And then they will wait for the AI product later on. That's our guess, but again, as I said, It's really hard to read the numbers. Although we run a very broad product portfolio, historically, we have never really tried too hard in reading the trends of the market. It's so difficult. It's better to have more or less everything. if possible. Of course, unfortunately, we are not really 100% an ETF of technologies. We don't have the same weight of each technology and within each technology of each vendor in our sales to mimic what's happening in the market. But we try hard so that if we don't forecast properly who's going to be the winner, anyhow, we will have the winner on board. That's what we have to do. And then adjust our inventory accordingly. All this said, it makes sense what we said. I urge you to consider the two balances. training on one side, but consumer spending disposition and capability and availability of money on the other. I think the second will prevail on the first one. And let's not forget that you spoke about Apple. Apple was one of the last to enter the market with AI. There are already out there devices that do have some sort of AI-enabled capability on board. I'm using one of them, by the way, and I'm not using the AI. I know that there's something inside, but the rate of mistakes that they make is so high that I prefer to trust the traditional way of doing things.

And talk with other people.

Yes, it's better.

Thank you very much. Very clear. Thank you.

You're welcome. I think we don't have questions.

Seems there are no more questions, so we can end the call. Thanks to all of you and see you next time.

Thank you. Take care. Bye.