Esprinet S.p.A.

Good morning, everyone, and thank you for joining the Esperant Group Q1 2025 results presentation call. I'm Giulia Perfetti, Investor Relations and Sustainability Manager of Esperant, and with me is Alessandro Cattani, CEO of the group. Before going into the details, please note this webinar is being recorded, and after the call, the podcast will be posted on the Esperant website in the investor section together with the presentation. During the speech, your lines will be on listen-only mode, but at the end there will be a Q&A session. Please note again that this presentation contains forward looking statements, so I would like to draw your attention to the regulation note on page 2 regarding the information contained within the document. I will now turn the call over to Alessandro to present and comment with you the Q1 2025 results.

Thanks Giulia. Hi everybody and welcome to this new presentation for our Q1 2025 results. So let's jump into the numbers. The highlights of the quarter start with one positive piece of news. Sales performance was pretty positive for the group. And this is confirming our positioning in the key markets where we operate. What is even more interesting is the fact that the Q1 data market-wise confirmed that the overall ICT spending environment is in good shape. We have recorded and reconfirmed the recovery in consumer demand, the return of growth of the PC segment, and the excellent performance of the market in the solution segment. Even more noteworthy is the performance of the Iberian Peninsula, where last year we recorded a minus 12 percent market-wise, and this year we have sharp growth, high double-digit. Things are moving on pretty well. We grew in all regions and essentially in all product and customer service. We'd like to draw your attention on V-Valley, our value-added distribution branch, and Zeliatek, our green tech distribution branch. which respectively grew 12% and 16% against the last year. As you probably know, we have embarked into a multi-year transition from a volume distributor into a value-add distributor. And the numbers in this area, both at the revenue as well as profitability level performance are pretty good. transitioning, and therefore, there's still quite a drag on our numbers from the volume numbers, the area distributed under the brand Esperant. So, screens, PCs, smartphones, and devices, more or less everything else, consumer electronics, accessories, and printing devices. Gross profit was up 2% against Q1 24, with the gross profit margin at 5.65. The challenging portion of our numbers is at the bid level. A bid adjusted and a bid are the same, there's no adjustment, 10.8, and that was impacted by the high growth of our GNAs, and I'll come back later on more color on what's happening in the cost section, there's a huge impact on inflation on the EBITDA as well as EBIT margins linked to the on one side collective bargaining agreements that have been raised quite sharply in the second part of last year. This first part of the year, and definitely first quarter, is impacted by this year-on-year inflation on wages that's also indexed costs on our rents that are then converted into both depreciation and financial charges according to the IFRS 16 accounting principle. We are experiencing a lot of pressure in that area. We have also had some seasonality in our cost structure, but I come to that in a moment. Cash conversion cycle is pretty much stable at 24 days, two days compared to Q4 24, but that's mostly seasonal and unchanged compared to Q1 last year. Therefore, there's, as usual, a sharp increase in the net financial position of Q1 against the end of the year. Return on capital employed is unchanged against March last year. Looking forward, data for the market as of April, preliminary data are pretty good. Italy apparently market-wise grew 1.6%, and Spain 4.5%, or 4.6%, and Portugal double-digit. And we have recorded solid growth, really solid growth. And this will be a sort of a theme, a narration that we will have probably during the rest of the presentation in the year. Let's move to the sales evolution and let's comment on this. We continue to execute the business strategy well in terms of volumes as well as growth profit margin. Portugal, after a tough year of restructuring, is back on profitable growth this time. Having shared a portion of low margin and high working capital absorption businesses, Morocco is still outgrowing the market. Italy is flattish in terms of market share, and Spain is down in terms of market share against the market, but essentially, because of the smartphone performance, without smartphones, we would have grown more or less in line with the market. And again, you see down on solution and services and green tech, we then have the market split into the two areas. But as you can see, we are growing in line with the market. And again, what we are seeing in the market is a market that is recovering. Albeit a very, very challenging and confusing macro environment, the expectations for the year are still pretty good in terms of market performance and of our performance within the market. What is challenging is the inflationary environment that we're dealing with and the unpredictability of the market, which is creating a number of extraordinary pressures to our vendors They don't know how to allocate their budgets across the world, so there's a disproportionate pressure on sending products to Europe. We're fighting a hard war to predict the market and keep the working capital at bay. The unpredictability is absolutely outstanding, incredible. Just to give a figure, we recorded high double-digit decline in February revenue-wise, followed by high double-digit growth in March. It's really tough for the channel to forecast what's happening and therefore, manage what is already difficult in normal times to manage our working capital. So that's the thing. That's a bad thing, but also a good thing because having an healthy environment and having a sales and marketing strategy that is performing well is good news. We have to work internally on addressing this inflation and the working capital issues. This is something where we feel more confident that we will be able to do it because it's part of our DNA. But we'll see it in a second. So let's look at the Three pillars or three dimensions, S-Prinate, that means volume distribution, PC and smartphones in the screens area, devices, so consumer electronics and printing and accessories. Then V-Valley, value-add distribution, solutions, server storage, networking, software, cloud, cybersecurity, and services. And then the green technology is distributed by Zelia Tech. Revenue-wise, as you can see, we have pretty solid growth across the line. The EBITDA adjusted is affected mostly by the higher wave of inflation. the fixed cost on revenues, which drag on all product lines. Gross profit wise, all the lines of businesses grew with the only exception of devices, which keep being extremely challenged, especially in the TVs as well as white goods area. But everything else grew in terms of gross profit margin. And even though there was a higher level of cost associated to the business, you can see that there was a pretty, pretty good performance. Take a green tech, for instance, Azalea Tech, they even grew. against the first quarter last year. Zelia Tech has a very peculiar distribution of gross profit performance across the year. There's a lot of so-called back-end margin that is linked to volumes and which is, from accounting principle perspective, accrued only when we have 100% certainty of getting them. That normally happens either in Q3 or in Q4. But like for like, we're growing in terms of gross profit pretty healthily, considering that they had to absorb, as the rest of the business is, quite a big amount of costs. In devices, we also have our own brands. Our own brands run a budget of advertising. And we had a concentration of costs in the first quarter. So, also the Q1 is abandoned with disproportionate amount of cost, advertising cost compared to the rest of the year. What I can say is we are in, as of Q3, we are above budget in terms of performance. because of this seasonality. If we go to the P&L summary, and we dig into the cost structure, we see that the gross profit was down essentially nine basis points, mostly linked to mix and especially to the lower gross profit margin in devices. This is particularly noteworthy because we have been using more factoring, so there were more cost of factoring costs booked into gross profit, even if the factoring Costs percentage-wise were down because of lower interest rates. On the other side, we had another big impact of inflation on freight, especially in Italy. And although we had all these impacts, The big net effect on gross profit margins was essentially related to the different product customer mix. As I said before, all product lines with the only exception of devices and in devices mostly linked to TVs and white goods were up in terms of gross profit. SG&A is impacted mostly by a sharp growth of our personal costs linked to this collective bargaining agreements increases that were active since Q2 last year. We had the advertising expenses on our own brands, which I mentioned before. We had somehow higher impact of variable costs on sales. We grew sales, so there's a little bit of impact also on variable costs. Variable costs account for roughly 50 basis points on revenues. Then we add to bear costs linked to regulations. ESG regulations, and then we also had to beef up our cybersecurity costs. And we're starting to deal with certain artificial intelligence projects, mostly aimed at improving productivity, we're now going live in Q2 with some of these activities, which should bear results, bring results during the course of the year. As you can see, we have roughly 34 basis points of higher GNA on sales, and that is reflected mostly on the lower percentage of EBITDA. In terms of EBITDA, we have the higher depreciation of the right of use of the new warehouse in Tortona, which was fully operational in terms of cost since Q2 last year. We bear also here the higher impact of depreciation linked to the revaluation of the rents that we pay linked to inflation. In terms of net financial expenses, you see the higher impact of IFRS 16. This is partly linked to the cost of the Tortona Logistics Hub in Italy, as well as the level of utilization of... Sorry, the level of... higher rents that I mentioned before, linked to inflation. As per the other financial income and expenses, interest rates started to decrease. We will probably see improvements during the course of the year. We have a positive effect linked to short-term financing, but we have also a bunch of mid- and long-term financing, which aspired and progressively is renewed at higher levels of cost. Here, we add essentially higher cost because we use a bit more of average working capital during the quarter. And then we add gains on foreign exchange against losses of last year. Income taxes are substantially unchanged. As long as there's a different mix and weight of the different companies, the nominal group rate is higher. And that's for the P&L. If we go into a balance sheet, here we can see the performance in terms of working capital. There are basically two effects. One is linked to inventory. We had a higher inventory against the last year. We are facing a monumental pressure from all vendors to ship the products. They are convinced that the market will absorb them. That's an enormous question mark on where exactly and when. In Q1, February was down double digit, March was up high double digit. So it's very difficult to forecast. We're trying to balance the situation with our suppliers. And we are also having a different mix with more sales in the value spaces or value add where we normally run a lower levels of inventory and so lower levels of financing from vendors. Here we are. in the middle of a major and ambitious project to completely redesign our inventory planning methodologies. We have trained all the people in our group, more than 200 people in purchases. We are working with a consulting firm. We're buying new software to work on working capital management. And so we expect working capital management metrics to improve during the year, albeit the variability that we are experiencing in the market. We have grown in volumes, revenues in the retailer space, and so we have increased our factoring programs. If you look at the numbers, we go back to 2018 in terms of a graph, you see clearly the evolution in time, the level of inventory was down during the pandemic years then was up. We're basically back to around 2018 with a very different mix. got a very high support from vendors that moved from 55 to close to 90 days in terms of payment terms. But we had to bear higher DSOs because moving towards value at distribution over there, so far, we're not being able to factor receivables as we did and as we are doing. with the consumer portion of our sales. If you look at the following slide, the quarter end metrics, you see the high variability. We're back to 37 days against the 26 of last year, 41 of Q3. and mostly linked, as you can see, to partly DSOs and lower support from vendors, mostly linked to product mix. And this eventually impacts on our return on capital employed, which is back to the pre-pandemic period. We're working on redesigning, as I said, We began last part of last year. completely the demand planning processes and the interaction with vendors. Because with the new distribution setup, we have more skewed towards value at distribution. We think we need to change the dynamics and this will hopefully bring good results in time. So now let's focus on the what's happening in the future in our view. So first and foremost, the backdrop, we already discussed about what's happening. Even if there's some major uncertainty linked to well-known American policies, both we and the sector analysts look at a future which we think should be good. There's been no fundamental changes in the overall structure of the industry, and we all remain pretty positive for the current year. As a matter of fact, the performance of the market of the first three months and our performance in the market in the first three months, as well as the preliminary figures of April, What we're seeing, by the way, in May, all point in the same direction. Market looks good. Extremely variable, unpredictable. trend line is very positive, and that's driven by the same things which keep on being reconfirmed time and again. We have seen and we keep on expecting good growth in the PC segment, where we have the refresher cycle after the pandemic, and we have also the Windows 10 end of life. We have witnessed a recovery of consumer demand, which for our volume distribution portion, which is still huge, it's a good point. More importantly, investment by companies and governments in the digitalization of their processes, the investments in cybersecurity, the first projects in artificial intelligence They are all running well, and analysts keep on estimating the low or mid single-digit growth for the current year for the market. Things are moving in that direction. What is about pricing policies from vendors? Well, we are not impacted by tariffs. Well, actually, nobody really knows what the heck is happening with tariffs. They keep on going up and down. Anyhow, assuming that there will still be a tariff war, this is not impacting us at all directly. Because almost nothing is really manufactured in the US. There are very, very few exceptions, supercomputers, for example. But the vast majority, if not everything that we distribute, although sold by American companies, is manufactured and shipped by their Far East or Eastern Europe subsidiaries. So no impact on tariffs. And less component costs increases over time. Apple apparently is thinking about a price increase, which is not really linked to tariffs, it's mostly linked to the components costs. The real question mark is whether there will be a recession or not, or a slowdown, if not a recession, a slowdown in growth. And that is an indirect effect of the incredible volatility and uncertainty in the market. So far, consumers are still spending. Most of our customers are telling us that the demand from their end users, companies in this case, is still pretty solid, even if, of course, everybody is extremely worried. And those companies that are either heavily reliant on exports to the US or are invested in the US have no clue whatsoever what to do in the future. And that could be a drag mid-long term on overall demand, but not in a sense, a result of the IT sector as such, but more broadly, an impact on the economy. The data for April, as I mentioned before, are pretty positive, and we have recorded very solid growth. So we're seeing a sort of schizophrenic behavior in our group. We're having a top line and gross profit margins that are performing pretty healthily in a reasonably good environment, which is still forecasted to be pretty solid and growing. Then we have this uncertainty impacting the behavior of the suppliers on demand. demand, and therefore, on working capital planning on one side, and then on the other side, we have inflation that we're addressing. That's what drove our 2025 group guidance. If we split again our activities within the three branches of our group, we have the Esperance segment, so screens and devices, where our focus is on improving first and foremost working capital with all the big projects that we have in place to improve the situation. We are in active discussions also with vendors to have them share the burden of this uncertainty and not trying to push it down the line and therefore on us. Then we keep on working on optimization of our cost structure. It's already streamlined, but we keep redirecting people from Esprit to Vivaldi or Zeletec whenever and wherever it's possible. And there's a number of AI tools that we're delivering into operation, moving into operation that hopefully should address certain activities that are semi-manual and turn them into a more automatic structure. The V-Valley segment, so solution and services, here we are hitting on all cylinders and our focus here is getting new distribution agreements, growing market share, possibly also targeting acquisition in either geographies already covered or new regions. We keep on being engaged in discussions. There's a lot of uncertainty, so we are really cautious on where we move, but we see opportunities of growth. Zeliatek, the green tech segment is advancing in its accelerated growth, we're sizing market opportunities, and we're looking at expansion also through acquisitions. Zeliatek is definitely focused at expansion not only in Italy, but out of Italy, of course, with Spain, Portugal, where we need to move as soon as possible, and hopefully other regions of Europe. The real big point that drove us to issue a guidance, which we consider in brackets prudent, cautious, is the fact that we have this very uncertain geopolitical and macroeconomic scenario. Things are moving well. We don't really understand what's going to happen. It could turn suddenly to an excellent year if worse stop and the tariff wars subside and new agreements are reached and stability is back on the table of decision makers among our suppliers, our customers, and the end user market especially. or it could still be a challenging environment. We are faced with a challenge on absorbing the inflation costs, but here, let's say Cost management is part of our core competence. I think we will be able to do a good job in the coming month. We are redesigning working capital and having also a decrease in interest rates. We should be having improvements during the course of the year. For this reason, we have provided cautious guidance between 63 and 71 million of EBITDA adjusted compared to 69.5 of last year. Within these targets, we have stronger objectives of both cost optimization and definitely improvement of working capital. We really are focused 100% on this area. That's basically where we stand. Thanks, everybody, for listening to this presentation. And let's start with the Q&A session. Giulia, up to you.

Thank you, Alessandro. Yes, we can start with the Q&A session. Let me remind that to ask questions, you should kindly book your speech and then unmute your microphone. First question from Mr. Storer. Mr. Storer, please go ahead.

Thanks, Julia, for taking my two questions. The first one is on your guidance. Basically, I understand that the picture on revenues is very much unpredictable at this time, but on the other hand, we have probably much more control on your costs. If I'm not wrong, the additional, let's say, below gross profit costs in Q1 were 5 million. What is embedded in your guidance for the full year on this, let's say, between gross profit and EBITDA costs? The second question is on Q1 results, the performance of Spain, a good rebound, but we are still well below Q1 2023. And I was wondering the reason for that. You mentioned weakness on smartphone. Is just something related to this product category or is there anything else we should be aware of? Thank you.

Yes, thanks. Well, on Spain, it's mostly smartphone. We have been working on reducing our dependency on especially Chinese smartphone manufacturers, we had a very bad working capital in those areas, and we sharply reduced our exposure to those brands. We had less market share on Apple as well, mostly linked to market decisions that we took because we are pushing our operations more into the value add space, slowly balancing the two components, but having working capital in mind, a return on capital employed essentially in mind. On Spain, it's mostly a smartphone situation, we are really doing fine on the other side on the other areas. In terms of guidance, the cost or gross profit, we are forecasting growth in terms of revenues and gross profit for this year. We have embedded a cost inflation, some of that has already been there during Q1, and there will be some other during the other quarters, less so we expect. The big question mark is how much in terms of higher gross profit we will bring home Because from a competitive standpoint, we are really well positioned. Gross profit margin are pretty solid. They actually grew during Q1. If you look at our gross profit margin now and you compare it to the gross profit margin five years ago, we're definitely and significantly up. The big uncertainty is, will we be able to get the market share that we have in mind in a healthier or less healthier environment? That's the big question mark. If the market will ultimately be better than what we have forecasted in our midpoint, then and our midpoint projections are not forecasting a particularly high growth of our revenues, then we will probably trend towards the upper portion. If the market will be much better, then things could be even better. But in this moment, any any forecast on the performance of the market is complicated. We prefer to be cautious and hopefully to give good news during the course of the year rather than be bullish, especially after a challenging quarter, especially in terms of costs and risking having to bear the, let's say, pressure on us now, and then even complaints later on because we were too bullish. So that's basically where we stand.

Thank you.

Welcome.

Mr. Palladino, up to you for your questions. Please go ahead.

Remember to unmute. Thank you for the presentation.

I have two questions. The first one is related to devices. I'm sorry. Maybe you can hear me better now? Yes. Okay, sorry. Yeah, thank you for the presentation. I have two questions. The first one is regarding the devices segment. So we saw a decline of 6% with negative ABDA margin. And I was wondering, when do you expect volume stabilization or margin improvement if there will be? And the second one is related with the first one is Maybe I didn't catch it because you were talking about the role of your own brand strategy and seasonal investment in advertising, but maybe can you clarify the drivers specific to this cost impact in the devices segment? Yes.

Well, devices is made up of two big areas. Consumer electronics, excluding smartphones that are recorded in screens, and so TVs, smartphones, audio, video products in general, gaming, and printing, printing and PC accessories. Printing is flattish in terms of sales. Actually, we outgrew the market, we got market share there, but it's flat, rather declining category, margins are pretty stable. The accessories, we did well. It's a market that is pretty unpredictable. Sometimes, there are higher volumes and lower ones. The real impact is on consumer electronics, and consumer electronics is made up of two areas. The vast majority is what we sell of standard brands, I don't know, Samsung, and just to mention one. or our own brands. The performance of TVs and white goods in the market has not been good so far, and we have underperformed also because the conditions in terms of working capital and profitability are not really good, and it's hard to turn them into really profitable areas. We are in active discussions with most vendors to see if we can improve the overall situation of profitability and working capital management, or if we have to progressively withdraw from certain areas. So I don't expect, frankly speaking, devices to have sharp increases in volumes unless these negotiations end up well, or unless there's particularly good surprise in the market, which frankly speaking, in this moment, we don't really see. Margin-wise, the situation will stabilize gross margin-wise once we will have a stable and defined set of markets that we will address, a combination of vendors, products, and customers. As for the advertising, it's 100% linked to our own brands. Our own brands, , we import from China. and with very high gross profit margins, we're talking about high double digit, but then we bear all the costs of being a manufacturer. We bear, among others, the cost of advertising. Advertising costs are a significant portion of the margin. I could say that we are talking about a few million euros per year. We had last year advertising cost in Q1 of roughly 1.2 million. We overshoot it with advertising in Q1 this year, and we had close to 2 million. Normally, these costs are spread more or less equally across the year. Actually, second part of the year, a little bit less. We anticipated to the first portion of the year advertising costs to accelerate growth in this product segment, which is having very high gross profit margins is very sensitive to volumes. If volumes grow, this can contribute significantly. So we hope that During the course of this year, they will add a value. Celli is performing extremely well. It's making a good profit. It's Nelux, which is a Nelux sport in particular, which is still a challenge because it's still heavily reliant on e-bikes, and e-bike market has been a disaster across the board for everybody. And that's why we had a portion of the drag on the devices margin is linked to that area.

Thank you very much. A question from Mr. Ribaldi. Mr. Ribaldi, I give you the floor.

Thank you. Good morning, Alessandro. Good morning, everyone. A question, Alessandro, about the inventories. I've seen inventories going up sharply compared to the end of FOSC World 2024. You said there was a lot of pressure from the vendors. But in an environment such as Turkey, such as stable, why you didn't resist more in increasing inventories because you were already in a situation where you have to bring down inventories following higher sales and all the expectation was a reduction of inventories through higher sales because the market was expecting to recover instead we are seeing an increase of inventories in fact the number the day of of products is back to 24 or 22. So I'd like to understand what's behind what you said before, the pressure from vendors. The second question is in the US, most of the big players like Apple and HP are facing a lot of cost increase because of their import ties from China. It's not to be under 40%, but it's going to be around 40%. Apple alone is moving their production to India. And so overall, it's very possible that they say that they will increase prices in the US in the following months. So what do we expect? Do we expect now that the selling price of the US vendors to increase going into the second half of the year or not? These are the two main questions. Thank you.

OK, thank you, Luca. On prices, we have asked all major vendors. I had discussions at either European or worldwide headquarters level with all our major vendors. And the answer is essentially no, they will not raise prices in Europe. The only notable exception is Apple, which is considering price increases not only in Europe everywhere, but apparently mostly because they claim they had higher manufacturing and component cost. Here is a technical aspect. The products are all manufactured in either China. or other Far East countries and assembled some of them in either Eastern Europe or in Mexico. The tariff is an issue for the American market, and for what we know, there has already been an increase in end-user pricing for the American consumers. The worry we had is Will the vendors raise the prices less than needed in the US and compensate this loss of margin in the US, raising prices in other regions of Europe? And apparently, nobody's doing that. Because the first one that is doing this will be outpriced in Europe or in other markets and not the US. So nobody's doing that. And they're all raising prices and transferring more or less entirely the cost of tariffs into pricing just for the American consumers. That's what we have heard. As a matter of fact, that's what we have witnessed so far. It's not, by the way, it's something we will see in time whether there will be still tariffs or not. That's a big question mark. Anyhow, the impact on tariffs out of the US is negligible so far, again, for this specific reason, and nothing is really manufactured in the US. It's sold by US companies through their overseas subsidiaries and manufactured by third parties outside of the US. On prices, we don't see this. Will it happen? Yes or no. As a matter of fact, given the system of pricing of a distributor in which we get a discount on the suggested end-user list price and we sell with a discount on a suggested end-user list price, any price increase If volumes stay the same, for us, it's an opportunity of having higher revenues without having higher costs, because our costs are essentially linked to quantities. The big question mark, if they raise the prices, which they are not doing so far, is whether demand in terms of quantities would stay the same or not. That's an unknown, but it's something theoretical because nobody's doing it so far. Inventory is a more nuanced point. We have basically two areas, one which we call vendor-driven and one that we call company-driven. We have sales that are mostly spread on multiple customers and where the ultimate decision maker on whether to buy 150 or 150 units of a specific product is the distributor. And over there, we are working with improved techniques, and we're not really measuring increases in volumes. And then there's the so-called vendor-driven, so-called by us, vendor-driven. That means large deals, especially in the retail space, but also government, and sometimes special bids on large end users. Over here, you sit with the vendor and the vendor says, I needed to bring these products into the market. Are you playing with me? Yes or no? Here, we are essentially making a trade-off and we're asking the vendor, if we raise our inventory, you have to finance us more. That's the challenge. The point is, How much can we resist? How much can we accelerate on the sellout? Those are the decisions, more structural decisions that we're taking and that are behind also our guidance, which is indirectly affected by decisions that we're taking in the volumes that we will make in this, in brackets, vendor-driven, whether we will play this game or not. will influence the level of revenues and profitability and the level of working capital. So we're working on this trade-off and we have not yet final answers from all vendors and final decisions taken on all vendors by our side. So it's a pretty complex equation, and we're working on that, and we're confident during the course of the year we will have improvements. But it's this variability in the expected volumes is not happening because we have these vendors that are in some cases really sort of, I wouldn't say hysterical, but really troubled because they have global allocations where they have the American volumes that are a tremendous question mark. And so they are trying to find ways to achieve their targets by pushing in other regions. So it's a big discussion ongoing. Ultimately, I think we'll have a good result, but short term, we have rough seas to sail.

Alessandro, thank you very much. A clear answer, just one follow up. on the vendors pressure on new product they want to sell. When you say they will allow you better financing, it's only financing means that you can pay longer pay time or is also a thing that if you don't sell, you can give back the goods you don't sell?

No, the giving back products is something that sometimes happens. but pretty seldom because otherwise the vendors would incur into issues with their revenue recognition. What they do when there's a pileup of inventory, and they've done it with the industry, not only with us multiple times, they put a lot of money on the table to discount and let the products go. And that's the way they fix this problem. That's the reason why they are also so challenged because we're working with them on forecasts and we say be cautious because if you overshoot and then the market slows down, then you will have to spend the fortune as you did in 2022 and 2023 to clean up the inventory of your partners. And so there is this big discussion ongoing. And some of them prefer to be more cautious, other are more aggressive. And we're evaluating also on the basis of who's giving us the best kind of protection in terms of payment terms, margins, support in different ways. And based on that, we're making our decisions of allocation.

OK, thank you very much.

Mr. Nargi, a question from you, so please up to you.

Hello everyone, thanks for the presentation. Just two quick question from my side. The first one is on the cost structure. So we have seen an increase in SG&A cost that however are expected to normalize over the remaining part of the year as the impact from the increasing collective bargaining agreements started already in April 2024. So to this point, It would be appropriate to consider that the Q1 figures would be a sort of proxy for the full year-run rate, assuming roughly 85% of these costs are fixed costs. And the second one is on the revenue trends. You have mentioned about an increasing unpredictability. However, the underlying trend remains positive. In terms of business divisions, might we assume the organic growth to remain similar to what we have seen in Q1, for example, for Zelotec and the Vivaldi divisions that show, again, a double-digit year-on-year growth. Thanks a lot.

Well, on cost structure, as I mentioned, our variable cost and revenues are roughly 50 basis points. Then we have advertising, and I mentioned the number, and the rest is fixed cost. On fixed cost, year-on-year comparison, we think we'll do better in time, but with these three numbers that I gave, I think you can work out the model. On the predictability, well, the We have not released the figures on revenues, but the general expectation is that on Zelia Tech, as well as Vivaldi, we're seeing a pretty, well, on Vivaldi, we're seeing and forecasting a pretty vibrant market, and our target is to outgrow the market. at least a little bit then. We'll see if it will be a little bit, a lot, or whatever. On Zeliatek market, so far, we are in Italy alone. It's a more muted situation. Here, we have both the, let's say, industrial, commercial and industrial, as well as the residential market for solar panel installations. The residential is more challenged. It's heavily dependent on government incentives. The commercial is pretty healthier. Here, we are trying to outgrow the market and we are outgrowing the market, but here the plan is to accelerate by moving also in other nations, not only staying into Italy. The market here is pretty much European. With Zeljatec, in time, we need to be a European player and not an Italian one. That's what we have forecasted. That's for Vivaldi and Zeli, I think. The volumes are linked to Esperanto, and here we have PCs that are forecasted to grow pretty well, and we are outgrowing the market, by the way. The big question mark is around the smartphones. We have walked away from most of the Chinese brands. which portion of the market will be taken by Apple, Samsung, Motorola, and others, and which portion by the Chinese vendors, unless we find good agreements with Chinese vendors, which is always an opportunity. But past experiences were not successful, very little margin and ridiculous absorption of working capital. It all boils down in this area to devices performance, but as I said before, I don't expect particularly good performance of the consumer electronic market where we are working, not because the market is not doing well, but because we are not getting the right return on capital employed in this area. So unless we fix it, we will have a sluggish, if not the negative performance in terms of top line growth here, mostly because we're walking away from these businesses. And so all in all, The market is difficult to predict. There are a couple of areas which are pretty solid in the view of everybody, PC performance and cybersecurity and to a lesser extent, software. Those are solid areas. Consumer electronics, I don't think it would be a great area of growth. Zeliatek, we are growing aggressively, and then there will be market share growth from our side. We are doing pretty well in Spain, in Italy. We're growing especially in terms of profitability in Africa as well. During the course of the year, if the market stays healthy, we should have a good top-line performance. If the market overshoots because the situation improves, we could have good news. Otherwise, we have tried to prepare the market today and swallow the bitter pill today with a lower guidance in case the market will turn negative. more sour in time. That's more or less the idea.

Thank you, I'm very happy. You're welcome. Okay, there are no more questions, so we can end the call. Thank you for participating and see you next time.

Thanks, everybody.