Esprinet S.p.A.

Good morning and welcome everyone to the Esperet Group H1 2025 result presentation. Today's call is being recorded and the podcast will be posted on the Esperet website in the investor section together with the presentation. Your lines have been placed on mute, but after the speech, 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 this document. I am Giulia Perfetti, Investor Relations and Sustainability Manager of Esperit. With me is Alessandro Cattani, CEO of the group. I will now pass the call over to Alessandro to present the H1 2025 results. Alessandro, up to you.

Thank you, Giulia, and welcome everybody to our H1 2025 results presentation. It's a pleasure to be here. There are some calls in which numbers are okay, some where unfortunately numbers are subpar. And then you have courses like this one where we are proud to introduce to the financial community what we consider an excellent Q2 with very good forward-looking indications on Q3. so let's jump straight on on the highlights as you can see q2 continued with the strong revenue growth path that we recorded in q1 so roughly five percent year-on-year growth in q2 what is worth noting is that the Iberia Peninsula distribution market continued to show significant growth in Q2 2025. Italy was more or less flat year on year, and we achieved an overall growth as a group of 5% in these two regions combined. We had very, very strong Q2 profitability, which offsetted a rather weaker Q1 and turned H1 2025 back to profitability growth. That's the combined result of a good top-line performance, but especially very, very solid profit margins and a very strict control of our cost structure. Cost optimization, and as a matter of fact... Effective management of the structure are back in place as promised. As you might recall, we suffered in Q1 of a rather unusual spike for our standards in cost, plus 12% against the previous year. But we were able to drive very, very solid cost control in Q2, and we're fairly optimistic moving forward. And that all together drove a very strong Q2 with EBITDA up 38%, EBITDA adjusted, which is equal to EBITDA in Q2 25, driving the semester up 2% compared to the same period of last year, so up to 25.1 million euros. If we look at sales, as I said, they grew as a whole 5%, but it's worth noting that The Vivaldi division recorded a very strong 12% growth, gross sales in H125. We are winning market share in the solution market hands-on. So we really are happy about what's happening there. And even more so, the Zeliatek division, our division in charge of the green business, solar specifically, more specifically, grew really fast. really brilliantly, 26%. Gross profit margins were up significantly, both in absolute terms, but what's more important, we have recorded further acceleration of our gross profit margin, which now is close to 6%. I remember that we were in the 4.5% range just a few years ago. So our journey towards higher margin businesses is really paying off. The only area where we still have work to do is the cash conversion cycle, which on the moving average last four quarters is up seven days. And hence, the net financial position is still negative. Slightly better sequentially than in March, but it's always better. much worse than end of year and against the last year. And that, of course, draw the return on capital employed still at 6.6%. But we'll dig into this a little bit later. What is really interesting, Northen, is that both July and August saw a very, very strong momentum in our sales, both for the industry, where analysts remain confident of a second half of growth for the ICT distribution market, albeit at a much lower rate. They're talking about 3% to 5% growth rate compared to what we recorded in July and August, and we have seen a very strong start of September as well. That is driving optimism to achieve, let's say, the upper end of the 2025 guidance range that we deliver. So let's go into the numbers and let's start with the sales evolution. As you might remember, we're now reporting gross sales as well as net sales, the difference being revenue recognition on one side, but especially the impact of IFRS 15 accounting, which is particularly significant, almost entirely attributable to the solution and services because it's mostly related to sales of software and to a lesser standard cybersecurity and cloud solutions. You can see it in the second group of figures, screens and devices, gross sales and net sales are almost identical and same goes for green tech. It's mostly solution and services. So we provide the two figures, especially because the market figures are all measured in gross sales by the market analysts. And therefore the comparison is provided in this form. Italy in Q2 we grew 2% and we won share against the market, against our competitors. Spain was up 2% against the market up 7% and here again is mostly a matter of mix. You can see down that we are progressively walking away from the lower margin business of retailers and e-tailers. Market grew 6%. We were down 9%. But on the other side, market was up 2%. We were up 8% in the much more profitable IT reseller business. Portugal is going on with its strong recovery after the restructuring that basically entailed shutting down the vast majority of low-margin businesses. And Morocco had a weaker quarter in terms of growth, but on the half, we're still up an healthy 21%. So that's for the countries. As you can see on screens and devices, we keep on underperforming the market because we keep on progressively walking away from lower margin, but especially high working capital consumption businesses. Whilst on solution and services and green tech, we are outgrowing the market big time. And that's for the sales evolution. As I mentioned before, the market, you can see the distribution trend on the right side. The market is flattish particularly. in Italy, suspected to be slightly up 2-3% in the second half, where Spain is still performing much more. If we look at the performance, now we can move to the following slide. If we look at the performance in terms of profitability, we see that the S-Print division, which is in charge of screens, so PCs, smartphones, and devices, consumer electronics, printing, and everything else which is not in a data center, was up in terms of revenues 3.7% against – sorry, 3.7 million, up 1% in Q2, and was – and was essentially flat on on a nature level the profitability in the quarter was up 23 percent thanks to uh improved significantly improved performance in the screens a bit imagine and again, struggling profitability in the devices segment. Devices is the area where you can see we keep on reducing, we're cutting a number of businesses which have proven not profitable enough and especially cost-consuming. and on the other side we see a good recovery in the in the pc market i i can say that what we were expecting for the second half of the year so a rebound of the pc market driven by Among other things, the Windows 10 end of life, which is due by November, is effectively happening. In Q3, July, August, first days of September, we are seeing high double-digit growth of our PC sales. So, really, apparently, the market is moving here. with the performance of AI-enabled PC is not really measurable so far. the V-Valley business blend of solution and services is really performing brilliantly, both in terms of revenues up 16%, but even more so in terms of EBITDA margins. Margins are really good. And we grew 3.4 million EBITDA in Q2 alone. And if we look at the First off, we're up 26 percent, again, with very strong performance in terms of the bidder margin. The green tech market is up 30 percent. We are struggling to get the products. It's the only area where we have a shortage of products. Otherwise, margins could have been much higher. bigger volumes and margins. The green tech business is affected by very strong gross profit margin seasonality linked to purchase volumes targets, which we normally achieve during Q3 or more often in Q4, so profitability here is relevant up to a point. But all in all, I would say that our strategy designed and announced, now I would say four years ago, of a progressive shift of our focus on accelerated growth in the solution services and since a year, green technology as well is really paying off. As you can see, the solution and services contribution to total EBITDA is now close to 80% in the first half. So really an excellent performance. We are working progressively on shedding the low margin and high working capital absorption businesses. It's a slow process because we have to balance the overall cost structure, but we are moving in the right direction. And by the way, we think that some of the combinations of products and customers will eventually come to senses and accept to provide us with better conditions Otherwise, they will see that we are serious in walking away. Okay, good. We can move to a couple of words on the P&L. While we discussed on the revenues quite extensively, gross profit margin-wise, we moved in the half from 567 to 574. So we keep on growing, but there was a very good acceleration in Q2 from 5.59 to 5.83. We are also running on a contribution that comes from the financial charges of the non-recourse factoring programs that we book into the gross profit, partially in the gross profit, and then the implicit insurance cost in the SG&A. So this is helping as well. But the product mix, as well as the performance, like for like on other lines of businesses, including PCs, is pretty good. So this focus on selective growth on better products. lines of business is paying off, and we're really happy that this is happening. SG&A-wise, I recall that during Q1, we had a 12% growth in our SG&A. In this quarter, we're up 2%, and if you look at the growth in our personnel cost. Actually, there was a decrease of 2%. We have exerted a very strong discipline in hiring. We're reducing the ad count. And we have been able in the quarter to absorb the impact of the carryover into H-125, the collective bargaining agreements increases that we had since Q2 last year. Other operating costs are impacted by the advertising expenses. We had a spike, sort of seasonal shift from Q4 to Q1 in the advertising expenses. That was part of the reason we had a 12% growth in Q1. and we are back to normal seasonality in Q2, we should have an advantage in Q4 because we will book less advertising expenses. And we add in absolute terms the higher impact of variable cost on sales because of higher volumes, even if the percentage is stable. And we add more tech expenses both to respond to ESG regulations and to finance certain projects in cybersecurity, which we have delivered internally since Q2 this year. EBIT is growing 65% in the quarter, and the depreciation is now a flat standard number. We are measuring an impact related to the depreciation of the right of use of the new Italian warehouse in Tortona. From IFRS 16 interest expenses point of view, the 400K you see more against the last year in the quarter are mostly linked to this Tortona investment. We add some higher income expenses, financial expenses. Although we are measuring lower interest rates, we have begun to see a decrease in our interest expenses. We use more working capital and, therefore, more income. financial resources. We had a very good impact on foreign exchange gains and they are all related to the roughly 5-6% of our purchases that are made in US dollars. The vast majority, 95%, roughly, is euros. And on income taxes, the tax rate for individual companies is substantially unchanged. There's a different mix at the aggregate level. because of the negative taxable income of some subsidiaries that were reporting losses. But all in all, we had a very good quarter. Okay, if you look at the balance sheet, Here, as I mentioned before, we're having an operating net working capital which is decreasing against March 25, and it's a flattish on September 24. but it's still higher than June 2024. There's always seasonality against December, so that is not a particular surprise. We are focused, and I want to stress it again, on reducing the inventory on one end, and we're making good progress, I would say, in Q3. And we're working to get longer DPOs on those vendors that are providing us with businesses that are not structurally attractive. We have used the factoring programs in June this year for 347 millions against the 334 million euros of last year. So essentially unchanged. The key point is as we see traction in two main activities, the growth in the high margin businesses, both in terms of the revenues and in terms of profitability and hence of EBITDA margin and EBITDA in absolute terms, as well as having the cost structure under control, we have more, breathing space for being a faster and more aggressive in rationalizing our offering reducing the businesses that are structurally high absorption working capital ones so the the guidance is basically when we issued the guidance it was mostly on the back of extremely uncertain let's say a backdrop from a macro perspective. This perspective in a sense is still there, especially on geopolitical tensions. But on the other side, we have seen the market being more responsive than what we feared. So on this we saw a plus. We have performed better than our budget so far. Also, in light of what we have seen in July, August, And therefore, we are positive on moving up. We have not raised the guidance, the upper limit, because of this willingness to rationalize our offering that might offset the turbo growth that we are seeing in this moment. So, so far, unless the market has problems in the second part of the year and hope not, all signs point to good performance. We were more positive than before. The end result will be a function of what happens in the market and the speed of the rationalization of our offering. And this is linked essentially to what we keep on seeing on our four-quarter average, which is not what we expect. We have sort of stabilized the inventory levels and payment terms from customers. We had a slight decline in In DPOs, mostly linked to the mix, but if we look at quarter by quarter, you see with these big swings that we still have work to do to improve our working capital. And the first indications of Q3 are positive so far. But we have, as I said, lots of work to do, and we are extremely focused on this, having revenues, gross profit margins, and cost structure and control with a clear strategy. We're winning market share, so we are pleased that our key focus is here now. And this is driving, obviously, our return on capital employed, which is mostly linked to this working capital performance. Okay, so that's for the performance during the quarter and a half. On our final remarks, let's look at what to expect. In terms of backdrop, Mentioned before, the industry analysts are optimistic about an ICT distribution market that should perform between 3% and 5% growth in the second half of the year, with Spain slightly better than Italy. We had a very, very strong Q2, and I just explained why we sort of gave an upward revision for our fully full annual forecast um We expect the market, the market analysts expect growth in the PC segment. We are witnessing it in this very moment, as I said, with really, really high growth. They keep on expecting investment by companies and governments in the digital transformation segment and investment in cybersecurity segments. and we are playing a strong part here. We are helped by the troubles of some of our competitors, and we're winning market share. We are not seeing, neither we have received words from our vendors of the changes in the pricing policies as a consequence of the tariff war, unless component costs increase over time, but we have not seen changes any impact neither we we are expecting them um whilst we have uh heard of significant growth in the in in costs for the end users in the us for instance so now 2025 outlook july and august we have recorded a significant increase in our revenue growth, much more than what we recorded in H1. And we had this as a result of a high double digit growth in our Iberica subgroup revenues and a middle single digit growth in our Italian business. This positive trend that we are experiencing, including the first days of September, combined with a favorable outlook provided by analysts, means that here where we should have an healthy revenue growth in the second half of the year. In terms of product segments, solution and services are showing and confirming their growth trend, which we have witnessed in these last years. And that happened in the first two months of Q3 as well. And as I mentioned, the screens show a very, very significant acceleration, mostly in PCs. The smartphones are still close to flattish. We have a clear focus strategy on high growth segments, which we reconfirm. V-Valley Solutions and Services and Zeliatek and Greentech are the areas that are already providing close to 80% of our profitability. We keep on investing here. Especially on Zellia Tech, Green Tech, we are aggressively looking at opportunities of M&A also abroad so that we can hopefully open up our coverage to our other regions of Western Europe. And on the other side, We have worked hard on the consolidation of our cost structure optimization, which we achieved in Q2. So far, numbers are pointing in the right direction, also the beginning of Q3. We want to strengthen our competitiveness and, on the other side, provide, as I mentioned before, the space to help our aspirated division focus on the highest return on capital employed businesses which are abandoned within that division but which have been sort of covered in terms of performance by some high volume and high working capital absorbing businesses, which we are progressively shedding. The example of what we did two years ago in Portugal over there, We had a small footprint, but we cut roughly 50% of revenues, and now we're growing 65% because people focus on higher margin businesses. So we think that all these points to a future where we are much more optimistic and we have a lot more determination to achieve our numbers. We are pumped up in this moment. We're really happy. Of course, we are still living in a geopolitical and macroeconomic scenario, which is extremely uncertain. But all this said, our guidance of 63.71 million of EBITDA adjusted is confirmed, and we're now focusing more on the upper end of the range. And that's for the numbers. And that's basically it. We're open for Q&A, and we want to thank you all for the interest in our company.

Thank you, Alessandro. Okay, yes, we can start with the Q&A session. Let me remind that you should kindly book your speech and then unmute your microphone. So the first question comes from Mr. Storer. Mr. Storer, please go ahead.