Esprinet S.p.A. (PRT) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining the Esprinet Fiscal Year 2023 Results Conference Call. Please note, this webinar is being recorded, and after the call, the Podcast will be posted on the Esprinet website in the Investors section together with the presentation. [Operator Instructions] Please note again that this presentation contains forward-looking statements that so I would like to draw your attention to the regulation note on Page 2 regarding the information contained within this document. I'm Giulia Perfetti, Investor Relations and Sustainability Manager of Esprinet. 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 fiscal year 2023 results. Alessandro, the floor is yours.

Thank you. And welcome, everybody, to the presentation. And well, it's -- let's jump into the presentation. It's been a year of transition, I would say, a year where we faced a number of challenges, but where we have achieved also a number of successes overcoming these challenges. But let's dig into what happened. Well, first of all, what did we face in 2023? It's been, as we said, a challenging year, especially for the Screens market, so PCs and smartphones and in general, for everything linked to consumer demand. We came from 2022 with record profitability, but anyhow where we piled up an excessive inventory. So during 2023 we gave priority to the balance sheet improvement over profitability. And last but not least, we had an old tax dispute that we eventually closed effectively eliminating a really high risk potential risk for the company. So which kind of goals did we had [ DBL ] during this year? Well, the first goal that we set was to grow in the higher margin product and customer segments because we have and we still have in mind a clear goal to grow our gross profit margin and in time, and therefore, also our EBITDA margin. Second, we wanted to exit the structurally low return on capital employed to private customer combinations. During our growth in the last years, we faced certain businesses which we thought we could bring to a reasonable return on capital employed, either by improving the profitability or improving working capital. Some of them proved exceedingly challenging, and we decided to exit those businesses. And last but not least, we had the goal to bring working capital back to sort of physiological levels. And so what we did? Probably, I would say we reduced the inventory levels while improving gross profit margins. We'll see them later on. But we definitely had a major, major reduction in our levels of stock. If we compare what happened in 2022 against this year, we, in December 2022, we closed the year with more than EUR 670 million of inventory, and we went down to EUR 514 million, a sharp reduction of -- less than 23%, so pretty pleased with this result. We improved our high-margin segments also by means of acquisitions that we did last year, Sifar and Lidera. And we began cutting costs and rationalizing our processes to address the new environment, we are deep into experiment with AI and with other processes that are being automated. And last but not least, we reorganized the group, especially in Italy so to have legal entities focused on their respective reference markets. So Esprinet focused -- the Esprinet brand focused on Screens and Devices. So generally speaking, clients, everything that is out of a data center. V-Valley in the different countries focused on solution and services. And now Zeliatech focused on the nascent and growing business of green solutions, solar business and energy efficiency solutions, especially for the data center. What happened during this year is that we demonstrated a couple of assumptions that we have always put in front of our investor community. The first one is that we were able to reduce by 20%, as I said before, the inventory levels without major evaluations, as a matter of fact, with gross profit margins that were up against previous year, proving that the stock protection mechanism in place work, effectively work. Secondly, we have steadily reduced revenues by close to EUR 700 million. And we have reduced EBITDA by EUR 27 million, but if you think of the magnitude of the reduction in revenues and compared to the reduction of the EBITDA, we have proved that the business model of distributors and Esprinet specifically, has a strong resilience in terms of profitability, that is guaranteed by a low fixed cost structure. So a low operating leverage. And one thing is to say it, one thing is to prove it in such a challenging year. What we have to do moving forward? Well, first and foremost, recover volumes on those market segments with lower margins, but which can still guarantee adequate return on capital employed by means of good working capital management. It was really challenging to do so last year because we had such a high level of inventory. Now that the inventory is not at the place where we'd really like it to be, but it's definitely way down. We think that we can go back to the drawing board and design programs, I say, programs and interactions with volume vendors in order to grab part of the market share that we lost on these segments that indeed provide lower margins than, for instance, solutions and services, but with the help of a better management of working capital can still provide good, sometimes excellent return on capital employed. So we'll focus not only in our second goal, which is to grow in high-margin lines of solutions and services, but in the recovery of shares of those businesses with lower margins. Again, only provided that working capital can bring us although the low margin is a good return on capital employed. Needless to say, the further goal is to keep optimizing working capital. Interest rates are still high. Our return on capital employed plummeted mostly because of the inefficiencies that we had in 2022 and 2023 in working capital management. And we are on a good path of reduction of our working capital days of our cash recycle days, but there's a lot of work is still to do. And then we continue to look for growth opportunities also through acquisitions. Again, in line with what we did in the recent years in the regions where we're already present, bolt-on acquisitions of small, medium-sized companies with excellent profitability and we'll keep on looking at opportunities in Western Europe to expand our footprint in other regions. But let's dig into the evolution of our sales. Well, as I said, it's been a challenging year for the market. As you can see, the market of distribution in Italy, Spain and Portugal was down, respectively, minus 4%, minus 2%, minus 5%, but what's particularly interesting is to see what happened at customer type, minus 12% on retailers and e-tailers and 2% growth on resellers. If you look at the private segment, the product categories, Screens, PCs and smartphones were down 7% in the market and Devices, which are significantly represented by consumer products were down 11%, where Solutions and Services were still up 7%. So as you can see, yes, we lost share in a little bit of share in Solutions and Services, we were more or less in line with the market in Devices. So we really lost a share in Screens, and we really lost share big time in retailers and e-tailers. So this is coherent with our target of reducing our working capital and walking away from those exceedingly taxing businesses in terms of return on capital employed. And probably we overdid here, and I go back to the previous comment. There's probably space for gaining a little bit of share that we lost while being so focused on the return on capital employed. Now if you look at the profitability, the gross profit margin was up to 5.54% of sales compared to 5.22% of 2022. And it was up consistently quarter-by-quarter also in Q4, 5.21% grew up to 5.38%. Of course, given the sharp reduction in the top line, we had a reduction in absolute terms of our gross profit. EBIT adjusted was down accordingly. And although a little bit less in Q4 against the average of the full year. Cash conversion cycle was down 2 days compared against Q3 2023 and up 2 days compared to Q4 2022. But if we look and later we'll do single quarter and not the average, which is dragging the numbers down. The path of improvement is truly significant. The net financial position was back again positive. We have been cash positive for the last probably 14, 15 years. Just last year we had this spike in working capital. So big that it drew us into negative. And this year, we closed positive by EUR 15.4 million, against negative by EUR 83 million last year. Even more so, if you consider that we have reduced sharply the level of factoring. And return on capital employed is down essentially because of the average net invested capital, which is going down moving forward. Now if we look at the pillars, if we group together the Devices, Screens and our own brands, which we now sell under the Esprinet brand and Solutions and Services, which we sell under the V-Valley brand. You can see that we had 43 basis points of EBITDA margin reduction in the Esprinet subsegment, full year. And 47 basis points in the V-Valley subsegment. Given the different mix for the first time ever, the EBITDA adjusted provided by V-Valley outgrew the absolute value of the Esprinet area. But the interesting point is that this reduction of 43 and 47 basis points is compared to an increase of 65 basis points, which you see in a second of our overall SG&A, mostly because of the lower absorption of fixed cost due to the reduction of revenues by EUR 700 million. That means that on an average we had an improvement of our gross profit margins by line of business, which is even more remarkable if we consider that we had close to 30% more -- sorry, 0.3% higher factoring costs recorded in gross profit. We were able to bring down to customers this increase in factoring cost, therefore, in interest rates. And even so, thanks to a better mix and a better management of the relationship with customers. So we were able to improve our gross profit margins as we have seen before. This bodes well in case of improvement of our top line moving forward, also in light of the fact that we are hard at work in the reduction of our cost structure, which has grown not so much during the full year and for the first time in Q4 was even down compared to the previous year. You will probably have seen that we have posted among the adjustments -- an adjustment of roughly EUR 1 million for the layoff of a group of top managers, mostly in Spain, one in Italy. We have had, but we post them as recurring revenues -- already quite significant adjustment of the head count in Spain with tens of layoffs. So we are quickly adjusting our cost structure to deal with a change scenario. So that's the key highlights on the 5 pillars. One comment on the Solution business. First and foremost, you have seen in the previous slide that we closed the year with EUR 900 million of Solution and Services. You see that we report EUR 1.091 billion, that's the invoices that we made to customers. But due to the application of the accounting principle IFRS 15, part of the software as well as the cybersecurity and cloud sales were booked as margin only with the agent concept and so the as reported number is roughly EUR 190 million less. But if we compare it to the figures of the market that we have seen in the previous slides, where everybody books the revenues, let's say, gross of the IFRS 15 adjustment, we have now more than EUR 1 billion in sales. The market for us -- sorry, service storage and networking has been a bit challenging. We are far bigger than what we were in 2021. But in 2022, we won a couple of big tenders which we were not able to win again this year. And so most of the differences due is driven by this big deals, but we compensated with organic run rate sales. Software had the same issue. Last year we had a significant deal of around EUR 30 million, which we had not this year, again, a tender in Italy. [ We stand the ] other lines of businesses, especially cybersecurity and cloud, we posted a really interesting growth rates, especially in cloud. So we're pleased of the progression that we are having. Very often, they think of us as a purely PC company, PC distributor, we are not or at least we are no longer. What's interesting, I would say, is that more and more, we are diversified distributor covering all areas of the market and will come in a second to a number of opportunities stemming from the growth of AI, artificial intelligence. Okay, if we move to the P&L, here, most of the things have already been discussed. What I would highlight is the enormous growth in the financial charges. We have faced the triple, almost triple rates in our average funding cost because of the Euribor growth. I remember everybody beginning -- well, end of 2022, we had a negative -- still negative Euribor. We are now north of 3%. And although we have a portion of our funding, which is a fixed rate, we still incurred in higher cost. The tax rate on ordinary business is stable around a bit less than 25%. And then we had the impact we have discussed at length, the impact of our nonrecurring items. Vast majority of this EUR 33.3 million are out of the settlement of the dispute with the tax authorities, which we disclosed in Q2 of 2023, so nothing new here. The nonrecurring cost with the tax authorities has been charged as non-tax deductible. And therefore, it directly hits on the net profit. The EUR 1 million is related to the reorganization of the management team of the group, mostly in Spain, as I said before. We book as ordinary charges the normal layoffs that we have with employees. And then we had EUR 2.6 million related to an extraordinary booking on a single customer in Italy, which undergo a procedure for our methodologies, whenever a customer opens up a procedure, we typically accrue 100% of the position. If the customer will be admitted to the procedure probably part of it, normally a significant portion of it could be recovered. We are waiting to see the evolution of this situation. But we have booked it. And therefore, before these adjustments, we would have closed with a net income of EUR 24.2 million because of this and especially the nondeductible charge with the government -- we are for the first time ever in our history, with roughly EUR 12 million of negative income. I've been doing this business as a CEO since 2020. And I was here for a few years before when the company already was not yet existent, but they were the independent companies that later on we imagine to Esprinet. This is the first time ever we incurred in a loss. And it's due to this EUR 33 million of net charge with the government. Just to give a brief reminder, we were making in 2018, EUR 14.2 million of net profit and in 2019, 23.6%. So we are north of 2019. In terms of EBITDA, 2020, we posted EUR 69 million, and we posted 61 -- EUR 64.1 million. And in 2020, with the zero interest rates basically, we had EUR 31.8 million net profit. This year, EUR 24.2 million. We come from 2 record years. And so we are back 2 years, more or less. Let's see if in the coming years we will be able to start growing again, that's the mission, but we'll talk about it in a second. If we go into our balance sheet. Well, the key point around the net cash position is all around our operating working capital. If you compare it to December 2022, you see that there's no big changes in trade receivables and payables. The big improvement is out of inventory improvement, which is the task that we gave ourselves during the year. And in such a difficulty, it was our key priority, and I'm happy to see that we deliver on this at least in such a complex year. The key priority has been met. The second one was to keep on growing our gross profit margin because it's easy to reduce inventory by devaluating your inventory. Further to slash by 25% your inventory. While you decrease your revenues by 15% to EUR 700 million, and therefore, purchasing much less with your gross profit margin that is growing. That was a big challenge and we achieved it. I would draw your attention also to the fact that we achieved this improvement in our operating net working capital while reducing by more than EUR 150 million, our factoring utilization close to EUR 150 million. That is particularly significant because, of course, if we had the same level of factoring, we would have had EUR 140 million of lower reported net working capital and reported cash position. So particularly good number here. And that's for the balance sheet summary. We can see better the numbers with our working capital metrics. As you can see, this is the cash cycle with the usual average of the last trailing 4 quarters. The path is clearly set. We have been running around 80 days -- 75 to 80 days of payables since, let's say, second half of 2022. Inventory is going down. The lower level of factoring is impacting our as-reported DSOs. But if we look at the quarter-by-quarter figures, you see that after a disastrous Q4 2022, with 12 days of cash cycle, we are not yet back to a negative cash cycle in Q4 as we did in the 4 previous years, but we are down to 3 days. The big impact being the higher level of DSOs again, driven by a lower utilization of factoring. So we're pretty pleased the year, and we see a good momentum moving forward in this direction. So that's for the numbers. Of course, the return on capital employed given the level, this is calculated on the average 5 quarters for working capital is down, and it probably will take a couple of quarters to start going up again because we have to work out the oldest quarters and bringing the new ones that are much better in terms of working capital before seeing the improvement. Now a couple of words about our sustainability achievements. As you know, regulations are changing and sustainability is also in light of the changed attitude of consumers and companies alike is taking more and more importance into the decisions of our customers. We keep on working on three major areas. Our footprint on the environment. And I'm pleased to say that we have achieved all our targets. We have brought to zero, Scope 1, Scope 2 emissions reduced by more than 10% Scope 3. We have launched our first green tech distributor, Zeliatech, which we hope in time will capture the opportunities stemming from the growth of demand in the green economy for green data centers as well as solar powered houses and offices and buildings, generally speaking. So we are there trying to grab this opportunity because sustainability is not only a fade is truly an opportunity of doing business. We have improved our performance in our human capital. We have got once again the Great Place To Work and Top Employer certifications in all the countries in which we operate. We got the EDGE Certification on gender equality. So we have done a number of activities and we have excellent rates from our employees. It's a good place we're working. And we keep on working with our local communities to grow the perception of the importance of our group within the economy and the society as a whole. Now going to the -- to what's happening and what we plan for the future. Market trends. Well, if we look at our -- the tech forecast that we see, but this is also what our key vendors and customers as well as the market analysts that we deal with see for the future. We all know that the macroeconomic headwinds are still relevant. But we are more and more, how could I say, confident that there's good opportunities of seeing inflation going down and therefore, open path to interest rate reductions. As a matter of fact, we are factoring that in the second half of this year, we should have in our numbers a small but still a significant reduction of interest rates. Certain analysts believe that the ICT market is ready to go back to growth. And that the distribution will be well positioned to grab this growth. Most probably, this growth should be present here in the second half of the year, probably a low single-digit rate, but still back to a growth path exceeding the expected GDP growth as it has been more or less always in the last, probably 10, 15 years. If you look at the breakdown by the segment, the infrastructure hardware, so service, storage, networking should still grow, but there's a sentiment around the lower growth rate compared to the past. Software on the other side should still be pretty much in demand. We have this multiyear government investment under the recovery of resilience plans, the NextGenU, which is an important driver. There's been stop and go in Italy, because of bureaucracy in Spain, because of the change in the government, we trust that this year the situation should be more favorable. And so that these investments could help sustain the growth of this area. What is particularly interesting for us is product innovation, especially into artificial intelligence. We really thought that the real winners of the Gen AI movement would have been the large hyperscalers, large data centers and the software providers. Of course, they will have a big opportunity. But what's interesting is -- and of course, all the manufacturers of the components, I think of NVIDIA that are fueling the growth, the computing power in great -- in big data centers. But what's interesting is that more and more vendors are telling us that this computing power, enormous amount of computing power needed to run effectively this Gen AI opportunities will be pushed into clients. So into devices that sit on companies desk or sit in houses or in the pockets of consumers -- so PCs, smartphones, appliances in general. This is a tremendous opportunity for us because we are not only playing in the data center space. It's -- as you see now, 25% of our revenues and close to 50% of our profitability. But we are still a very strong player in the client business. And for us, this could turn into an interesting opportunity because these devices will be sold in big quantities and most probably with better margin opportunities because they are more complex and with higher sticker price. So here there's an opportunity. And last but not least, there's a bunch of emerging areas that still have a strong rate of innovation and that will keep on offering opportunities. We keep on talking about cybersecurity and with the GenAI cyber threat will be even more sophisticated. So there will be even more request of more sophisticated cybersecurity solutions and products, everything as a service. So the renting of technology, we keep on being interesting, especially if and when interest rates will go down. And then sustainability. Sustainability will drive investments because companies will need to comply to the new ESG regulations, but also because sustainability is bringing to the market a number of new technologies. And these new technologies is the last point of this slide. The fact that the ICT sector is going into adjacencies. We think of energy efficiency and renewable energy, electric mobility, those are clear examples of how the traditional IT sector is entering formerly analog businesses such as energy or cars, just to give an example. So long term, we see a bunch of opportunities. And to wrap up here, what are our group strategic priorities. Well, of course, creating sustainable value over time. As I said, back in 2018, our group was making EUR 45 million of EBITDA and EUR 14 million of net. We grew in time to a record result in 2022, doubling the EBITDA and more than tripling the close to multiplying by 4 the net profit. Last year was challenging, but we were roughly 50% more than 2018 in terms of profitability of EBITDA and more than 50% in terms of net profit. So we are on a growth path, which has been stopped by a tough year. And the first priority is to keep on having a strong geographical and product diversification. Last year has been particularly challenging for consumer spending and for clients, the PCs and smartphones specifically. Analysts think that the driver to GenAI could turn this year and the future ones into excellent years for PCs, and we are a player there. Whilst the data center business could slow down in the near future, and we are looking into the opportunities of diversification, both from a geographical standpoint, as from a product standpoint, the opening up of Zeliatech as our company in charge of grabbing the nascent market of solar energy as well as sustainable and energy-efficient data center is an example of looking after new opportunities in light of the need of keeping always a strong product diversification. Second, we'll keep on investing in the excellence of operations. We need to provide our vendor community, our customers' services aligned with their expectations. And therefore we are more and more focused on investing in our processes, also with the help of GenAI. The key priority will keep on being our relentless focus on return on capital employed. We want to work hard not only profitability improvement, but in capital employed optimizations as well. Because for us, an excellent ROCE means the possibility of getting back to a generous dividend policy -- having the money to fund organic growth and to fund M&A. Let me say a word on the dividend policy. As you have seen, we have declared a zero dividend. We have proposed to the board up to the AGM to give zero dividend for this year. We have discussed at length in our Board, the dividend policy of the group is unchanged. So 50 -- at least 50% of the net profit consolidated of the group every year. This year, the net profit adjusted was positive. But given the fact that for the first time ever, we had a negative result at as reported level. We decided to be cautious and to suspend the dividend for 1 year in accordance with the policy. But the policy is unchanged, and we really want to go back to giving generous dividends in the future. We don't expect another charge such as the one that we had this year. So we should reasonably go back to giving a dividend the next year. Fourth priority, keep on having a solid capital structure. The fact of not giving dividend goes in the direction of keeping a good cushion of equity on top of our funding, traditional funding structure. We want to be always able to manage external shocks. And last but not least, our attention to ESG issues. We will give to the financial community, our profitability guidance during Q1 result presentations in May, actually we'll have the Board on May 13. So in that date, we'll give the usual guidance for the year. One last word around solid capital structure. We have already received a question around -- by mail around the news of the breach of the covenant. I'm ready to answer questions over there. Just to give an indication, which you can find as every year in our financial presentation -- in our financial report, which is due to be published in a few days by the end of the month. But just to give a couple of numbers, as of December '23, we had more than EUR 1.4 billion -- EUR 1.4 billion of credit lines from financial institutions, of which EUR 480 million roughly short-term bank lines, [ 111 ] long-term loans, EUR 180 million of a short-term revolving credit facility and then close to EUR 700 million of factoring lines for customers. The level of utilization at the end of the year was mostly linked to the factoring utilization was around 17%, 20% to the previous year. So we have a solid capital structure that we wanted to keep on for the future -- for the future. In case there's a question on the covenant, I'm ready to answer, of course. And that's it.

[Operator Instructions] Gabriele Berti.

First one, considering that you mentioned Zeliatech several times over the presentation, I wanted to ask which are your overall expectation for this business in the coming years. And also in particular, if Zeliatech's activities could benefit from an increase in demand coming from the incentive under the new transition 5.0 plan? And second question, if now that the level of the working capital is back to a more normalized level, you can consider about being less cautious in taking certain businesses and for more room to push sales offer -- this is not an option and maintaining the focus on net working capital remain the key priority?

Thank you, Mr. Berti. On Zeliatech -- well, on the second question, will it benefit? Probably so. We have not been able to read in detail the new law. But generally speaking, it looks like the new law goes in the direction of more efficiency in buildings. And that's the general trend that lies behind the creation of Zeliatech. We have seen an opportunity in the energy efficiency of data centers as well as in energy creation and efficiency in buildings -- buildings of all kind, of course. And that's why we have opened up Zeliatech, which is the receiving end of some businesses that we already had. Some of them, both years ago, if we take the energy efficiency for the buildup of a data center, the physical -- the physical building in which the service and storage are typically hosted. These are really energy -- how can I say, energy hungry situations where you need to power the machines and to cool them off. So there's a lot of energy included. Years ago, we bought a company in Italy, EDSLan which was selling to special kind of electrical contractors that build physically this kind of data centers. And we sell to them cabling, we sell to them cooling devices, uninterruptible power supplies, UPS. And in time we want to grow this, as you have probably seen, there's a lot of demand in data center buildup not only the machines side, but the physical building. So we think that there's an opportunity. We are leveraging what we already had. And then that's the new opportunity driven by the solar business. So companies and families alike that are installing solar panels, we are not really in solar panels as a matter of fact, so far. We are more in batteries, inverters, and we -- if you probably remember years ago we signed already contracts for the distribution of car charging devices and not only car charging devices, bicycle charging devices and so on. And so we are putting all together. Yes, we think there's a good opportunity. We have not yet released any long-term target. We think that this could potentially become something material but first, we wanted to grow it because we really need different people. We are hiring people from other industries, different kind of vendors and competitors as well. Customers are not traditional system integrators, IT resellers and more electrical contractors. So we first want to strengthen our presence there, and then we will give voice to some expectations. But yes, the opportunity potentially is material. As per your second question around working capital, yes, we are not where we want to be. As you have seen, working capital is still higher than expected, but we are way better than the really unacceptable for us numbers of 2022 and definitely -- first part of 2023. As I mentioned before, yes, this could help us address some sales that we lost because we were so focused on reducing inventory that we were simply turning our back to our historical vendors say, hey, guys, first, we need to sell what we have in stock. Then we can think of going after new opportunities. Now that not everything, but a lot has been done. Selectively, we will go back to vendors, and I think and hope well. I don't know if hope and think or think and hope -- that some of them will be pleased to have Esprinet back on the scene, providing our logistical and financial and commercial capability to help drive their growth and will be there. We will be, however, very careful are not bringing back problems into our working capital. That's for sure. But still, we will be back on the market. How big this opportunity will be? Don't yet know. But we are more positive than last year definitely.

Another question from Mr. Belluati.

My first question is regarding Q4 revenues from the Solutions and Services business. I see a slight underperformance quarter -- of this quarter compared to quarter of -- fourth quarter of 2022. So was it mainly because of the tenders you were mentioning or because also our market component? And the second one is on D&A. I see that D&A in Q4 is slightly above D&A of Q3. So is it because of repayment effect of the acquisitions or because of other things?

So on the first question is mostly linked to a big tender that was not there this year. We won in the previous year. So on Solutions, it's essentially this. The market, as I said, was anyhow, is anyhow no longer growing -- so strongly as it has been in the previous 2, 3 years. So I think that having a very diversified product range will help us because that area with some differences, cloud software and cybersecurity is still going strong. Could be areas where there will be less, let's say, happiness in the market. That's the point. On your second question, are you referring to depreciation and amortization, I guess. Is it the right question, sorry?

Yes. Basically, if I'm looking at Q3, it was at more or less EUR 800 less -- EUR 800,000 less. So that's...

Yes. We made a few investments. We are working on a couple of projects in Italy for the automatization of the portions of the -- our warehouse and we have had some further investments linked to the acquisitions that we made of Lidera. So probably the big part of the effect is this one. We can look into the details. And if you want, we can send more info on this, but it's mostly linked to this effect.

Mr. Nargi, I give you the floor.

Thanks for the presentation and for taking my questions. The first one is about the first months of the year. If you may provide a trading update for the first 2 months. So if you are starting seeing first positive seniors about a recovery in market demand or it's still too early to see a reversal of the trend? And the second question is about 2024. So trying to translate the qualitative message you said before. So I think might we expect a recovery in sales growth but with a less restrictive focus on gross margin, but the main focus will remain the net working capital dynamics. So the aim is to achieve again high return on capital on -- a satisfactory return on capital. And if my consideration are correct from your point of view. And the last question is about your latest acquisition. If you could provide an update on Sifar? So if you -- anyway, if you can provide us with an update on that acquisition.

Thanks to you. Well, the consumer market at the beginning of the year, so it's still showing no signs of recovery at all. The reseller business in better shape. The PC market is getting better, definitely better. It comes from such an [ arguable ] year. It's not so strange. So all in all, the data center business is cooling off. The overall picture so far is in line with the analyst expectation and our expectations. So recovery of clients, consumer spending still cool, but hopefully improving and the commercial business has been going relatively well. We have to see the numbers in the second part of the year. We come from 2023 with the analysts that we are keeping on projecting next quarter recovery and we kept on waiting for this recovery, which never came. And we were fooled and trapped into this and we kept on giving targets, we were fighting hard with our historical vendors because they were reading this forecast and pushing harder to put the products, we were trying to reduce the inventory. So it's been -- it's been a challenging time. We don't want to make the same mistake. Things are getting better, but we are not yet with clear signs of recovery. I would say that's the -- what we are seeing so far. As per 2024, our focus will be return on capital employed and profitability in absolute terms. So wherever we have lost unnecessarily share because we thought that the combination of product customers could have given us structurally interesting return on capital employed. But we were focused on temporarily cleaning our working capital. Those areas will be chased and hopefully recovered. That doesn't mean that we will lower the gross profit margins per se, but it could mean that there will be a different kind of mix. Also because in the market, if the evolution of the market will go, as analysts expect, clients should be better, PC and smartphone in the market that should perform better than data center solutions. So that's what they say and expect. So that is what might happen. Clearly, our focus is return on capital employed. Therefore we will keep on having a strong focus on working capital management. That's the area where we will keep on looking for opportunities. Obviously, with a different starting point, we'll be in a position to sit in front of our vendor community and customers alike. And probably take more bets on the market than before because we started from a cleaner slate. So that's the situation. As per Sifar is performing pretty well, we are really pleased with this deal, excellent margins. The market is a bit tougher than expected, but marginally so, but they're really performing very well. We are now seeing if we can move their tremendous capabilities also in other regions and see if we can leverage these capabilities in a better way. It's a bit early -- the integration so far, it's a very light integration because they really do a completely different business with very different customers alike. So we keep them separate. But things are moving pretty well, and it's a great team. We're really happy about what's happening.

So I think we can end the call. We of course remain at your disposal. So thank you for participating. And see you next time.

Thanks, everybody, and have a great day.