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

Good morning, everyone, and thank you for joining us for the Esprinet Group Q3 2025 Results Presentation. I'm Giulia Perfetti, Investor Relations and Sustainability Manager of Esprinet. And here with me, as always, is Alessandro Cattani, CEO of the group, who today, together with Giovanni Testa, our Chief Operating Officer, that I have the pleasure of introducing to you, will comment on the results. Today's call is being recorded, and 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. So I would like to draw your attention to the regulation note on Page 2 regarding the information contained within this document. I will now pass the call over to Alessandro to begin presenting and commenting with you on the Q3 2025 results. Alessandro, over to you.

Thank you. Thank you, Giulia, and welcome, everybody. As Giulia said, today, Giovanni Testa, our Chief Operating Officer, who's been with the company for the last 23 -- 24 years, is joining me to comment on more technical aspects related to the P&L and balance sheet. So I will start with the highlights of our first 9 months and Q3 more specifically. We have delivered another quarter of solid growth. We have sort of hit on all cylinders in terms of profitability and financial metrics. We have improved our -- we have grown our revenues. We have improved our market share, improved our gross margins and managed our cost structure. We grew EBITDA, reduced financial charges and grew EBIT and pretax. And we have reduced our net debt by close to EUR 60 million against the September of 2024. So we're pleased of what's happening. Just digging into the results, the sector has again recorded excellent performance, especially in the Iberian Peninsula, where the sector is benefiting, among other things of a really favorable economic situation. Whilst in Italy, we have seen a basic flat situation since the beginning of the year. Italy has been particularly well performing last year and this year is having a more flattish performance. As I said, our gross sales grew by 7%, and we had really excellent performance on our Solutions & Services segment as well as on Zeliatech division, so the green technology and energy efficiency segment, which we established last year. And since Q4, we will also benefit in this area from the recent acquisition of Vamat, company that we expect to help the group to grow furthermore in this really interesting new segment, which is adding close to EUR 16 billion of addressable market for the group. Gross profit was up 5%. Giovanni will comment more on it. And the gross profit margin was up as well. EBITDA, EBITDA adjusted, which is equal to EBITDA is up 3% in the quarter -- sorry, 3% in the first 9 months of the year and 4% in the quarter. We had a very strict control of our cost structure after Q1 where we had a spike in cost, we have been able to effectively manage our cost structure in the following 2 quarters, and we plan to do so moving forward. Cash cycle is standing at 28 days, 1 day less sequentially and we have improved our net financial position against September last year of close to EUR 60 million. So based on this, we reiterate our position regarding our forecast for the full year. We have a range of EBITDA just before the end of the year between EUR 63 million and EUR 71 million, and we expect to be on the upper portion of this range. So now digging more specifically on sales, as I mentioned before, Italy was since the beginning of the year, flat as a market. And we grew 1% in terms of gross sales in Italy. The market was down 2% in Q3, and we were flat in Q3. Italy, we matched the growth of the market in Q3, and we are behind the growth of the market, which is quite remarkable, by the way, mostly because of decisions taken in the -- especially in the area of smartphones and some other consumer electronic products where we walked away in order to improve our net financial position, our working capital. Portugal is growing as a market, but we are way outgrowing the market after 2 years ago, we took bold decisions in terms of restructuring of our go-to-market, getting rid of the vast majority of cash divoring businesses. And hence, we're now seeing a strong rebound mostly in the SME market and to a lesser extent in the retail segment. If we look at -- Morocco is growing. Again, we don't have figures around the Morocco market. It's a small business for us, but extremely profitable and very interesting. If we look at the product categories, what I would draw your attention to is the growth in the market of the screen segment. This is a blend of PCs and smartphones. The smartphone market is not performing so brilliantly, but the PC market is growing high double digit, and we are growing in line and above the market, especially in PCs, where we have sort of made our choices on specific areas of the smartphone business in order to improve our working capital. Devices is an area overall that is -- as a market since the beginning of the year is underperforming. We have witnessed a special pressure on TVs and video gaming, and we have suffered a little bit more than the market. But again, here, more so, we are making our choices, taking our decisions in terms of what is happening and what will happen with our product portfolio because of return on capital employed optimization decisions, especially in terms of working capital. Solutions & Services, well, in Solutions, we are way outgrowing the market, which has been rather flattish in Q3, but is expected to be still vibrant in this quarter. The Greentech is down compared to last year, mostly because -- well, effectively only because of a major shortage of products we had. In October, we booked high double-digit growth in this segment, recovering sales that were due to happen in September and which were not possible because of lack of products. So we are again positive here. I remember everybody that we had an acquisition, which will be hitting our numbers effective October 1. So we'll see them in this current quarter. No effect whatsoever in Q3 and well in the first 9 months, bearing the fact that during Q1, mostly, we bear the cost of our due diligence on Vamat, and that was part of the spike of costs that we had during Q1. We fully expanded the cost, and we didn't put anything in our balance sheet. Last but not least, if we look at the performance by customer type, we grew in line with the market with retailers and e-tailers in during the course of Q3. During the first 9 months, we underperformed again because of choices made, especially on product segment. And on the other side, we outperformed the market in the IT reseller segment, again, a clear message of focus on higher-margin businesses, especially in Solutions and Services. So now if we look at the P&L of the 3 dimensions, so the 3 businesses we run Esprinet as a whole with PCs, smartphones and printers and consumer electronics, V-Valley, which is focused on solutions and services, so value-add IT distribution and Greentech solutions that run under the brand Zeliatech and also Vamat in the next months. We see that we had in terms of revenues in the quarter, Esprinet that grew, especially because of very good performance in screens and namely on PCs. We were in line with previous year in V-Valley, and we were down on Zeliatech. In terms of EBITDA and EBITDA margin, you see that we had a little bit less of EBITDA margin in the quarter on V-Valley, mostly driven by lower absorption of fixed costs, whilst we had higher performance in Esprinet exactly for the same reason. Like-for-like performance in terms of gross profit was mostly positive on all product lines where we outgrew the market. And even in those areas where we had a little bit of sales decline, gross profit margins were up, but Giovanni will comment overall in a second. And on Green Tech, even though we had a decline in revenues, but profitability was up. So all in all, we're fine on the performance. And if we go to the following slide, we can dig into the P&L and balance sheet, and I leave the stage to Giovanni. Please go ahead.

Thank you, Alex. Good morning to everybody. The P&L summary, we can start from sales. Alex already gave you some a lot of details of what we did in Q3 and in the first 9 months. I would like to underline that the growth that we can see in sales in Q3 and also in the 9 months are related for the most part in -- for Q3 for the performance of the devices and screens overall screens notebook that we managed through Esprinet brand and for both the 9 months and Q3 for the high performance of Services & Solutions. And we are very happy of what we are doing in this segment because it's a clear demonstration of what our strategy declared in some months ago is bringing some good -- very good results, good performance. The gross profit percentage is higher both for Q3 in respect to the previous year and also for the 9 months. And we can see that also the growth -- or the gross profit at the absolute value is more than the growth of the sales. So it's another demonstration that we can go through some vendors in which we can have a very good performance, connecting what we can call vendor contribution to a vendor financing, again that we will see later in the balance sheet summary. About SG&A, and we can divide this type of cost figures of the profit and loss balance sheet into parts. The variable cost are higher than the -- both in the Q3 and also in the 9 months are higher of the previous year for some few basis points. On the contrary, the total SG&A are growing in Q3 less of the 9 months accumulated. This is because if you remember well and also Alex said a few minutes ago, we had a spike in Q1 related to the cost of M&A deal of Vamat that we closed -- we have the closing in October 1 and the signing in September 15. And also for other 2 aspects that we have to underline. The first one is that we anticipated some advertising costs related overall for the own brands in Q1. And the other aspect was the increase of the collective bargains that we had in March. And the second tranche we will have in November. So we'll see in the next quarter. About the fixed cost, for sure, we see that the percentage of [indiscernible] sales even in the quarter 2 and also in this quarter is less of the cumulative one. And we hope to have the same performance also in Q4, seeing that the very strict control of the fixed cost is bringing some results. For the other fixed cost that we can mention now, we had some technology cost increased in respect of the previous year connected to AI and cybersecurity project and some cost related to ESG, new regulation of this year that obliged us to stay in line with the new rules. At the end of the day, the EBITDA margin is still more or less flat for the Q3 in respect to the previous year and is in line for the year-to-date September. The percentage -- sorry, the growth of absolute value in Q4 was higher than the percentage of growth in 9 months. Between EBITDA and EBIT, passing to the EBIT figure, more or less are mainly due to the depreciation of the right of use of the warehouse of Tortona, the new logistic hub of the group that we opened, if you remember, in August 2024. And in fact, the impact as seen to the next line of the profit and loss. We can see that the impact of IFRS 16 that is growing in 9 months, EUR 3.5 million against EUR 2.7 million in Q3, the fact that we opened in August and so we have the impact also in the previous year of 2 months -- on the 3 months of the quarter is flat. About other financial expenses, we are flat in the 9 months, but we can see a very important decrease of 29% of the financial cost in Q3, mainly due to a lower average debt that we had in Q3 for a small part also for the interest tax that are lower than respect to the previous year. All these figures bring to the PBT that is growing for our point of view, a lot in the accumulated 9 months of 16%, but also the performance of Q3 of 5% of growth is at our eyes very important. About the net income, we see a decrease of the net income that is fully connected to different income taxes that is applied in Q3. But we think that the tax -- the estimated tax burden that we have applied will bring at the end of the year to have the same tax rate of last year. If we pass to the balance sheet summary in this slide, I would like to focalize your attention on 2 aspects. The first of all, that also I mentioned before is the decrease of net financial debt of around EUR 60 million that are the result of a better way to manage our working capital. Our working capital is strictly connected to a commercial working capital because for us, everything is connected to inventory, trade receivable and trade payable. If we see the figures and the progression of the figures since from the September 2024 to September 2025, we can see that compare overall the 2 quarters, we can see that we decrease -- we were able to decrease of more than EUR 20 million the inventory. We were able to decrease the trade receivable of other EUR 20 million roughly. And we are with a very small reduction of trade payables that are connected fully to a mix of product -- part of the mix different from the quarter of 2024, the first quarter of 2024. We are fully localized to the reduction of the working capital and overall to have from our vendors, as I said before, not only a vendor contribution that is reflected in the profit -- the increase of the gross profit, but also a better vendor financing that from -- in our view, is to manage better to reduce the inventory days and at the same time to [indiscernible] time of payment of vendors to the DPO better and larger than the past. So what we are doing is trying to move to vendors that structurally require a higher absorption of the working capital and moving to a better working capital vendors just to have at the end of the day, a better working capital, also a net financial debt in decreasing respect of what we did in the past. This is reflected also in the ROC we have in the next few slides, some graphics that reflected the performance that we have in the quarters. Overall, I would like to show you the next one that is the working capital metrics at quarter end that can show you in a graphic way 2 different aspects. The first is that the cash cycle of the last 4 years, the Q3 of the last 4 years is decreasing every year, 44 days, 36, 35, 32. And also for this year with a different seasonality of with respect to the previous year 2024, we can see a continuing decrease of the cash cycle. In our metrics, our target is 19, 20 days because we have calculated, we think to be cash neutral at 20 days. So our target for the future is to arrive to [indiscernible]. Alex, the other part.

Thank you, Giovanni. Well, the ROCE return on capital employed evolution is flattish as a result of the numbers we have just seen. Okay. Thank you, Giovanni. And let's wrap up with my final -- with our final remarks. Well, first of all, we have designed a strategy, and we are implementing it. And the strategy is to grow on the back of the digital revolution on one side and the green revolution on the other side. And hence, a strong focus on V-Valley and Zeliatech. And on the other side, we have through Esprinet, the opportunity of grabbing the let's say, the refresh cycle of PCs on one side. And as Giovanni mentioned before, and we mentioned many times, the opportunity of redesigning slowly, but constantly our product customer mix in a way that we will be focused more on lower working capital absorbing combinations of product customers. The [indiscernible] target of 20 days is something that we have mentioned many, many times. It's an aspiration, not necessarily a target for this year. It's the aspiration of being cash neutral, which we could achieve having roughly 19 to 20 days of cash cycle. We are definitely pushing in that direction. The results of these first 9 months are in line with the strategy for another year again because this path of rebalancing has been going on for quite some time now. And we believe it's a clear indication of our capability of creating sustainable value in a market that keeps on changing. So again, we will expect us to keep on focusing on solutions and services because there's this digital transformation that is affecting the enterprises, large and small. And so there's a lot of a lot of opportunities for our resellers, our customers to go after these opportunities, and we're trying to leverage our leadership in Southern Europe in this sense. We have opened up the Zeliatech division, and we're, in this case, surfing the green transition wave. And the acquisition of Vamat is opening up new opportunities for us. As I mentioned, there are robust opportunities within the PC refresh cycle and analysts estimate that this will continue for several quarters. We have a really strong momentum of the Spanish ICT market. We're leaders there. Roughly 36% of our business comes out of Spain. And as long as Spain is one of the key economies in the world, especially in Europe, it's by far the best one in terms of GDP performance. We have a unique opportunity of grabbing value out of that. If we look at our cost structure, again, we -- as Giovanni said, we are really focused in maintaining our focus on cost structure optimization. It's been in our DNA for the last 20-plus years. We had a challenging Q1. But then in Q2 and Q3, I think we showed that we were able to rebalance. And again, in Q1, in reality, most of the burden were one-off costs that were brought into that quarter rather than being either spread across the year or being put as one-off. I refer specifically to the Vamat due diligence consultancy cost. So working capital is our key focus. We want to go on in the optimization working capital portfolio of vendors -- working capital-related portfolio of vendors. So also in light of the sustained gross profit margins, the performance expected by the markets, what we have seen in October in terms of our sales and our gross profit margins, in light of all of the above, we keep on having a very good feeling on the last quarter, which is an extremely important quarter for us because of the seasonality. Spain as a market is really hitting on all cylinders. Italy is a bit more challenged, but -- all in all, we confirm our guidance of EUR 63 million to EUR 71 million of EBITDA adjusted, and we believe we should hit the upper end of the range. Well, with this, I want to thank everybody for listening to us, and I give back the stage to Giulia for the Q&A session. Thanks.

Thank you, Alessandro, and thank you, Giovanni. Yes, we can start with the Q&A session. [Operator Instructions] So the first question comes from Mr. Storer.

Can you hear me?

Yes. Very well.

Okay. Perfect. Two questions, please. The first one is on Italy. And if you can elaborate a little bit on countries weakness, in particular, if the performance that we've been seeing is something that back at the beginning of the year, you were expecting or if the country is moving, let's say, somewhat slower compared to your initial expectations? And what should we expect going forward? The second one is on working capital. Is it fair to say that given the strong focus on working capital reduction and also the fact that interest rates are coming down, I mean, you could decide to push more on factoring going forward, maybe giving up some margin gain in order to end up with a better debt position?

Well, thank you. Well, on Italy, the analysts forecast a recovery of Italy in terms of growth rate year-on-year, especially for the next year, low single digit. Those are the last figures that came out of context a few days ago, yesterday, probably. They expect a slight growth for this quarter as well. We are factoring into our numbers a little bit more cautiousness. So we think more of a flattish market in our forecast. Let's hope to be surprised by better-than-expected performance. So more in line with what the analysts expect. At the beginning of the year, there were expectations for a slightly better market. Reality is that the consumer segment has been weaker than expected. The corporate spending and SME has been reasonably in line. There's been quite a period of time during this year in which government sales were particularly weak due to certain issues that the market well knows that happened end of last year, but things are apparently recovering. And so things are moving back to normality. As per working capital, yes, we're -- especially in the Esprinet segment, so the PC, smartphones and consumer electronics and print segment, where we sell to retailers where we do indeed have a higher chance of using factoring. As we have a higher source of income now coming from Zeliatech and V-Valley, we can be more aggressive and selective in the deals that we take. And this is driving a number of vendors, either to improve our vendor financing, as Giovanni mentioned them. So the difference between levels of inventory and payment terms or they are giving us extra contribution so that we can, for example, use higher levels of factoring without affecting our gross profit margins. And indeed, as you have seen, improving them. So yes, we will keep on balancing the 2 things. Interest rates going down, of course, help. But Giovanni mentioned a sharp decrease in -- during the course of Q3 of our interest charges that were down 29%. That is vastly, not entirely, but vastly the result of a lower average debt, which is reflected only partially in the end quarter figures that we delivered. So in this sense, we are positive on what is happening and the opportunities that this combination of higher contribution from the higher-margin businesses on one side and lower interest rates on the other side can give us in terms of leverage in readjusting the working capital profile of especially the Esprinet companies, Esprinet Italy, Iberica and Portugal.

Another question from Mr. Berti. So I give you the floor, please.

First question, I was wondering if the suspension of the Transition 5.0 plan could create in any way some headwinds for Zeliatech market environment in the coming quarter? Or if there is no correlation. Second one on the integration of Vamat and specifically the opportunity you see in Benelux and Ireland. I mean, what commercial synergies do you expect? And lastly, if you can provide some color on the recent announcement you made related to the launch of SalesMate and AI Smart Search. What kind of benefits do you expect?

Okay. Thank you. On Transition 5.0, Giovanni, any impact forecasted...

No. We have no any impact forecasted in this moment. We will see in the next month, but there is no impact from -- for the business. The integration of Vamat, we are working in this very moment on the budget. The first indications of the stand-alone Vamat business, Benelux plus Ireland are very positive in terms of additional revenues, mostly because we sort of freed up the management team from a very long period of time of negotiations, which definitely distracted them. And on the other side, the key vendors that are working with Vamat are particularly pleased of having Vamat under the umbrella of a bigger player that can help not only in terms of financial stability, but also in terms of potential investments in people and services. On the other side, we are really, really looking after the possibility of bringing the unique expertise of the Vamat people, especially the expertise they have in high-end certifications that they have on specific vendors into our Zeliatech business. The business is pretty peculiar and system integrators that are installing these solutions need to have specific certifications to design the project and size it correctly. If they don't have it, they rely on the distributor that needs to have on board engineers that are able to do this kind of activity. We don't have enough of them in Italy. Vamat is an expert and they have specific certifications. If we will be able to bring this knowledge into Italy, there's a significant margin opportunities for us because we will increase our level of services. On the last question, we have announced a couple of tools that are the first 2 that are of significant visibility in our AI transition project. The focus is mostly on effectiveness of our sales process more than on cost reduction. One tool is designed to improve the capabilities of our website to offer the right product to our customers, effectively turning into a sort of consultant. And on the other side, we have a tool that will significantly improve the effectiveness of our sales teams that will be able to update our CRM and initiate a number of activities by themselves, by forms of [indiscernible] that the system will provide them, but especially by our marketing people that will have a list of to do actions, very specific ones in order to improve significantly the chance of closing potential deals. There's a bunch of other stuff that is coming. Giovanni mentioned, we are spending money in IT because we are working on a bunch of programs and initiatives to bring automation into our systems. Again, we began with activities mostly aimed at improving the effectiveness of our sales teams. There will be also cost reducing activities in time. But in this moment, we're mostly focused on helping our people to sell better and more.

Another question from Mr. [indiscernible] I give you the floor, please.

Just a quick question on the revenue mix. So we have seen in the quarter, a very good performance from the [indiscernible] segment linked to the PC refresh cycle. While on the, let's say, less positive side, we have seen the V-Valley and in particular, Solutions and Services that were slightly softer, at least compared to the good progression we have seen in the first few quarters. Could you comment a bit more on the dynamics you are seeing on these business segments? And if might we expect, let's say, a reversal over the last quarter of the year with Solutions & Services to regain momentum by the end of the year?

Well, thank you. I think the answer is a technical point. If you look at Slide 5 of our presentation, we grew Solutions & Services by 8% at gross sales level. The point is that in the following slide, Slide #6, we report the net sales. And in Solutions, especially, we have a disproportionate amount of sales that are affected by IFRS 15, not 100%, but a significant chunk of our software sales, which are growing very fast, cloud sales as well and to a lesser extent, the cybersecurity sales are affected by this. So if we look at the performance in the market, the market figures are calculated on gross figures. All the distributors provide gross figures and then they report gross and net figures according to their own calculations of IFRS 15. We do the same, but we outgrew the market by product category, solution and services. So I think it's mostly a technical aspect. All this said, we do believe that there's an opportunity for us to keep on growing in this segment. We are doing very well. We have seen October sales, again, are extremely positive in the Solution segment, Solutions & Services segment. So that's what's happening. And the market has been softer because there has been, especially in software across Europe, some softness. And this market is also affected by the seasonality of large enterprises purchases as well as government purchases. So it might be also that there are swings in the market because of this. But I can tell you that it's mostly technical. The numbers are those on Page 5, and we're really positive on what we are seeing. Giovanni, I don't know, on October...

I fully agree with you. And also in Q4, we will see a growth for this segment.

Okay. I think there are no more questions. So we can end the call.

Okay. Good. Well, thanks, everybody, for joining us today in this call. Group keeps on executing on the plan. And let's see again for the presentation of the numbers in February, I think. And thank you, Giovanni, for joining us.

Thanks all for participating, and see you next time.