Good morning, everyone, and welcome to the Esprinet H1 2024 Results Conference Call. Before we start, please note this webinar is being recorded, and after the call, the podcast will be posted on the Esprinet website in the Investor section, together with the presentation. For the duration of the call, your lines will be on a listen-only mode. However, we will have a Q&A session at the end of the presentation. Please note again, that this presentation contains forward-looking statements, so I would like to draw your attention to the recognition note on page two regarding the information contained within this document. I am Giulia Perfetti, Investor Relations and Sustainability Manager of Esprinet Group, and with me is Alessandro Cattani, CEO of Esprinet. I will now turn the call over to Alessandro to present and comment with you the H1 2024 results. Alessandro, over to you.
Thank you, Giulia, and welcome, everybody, for this H1 2024 results call. I hope you all had a nice summer. Indeed, we are out of a good quarter, not only for our numbers, but mostly because of change in the market. The ICT distribution market in Southern Europe, after a slow start, especially in Spain in Q1, recorded a significant growth, or improvement, generally speaking, in Q2. And that was confirmed by the preliminary figures of July. And the group keeps gaining market share, so we are happy about the performance of our team within this market. Signs are encouraging.
Of course, we'll probably still have some bumpy road ahead of us, but most probably what all analysts have said so far, the worst is behind us, and we should see further recovery in the coming months, and definitely next year. EBITDA adjusted is back to growth, quite healthy in the second quarter of this year, 9% growth year-on-year, and for the fifth quarter in a row, we measured a reduction of our cash cycle, and hence of our net debt.
So all in all, Q2 is really something we're pleased of, and if we dig a little bit more, as we will in a moment, we'll see that the team is performing in terms of commercial activity with market share gain. We had very strong cost control, and that drove profitability and in terms of the net financial position, we are down nine days of cash conversion cycle, down at 22 days against Q2 2023, and two days sequentially compared to Q1 2024. So all in all, we think we have a nice trajectory, but let's look a little bit more into the market, which is something that is probably most interesting for everybody.
We have been waiting after this long winter in the market for signs of recovery, and as you can see in the chart on the right side the sales distribution trends in Southern Europe, Italy, Spain, Portugal first column, the blue one, is Q1 2024 against the 2023. The second one is Q2 versus previous year, and then we also have a July figures. We don't yet have solid August figures from Context, the data provider that is serving all the European industry.
Italy was down 3% as a market in first quarter, up 1.2% in second quarter, and 7.2% in July, with a mixed bag of screens recovering, mostly in the PC space, while we're seeing still pressure on smartphones. Devices still challenged. We have especially TVs, as well as white goods and mobility. To a lesser extent, we have also pressure on printing. Printing is a sort of secular trend. While the solutions were in Italy down in first quarter and up in the second, they showed a certain acceleration in Q3.
Spain was the culprit of our below par performance in Q1. [It] recovered from a - 12% performance of the market up to minus 3.8%, and close to zero in July. Screens, devices, solutions, everything was bad in first quarter. We had devices back in slight growth in Q2, and solutions still declining, but less than before. Spain, must be noted, is highly influenced by government spending, much more than Italy, and...
Because of the, let's say, turbulence in the coalition that is running the Spanish government, the government budget has not been approved yet, so they are still running on the old budget, so they face quite some constraint in their overall spending. But some regional budgets have been approved, and that drove certain improvements. And consumer spending was better as well. Portugal, although still small for us, was the economy that grew the most. And so all in all, you see really a nice trend with the Southern Europe closing the second quarter, more or less flat, minus 0.3%, screens slightly up, devices still down, mostly for the reasons that I said.
And in Q2, the solutions market was flat. It took off well in July. Preliminary figures are softer for August, and we'll see moving forward what time will bring. Well, if you look on the left side, we more or less hit on all cylinders, if we exclude Portugal, where we are in the middle of our transition from a heavily consumer-driven business model to a more business and corporate-driven one, and we're seeing signs of improvement lately in that market as well. But everywhere else, be it country, be it product category or customer, we have beaten the market, and quite substantially.
I would like to draw your attention, specifically on the solution and services market, which is the highest margin area of our business, as you might know. We outperform, by far, the market, in Q2, up 17% against the flattish market. And, if we look at the overall first half performance, we were up 12% against a market down 3%. The value-added distribution that we run under the brand V-Valley, the reorganization we had in Italy, some troubles of some of our competitors, they all conspired for a really good performance. We are pretty pleased of what's happening.
Worth noting, as well, that the retailer market, so, a measure of consumer spending, was flattish as a market during Q2, against a first half down 6%, and we overachieved with a growth of 19%. That, of course, diluted a little bit the gross profit margin, but added volumes of gross profit in euro. So all in all, that's for the market. We tried to add this pitch, given number of questions that we historically received, from our investors and analysts. And, one last comment on markets is that the analysts still foresee, for what any forecast in such turbulent times and unpredictable ones can provide.
They foresee a second half with Italy growing 4% and Spain slightly above zero as a market, so a good recovery, which should be confirmed as a trend in the next quarters. All this gave us the confidence on our top line to reconfirm the guidance, but we'll dig into it in a moment. Okay, so that's for the sales evolution. If we move at, let's say, at the market challenges and the opportunities moving forward, so we raise our head and look more long term, we see a bunch of opportunities. As I said, we might still have some bumpy road ahead. It might happen that we have quarters with the market less performing than what was this last one.
But all in all, as we said, given the projections, given the trend, given the fact that we're seem to see a recovery also in private consumer purchases, and a quite healthy performance still of the business segment, we believe that we're in a stabilization phase, but we should see growth in the coming years. IT spending is indeed forecasted to grow in the coming years. We have AI on one side, and the 2020 expenses, IT expenses refresh, that are key drivers of this forecast. Probably AI, short term, is a bit overhyped, is still mostly focused as a consumption in the large, very large enterprises.
But slowly, the technology is getting accessible, and the applications are hitting the ground, and more and more, we'll see AI spending in its different variations, be it spending in software or infrastructure or personal devices. You might have heard the launch of the latest Apple devices, and the round of innovation hitting the PC space. Well, all of that will turn into good momentum in terms of growth in the next years, outpacing the average GDP growth, which is a clear indication historically of what the performance of the IT market should be. Normally, we always see IT spending, a few percentage points, IT spending growth, a few percentage points higher than the GDP growth, in that period.
We see also a rebound in the PC market after a very, very challenging 2023. We're seeing AI-capable PCs, but even these PCs apparently are 14% of the total amount of PCs shipped during Q2. We're just at the dawn of a new era. Probably PC growth will short term be mostly driven by the product refresh cycle. Next year will be the fifth year after the burst in PC purchases subsequent to the onset of the COVID pandemic back in 2020, so this will be a strong driver.
But as a number of software applications are more and more getting into the market, and more and more SMEs as well as individuals who will see AI-based applications that they deem useful, the amount of AI-capable PCs should grow, and that not only should drive volumes, but they should sustain the average sell-in price as well. We also are seeing improvements in the retail channel. Of course, we have witnessed a strong impact on consumer buying patterns by the cost of living and probably the revenge spending in terms of the travel and entertainment after the COVID years.
We're seeing more and more signs of stabilization and of people also because of the very high inflation in travel and entertainment, restaurants, and whatever. We're seeing a more balanced mix moving forward and therefore more money allocated by individuals to the renewal of their in-house devices, among which we'll see, of course, traditional IT products such as PCs, as well as smartphones. But definitely, we'll hopefully see a rebound also in TVs and the other consumer electronic devices, namely electrical mobility as well as white goods.
Last but not least, we're seeing inflationary pressure, interest rates, as well as probably the geopolitical instability that should hopefully ease, and that should drive both an acceleration of growth as well as have a positive impact on our P&L. If we think of the impact of 25 basis points of interest rate reduction, just on our average outstanding factoring cost, we normally have an average between 300 and 400 million EUR of factoring. Those are automatic contracts, a reduction of 25% turns into a few hundred thousand EUR of lower factoring costs, which we book according to IFRS standards into the gross profit margin. Those should help our gross profit improvement.
That's for what we see moving forward, so pleased what we're seeing in the market. Of course, we are not completely out of the blue, but things are getting definitely better, and it's still probably a transitional year in terms of market and, of course, indirectly our performance. But we see growth moving forward as well as really big opportunities for the next year. If we dig into the H1 2024, so now we dig into Esprinet more than on the market.
Well, in Q2, thanks to the growth in revenues and a very strict cost control, notwithstanding the inflationary pressure, which was particularly strong in the wages, we recorded an impact on our cost of personnel, which is the biggest portion of our overall SG&A, because of the standard bargaining agreement negotiated by the government, which drove increase. Notwithstanding this, we saw a 9% increase in EBITDA Adjusted. As I said, also, fifth quarter in a row of cash conversion cycle sequential improvement. Gross profit grew in percentage of gross profit margin, 5.67 against 5.53.
As I said, due to worse sales mix with higher retail sales, gross profit in Q2 was slightly down from EUR 575 to EUR 559, but in absolute terms, we saw growth. EBITDA adjusted was up 9%, and that allowed us to recover almost entirely the gap that we had against the previous year in Q1, and what is interesting is our negative net financial position of EUR 164 million is definitely much better than what was the previous year, at EUR 207, and sequentially in March, where it was negative EUR 188.
Worth noting that we used more than 30 million EUR less of factoring, so the number would have been even better if we had not managed to use even less factoring. ROCE, return on capital employed, is up sequentially, as we forecasted, given the constant improvement of our profitability, but especially the cash conversion cycle. We should see a return on capital employed improving in the coming quarters, as we drop all the quarters with worse numbers, and we add, in the average, new quarters with better numbers. Let's look more in detail to our P&L, with our usual view on the five pillars. Here you see Esprinet. As you remember, we have now basically two major legal entities in all countries.
Esprinet taking care of screens and devices, including our own brands, and V-Valley taking care of solution and services, and in terms of performance, as you can see, we had a good and healthy, as reported, revenue growth of 4%. The solution market in particular is affected by IFRS 15 to a large extent, because we do sell quite a good chunk of cloud and software that is recorded as agent and not as principal. And therefore, our gross sales are significantly higher, and we strip them down. That's why we see 4% growth. But in reality, gross sales were up 9%. In terms of EBITDA, we had an improvement more or less on all lines.
The only area where we suffered was devices. Devices suffered for a number of reasons, our own brands, Nilox Sport is still challenged. V-Valley is really out of the woods, and it's growing with growing profitability. Nilox Sport is still suffering the slow demand in electrical mobility. And then we had a particularly challenging market in the TV, gaming and white goods space, and we had allocated more cost. So both a little bit less margin, gross profit margin, and there are more costs to move these bulky products.
Everything else improved, and if we see the H1 numbers, we see stability in solutions and services with a better mix, more skewed more and more towards the services. And we see the weight of this tougher Q2 on devices that dragged a little bit down the profitability, the EBITDA margin of the Esprinet area. But all in all, as you can see, the EBITDA margin of the value-added distribution portion of our business, so V-Valley is 365 against 57 basis points of Esprinet total. We do have a lot of seasonality, as you might remember.
And in terms of profit, the value-added distribution is now by far the biggest contributor in terms of euros. Okay, that's for the five pillars. If you go to the P&L, we have summarized the numbers. Yeah, just a couple of words on the SG&A. We have exerted a very, very strict control, and as you can see, though we are growing in terms of revenues, even more so if you consider gross revenues, which are the real driver of costs, our cost base is down, and that's even more noticeable, more noteworthy if you consider that last year we canceled the...
The accruals we made for the long-term incentive plans for the directors, they had long-term incentive plans in place. And we have withstood the impact of more than EUR 500,000 of the increase related to collective bargaining agreements. Despite all of this, we had a very healthy cost control. We are controlling inflation. In terms of interest charges, as you can see, in Q2 as well as in the entire first half, we had significantly lower expenses. And now you have to strip out of the EUR 9.5 million of this quarter and EUR 11.8 million of the half, roughly EUR 6.9 million of the interest related to the tax dispute that we settled last year.
So in Q2, our net financial expenses were down compared to previous year, and that's basically the result of, although with year-on-year worsening of our average interest rate, because we still had last year the carryover of older financing schemes with lower cost. We had significantly less average financial debt, so pleased to have this under control. We still had some exchange losses, but as the euro is recovering against the dollar, probably situation should improve. As a matter of fact, we had good numbers, for instance, in July. We had a one-off impact by the cancellation of some tax assets in this quarter.
It is something that the part of the adjustments that we do during the year. We don't foresee anything special by the end of the year. We should have the average tax rate between 26-27%. That's what we see. Last but not least, the impact of financial charges of the non-recourse credit transfer programs increased seven basis points within the gross profit. We were able anyhow to grow the gross profit in the half. That's for the PNL. If we go into our balance sheet, well, I said before, we had an improvement which is all linked to the operating net working capital.
Here you can see from H1 2023 on the right side, moving quarter by quarter till June 30 this year, the evolution, and we'll see in a second the cash conversion cycle days. The factoring programs, which are mostly for retailers, were down to EUR 334 million against the EUR 364 million of last year. So the working capital is even better if you consider that we sold EUR 30 million less of factoring. And if we see the numbers in terms of cash conversion cycle, please, Giulia, if you turn the page. Thank you.
You see that sequentially, since the peak that we experienced in Q1 2023, where we hit 32 days of cash conversion cycle or 877% of working capital on sales, we added for our investors and analysts also the metric of working capital on sales. Basically, if you multiply that number by 365, you should get the cash conversion cycle. Internally, we are used to the cash conversion cycle. We are sequentially down two days. As you can see, no really big changes in the last year in inventory days as well as DSOs, a slight worsening. But we got more and more support from our vendors, because we are rebuilding inventory for a very aggressive end of the year.
And hopefully, that will turn in above par performance in this last part of the year, against the subpar, significantly subpar performance of last year. So let's see if this will turn into reality. That's part of the assumptions that were made while preparing our best and worst case analysis for the end of the year, given the numbers that we know as of yesterday, well, day before yesterday, in terms of sales. And we expect, thanks to this activity on inventory, we now have less pressure on reducing the inventory. We have more support from, financially from vendors. We do expect to have the products to fulfill the back to school, as well as the Black Friday and Christmas Eve campaign.
and, therefore, hopefully we should have the volumes that should drive a good performance in terms of bottom line as well. And, if we look at month, quarter by quarter, you see the trend as well, we hit in Q2 2022, 31 days, down to 29 days, last year, 22 this year, against the 16 in 2021. And, too, in the exceptional performance that we had in 2020 when we were in shortage of products, and vendors gave extraordinary support, for the COVID period. We are not where we wanna be in terms of cash conversion cycle, cash cycle days. As you know, we have an ambition to be below or around 18 days. There's still room to go.
We have long-term plans in place to redesign and overhaul completely our procurement processes. It will be a long-term process that will go well into next year, and that should drive improvements, all things equal, in the inventory days, which are not yet as good as they could and they should be. There's still areas of inefficiency. That's a bad piece of information, bad news, but good news as well, because there's room for improvement, we are tackling it, and it's mostly training and redesigning of certain procedures. We have done it already in the past. We are honing our skills thanks to new tools available also out of business intelligence and AI, on which we are working. So in time we think that that trend should go on.
As I said, there might be spikes along the road, but the path is well-designed. And last but not least, in terms of Return on Capital Employed, we eventually see a rebound, and hopefully we should see as this is the average of the last five quarters. As we move forward and quarter by quarter, we lose the worst ones back in 2023, and we enter more and more with the newer, more recent ones. Hopefully, with also the help of improved profitability, we should see a rebound of our Return on Capital Employed. Okay, that's it for comments. And final remarks, it's just a quick summary. Well, first message, market apparently is back to growth.
And this happened in Q2, and this trend continued in July. As I said, might be that some months or quarters might be softer than others, but the trend is defined, and there's, let's say, a structural positive trend that should drive growth in the next years. Market share is growing. We further grew our market share in Q2, and we were particularly good in solution and services, and IT resellers. The market over there is more and more understanding that we are no longer the new kid on the block in value-added distribution.
We are more and more an established and solid player, and, hopefully, we could see a good momentum moving forward with the new openings of contracts and growth in this area, and we were good also in recovering the portions of the market that we lost last year in consumer segments, because we were so focused in cleaning up our inventory. We were not with the best inventory in terms of inventory days in the market, but, given the support we have from vendors and the possibilities that we see out there, given the performance of most of our, especially smaller competitors, we see an opportunity, and we're chasing this opportunity. Cost control is always, of course, of paramount importance.
We were, I think, very good in offsetting inflation and all the headwinds that we faced, despite increased sales volumes, and that contributed to growth of the EBITDA, and we improved our working capital, and we have long-term plans to keep this under control in a more structural way moving forward. We have made our analysis. Of course, we need to do a hell of a lot of sales in the next four months, but based on what we have seen so far, performance of the market, our performance also in this current quarter, which so far is pleasing us in terms of volumes, well, we foresee so far an EBITDA between 60 million EUR and 71 million EUR.
We'll have an update, of course, in November when we report our Q3 figures. We'll be with a very clear picture of where we stand, also in terms of demand in the market by that time. But in this moment we have a certain degree of positivity, and we are even more positive long term, because we really see the evolution of the market, as well as the evolution of our group, going very well in the right direction. Long-term, digital transformation trends will continue to drive strong increase in spending in technology. There's this AI momentum, which, although overripe, probably short term, is definitely a defining moment for our market, probably as it was the introduction of the World Wide Web back in the early 2000.
So it would be a strong driver of structural growth moving forward. And this greater digitalization is creating more and more complexity for end users and for system integrators and retailers alike. And so they'll need more and more, and vendors more and more are in need of distributor-provided services. And that should drive good opportunities for us in the very lucrative market of those reseller-related and retailer-related services that we provide. Not big volumes, but extremely high profitability. And there's a bunch of opportunities that we are already chasing stemming from the convergence of some sectors toward technology. I think we think, in particular, the digital and green transition, which is driving major opportunities for all of us. And that's it.
So, we are more upbeat during this quarter, mostly because of the market and because we're really seeing the group doing what we expected. It's been a long journey. This year and a half has been strong and tough. We're not yet over, but we are much more confident than before. And with this, I turn the floor back to Giulia for the Q&A session. Thanks, everybody.
Thank you, Alessandro. We can start with the Q&A session. Mr. Storer, you're the first. Please go ahead.
Hello. Thank you for taking my questions. The first one is on the consumer space, where you have seen a big increase in Q2. I was wondering if you have a sense on the level of stock at a client level, and whether sell out and selling are moving in sync, or we are still in a phase where sell out is weak, and selling maybe is a bit stronger.
The second one is on your profitability in services, which I know that we are talking about small numbers, but it was heavily down year-on-year in Q2, and I was wondering if is there anything to highlight here, or it's just a blip? Third question, a clarification. You showed figures from July. You said probably August is not as good. I guess those figures are not adjusted for selling days, because July was probably two days more compared to July last year. August was one day less, so just to clarify this. Thank you.
Yes. Well, yes, on the last question, they are not adjusted. Numbers adjusted are showing growth anyhow. That's what Context, GfK provided to us, so the numbers are better. And overall, July, August, preliminary figures seem positive. Again, as I said, we're not completely out of the doldrums, but things are getting definitely better. We no longer see a constant slide of the market. Neither the forecast are going that direction. On services, I think you referred to the percentage more than the absolute value.
Yeah, yeah, yeah.
Yeah. Okay, yeah, the absolute value grew. Well, services are a mixed bag. We have services where we have more of an activity with the factoring being Esprinet, and others, where we outsource part of the activity to third parties. There was a bit of this mix, which impacted mostly the gross profit margin. I'm looking at the numbers. We had... The cost structure was the amount of cost allocated to the services was lower, because we had more services that were purchased, in brackets, and hit the gross profit. It's, as I say, a matter of mix.
We have, for instance, data services and logistics services, where we use our facilities, so more or less, each euro of revenue is, with the exception of the people involved, which normally very low, there's a lot of automation there. In data is almost 100% automation. There's not that much of a cost, so it's almost all profit. Then we have a certain digital services or maintenance and installation service that we provide on behalf of system integrators that are more people intensive, and we needed to purchase that. That's why there's this percentage, but it's really depending on the mix.
Volumes are not big yet, but it's good to say, this question is good also for one point. We are really investing a lot in this area, so we have plans to roll out strengthening of our structuring over there. That is another reason why we are very positive for the long term, because we think if we could grow these services as we plan, that could add not so much revenues, but definitely profitability. On the first point, the consumer space level of stock, we have visibility, but up to a point. If we cross-reference GfK sellout data with the Context sellout data, Context records our sales. GfK has two services.
They record our sales, so is a copycat of CONTEXT, but they do have a service, which is their main service, in which they record the sellout of the retailers, especially. They are rather weak in the sellout of the system integrators, but they're very, very strong in retailers. To the extent that we have visibility, it looks like they are sort of aligning sell-in with sellout, so it should not be a buildup of stock by retailers. If you cross-reference with the performance, stock performance of MediaMarkt with their recently released data, as economy, and you look also at the numbers of Unieuro in Italy, you should find a match.
For what we see, and again, I say it loud and clear, we have not a full visibility of what's happening over there. We have mostly third-party, third-hand information. Apparently, there's no particular build up of inventory over there.
Mr. Nargi, please unmute.
Hello, good morning. Thanks for taking my question. So the first one is about the reference market. So considering Q2 results, the July and August update, and the positive market sentiment, it appears there is a solid foundation for recovery in market demand in H2. The point is, given the more favorable comparison base, so in H2, or in two thousand and twenty-three, revenue were down 17%. What would be a reasonable growth that might we expect for the rest part of the year? Or say it in a different way, might we expect Esprinet to keep outperforming the reference market also in the second part of the year? The second question is about the cost structure.
In terms of costs, considering again a potential rebound in the consumer space, might we expect some margin dilution in terms of gross profits in H2? While on the OpEx side in H1, you effectively managed operating expenses, keeping them nearly flat year-on-year. It's reasonable to expect a similar trend also in H2, so allowing for a higher degree of the operating leverage. The last question is on the net working capital and cash generation. You were able to further reduce net working capital, also thanks to a greater recourse to factoring if compared to the Q1. But at this stage, what we expect the trend to remain consistent with also in H2, or a potential rebound in consumer field could require some net working capital absorption? Thank you.
Okay, thank you. So on second half, well, yeah, we outgrew the market. Last year, we supposedly lost the share, especially in the consumer segment, and not only there, because we were mostly focused on inventory reduction. We are regaining some of the share that we lost because we were tactically focused on cleaning the stock, which we did. We will structurally lose certain deals. If you see the performance of screens is a mixed bag. Very good performance in PCs and a fairly poor performance in smartphones because we structurally walked away from certain deals, which we think, and certain vendors, that we think so far are not possible to manage in an efficient and profitable way.
So yes, we do believe that there's an opportunity in terms of market share gain. And in our different scenarios, we plan, of course, to keep having an outperformance with the healthy growth of our top line against the previous year. The numbers otherwise would not be possible. That's where we stand. So yes, we do plan growth. And this is connected to the last question in working capital trends, in a sense. In growth, we see growth also, and your question on GP dilution. In growth, we see also growth in retail and some consumer-related products, namely PCs, but not only PCs. And that could dilute, percentage-wise, our gross profit performance.
We are doing very well on the value-added distribution spaces or solutions with V-Valley, both in terms of top-line growth, as well as in terms of gross profit margin performance. But if we will, as we expect, regain a part of what we left on the table last year in the consumer space, and especially more, even more so, if the retail market will rebound by itself, there will be some potential gross profit margin dilution. Not big in our forecast, because otherwise, again, the forecast would not be possible, but it is a possibility. We hope that overperformance in the V-Valley business could offset what might happen on the other side, but we will see what happens.
Definitely, a reduction of the interest rate could also give a little bit of help in this sense, because retailer sales are mostly factored. And if the interest rates go down by 25 basis points, that could have an impact on Q4, which we estimate. If you do 400 million average times 20 times 25 basis points, divided by four, so to have a single quarter, we should end up having something around EUR 300K, EUR 250K-EUR 350K. And that would go into the gross profit and therefore helping in this sense. As per the cost structure.
So the trend in working capital, sorry, might be affected by a higher usage of the factoring, but also if we improved our performance in the retail space with PCs, and to a lesser extent, with other consumer-related products, consumer electronic-related products, including smartphones, that would improve the stock turns. And having received quite good support from vendors, that should not impact significantly the working capital in terms of cash cycle days. Those are the assumptions. Then again, in the next month, we'll see execution and see what the market will bring. Last but not least, the cost structure. On GP, gross profit dilution, I spoke.
On the fixed cost, we are exerting an extremely tight control of our, on our fixed cost. In our plans, we plan to have the cost structure similar to the one that we had last year. It might be slightly more, slightly less, but more or less, we should be there. The big question mark is the level of achievement of the target bonuses of our people. That could be a matter of few millions, which some of which last year were not paid. We hope to pay them, so it's a balance. If we achieve higher gross profit, then we eat the margin, and we pay the bonus. Otherwise, there might be less gross profit, but less bonus. So it's a balance mix.
But all in all, it looks like we are having the cost structure fairly under control. Crossing fingers, of course.
Perfect. Thank you.
Welcome. We have another question?
The question comes from you, so please go ahead.
... Yes, hi, good morning. Thank you for your presentation. Just a very general question regarding PCs and smartphone market. I was wondering what the potential pace of the recovery in screens could be over the next few years, also considering that, as you mentioned, the natural replacement wave should be boosted by AI products. I mean, do you see a gradual, steady recovery in demand, or do you see a sharp increase in demand concentrated, I don't know, in the next couple of years and then a return to normality? So which is the trajectory you see?
Well, there's a ton of debates around this. I invite you to listen to the investor calls of Lenovo and HP were held recently. We are, of course, mostly relying on them. They give a broader picture of the evolution. But if we look at what we're seeing here, the discussions we had with them, there's a global level as well as European and to a certain extent, of course, national as well. Probably, the initial assumption of a strong boost driven by AI is now more perceived as changed over by a strong boost by product refresh.
So next year, and probably the following one, we should see a major, major refresh, both because we will be five, and in 2026 six years from the 2020 burst in spike in PC purchases, as well as because we have Windows 10 end of life. Meanwhile, there's a driving force, which is represented by AI. And AI, so far, use cases that are really compelling enough to force people to open their wallet and put money on the table to change the devices or to purchase a new software, are mostly in the enterprise space. There's some nice activity going on in very consumer related demand.
Probably smartphones could have a drive because certain applications related to sound and image, and to a lesser standard to online translation, are already available. They do nice things, and so they could be the driver of tech refresh of smartphones, that historically in consumer space have a shorter cycle than PCs and smartphones in the corporate space. And therefore, over there, AI could be the driver much more than refresh. AI refresh in corporate or small enterprises will probably be more, in our view, and the view of most of the analysts, a sort of driving force, like a long wave, that will sustain sales in time. We might expect, hopefully, strong growth next year and the following one.
And then instead of bouncing down again, as we did in 2022 and 2023 especially, we might have a more sustained pace, because the investments on AI will be a sort of long-term wave that will drive the market, especially because these products come with an average sales price, which is higher. They have the Neural Processing Unit on board. They are more expensive, intrinsically more expensive. So summing up, probably a refresh-driven spike next year and the following one in corporate spending. Longer-term, sustained growth driven by AI while in consumer space, probably, especially in smartphones, AI could be more of a shorter-term driver, and then corporate will follow later on.
That's what we have heard, and that's our vision. Then, as we always say, if we were so good at forecasting the future, we would have never missed a target we gave in our history, and probably we would be so rich that we would be on the other side of the call, investing billions, instead of here trying to make money for our investors. Okay, so there's another-
Yes, another question from Mr. Longo. Please go ahead.
Good morning, and thanks for the presentation. Just one curiosity, do you think that the smartphone market will go probably this is related to the presentation of the new products from Apple, for example, and the fact that they said that the Apple Intelligence will be available in Spanish before than Italian. So for the end of twenty twenty-four, probably it's gonna be available, while in Italian, probably it's gonna happen after, so in twenty twenty-five. So do you see, or do you have an idea of the fact that there could be a stronger smartphone acquisition trend in the Iberian region, and maybe that in Italy, this can come after? Or what how do you see what do you think about this potential dynamic?
Well, yes, theoretically, it's possible. AI is made up of the model and the devices and the training. Spanish is a language where there's a lot more, let's say, literature available than Italian. English, of course, is the largest market, at least in the Western world, but not only. Spanish, with Chinese, probably is the second largest language. So naturally, I think, the Spanish language has a structural advantage in terms of training the model, because there's more papers available in that language. So yes, it could well be that, given the availability of these AI devices, the Spanish market could be faster.
But on the other side, I would also say that consumer spending normally is the result of two things: the share of wallet that is allocated by individuals, by families, to a specific product category, be it IT, be it travel and entertainment, be it fashion or food or whatever. And on the other side, on the spending power of families. Now, spending power of families has been definitely impaired by the double blow of inflation and raised interest rates, which hit hard on the budget of families that do have a mortgage. Now, that apparently should improve the share of wallet, which was disproportionately skewed on in-house spending during COVID, and then disproportionately skewed towards outdoor spending, so travel and entertainment, after COVID.
Now, probably will bounce back to a more balanced way. But I think, personally, given the experience we had, that the key driver will be the spending power and the share of wallet disposition of Spaniards against Italians. Then, of course, having more appealing technology in Spain could be a further driver, but if the Italians have more willingness to spend, and more money to spend on technology, they will probably spend more on technology. Perhaps they will buy something which is not the Apple AI smartphone, but they will buy something. And then they will wait for the AI product later on. That's our guess, but again, as I said, it's really hard to read the numbers.
Although we run a very broad product portfolio, historically, we have never really tried too hard in reading the trends of the market. It's so difficult. It's better to have more or less everything, if possible. Of course, unfortunately, we are not really 100% an ETF of technologies. We don't have the same weight of each technology, and within each technology, of each vendor, in our sales to mimic what's happening in the market, but we try hard so that if we don't forecast properly who's gonna be the winner, anyhow, we will have the winner on board. That's what we have to do, and then adjust our inventory accordingly. All this said, it makes sense, what we said.
I urge you to consider the two balances, training on one side, but, consumer spending, disposition and capability and availability of money on the other. I think the second will prevail on the first one. Let's not forget that you spoke about Apple. Apple was one of the last to enter the market with AI. There are already out there devices that do have some sort of AI-enabled capability on board. I'm using one of them, by the way, and I'm not using AI. I know that there's something inside, but the rate of mistakes that they make is so high that I prefer to trust the traditional way of doing things.
Talk with other people.
Yes. It's better.
Thank you very much.
Absolutely.
Very clear. Thank you.
You're welcome. I think we don't have other questions.
Yes, it seems there are no more questions, so we can end the call. Thanks to all of you, and I'll see you next time.
Thank you. Take care. Bye.