Thanks for joining today's investor conference. At your disposal at any point in time throughout my presentation to ask your questions, or alternatively, towards the end or outside when we have a light lunch, we can continue with your better. We are here to announce Q1, the best ever in terms of profitability for the ASBIS history. The trend shows that starting with March, we have seen a very positive trend in terms of top line, in terms of sales, something we already see in April. We are further developing the business, registering a company in Greece to run local business. We kept investing minority investments for us in Theramir. We continue growing the Breezy business in different jurisdictions. We keep investing into robotics solutions business.
On the final dividend, yesterday on the AGM, we decided to pay another $0.25 a share on top of the interim dividend paid back in December of $0.20 a share, lifting the bar to a total of $0.45 a share, translating into about $25 million for 2022 profits. Early April, we came to the market with a forecast for 2023. We have been doing that consistently for the last so many years. We believe we could reach a 3.2 billion dollar sales. Most importantly, we expect the net profit after tax to reach in the range between $78 million and $82 million. We believe a significant increase upside over 2022 results. About 2,500 employees today. 28 fully fledged countries.
Distribution centers, we added recently another two, one in Georgia to run Caucasus and further Central Asian business, and one in South Africa to assist with our Africa expansion, especially the south part. On the financial highlights of Q1, we hit a top-line growth of 4%, but as I said, the trend towards March is significant on a year-over-year basis. The gross profit margin is increasing from 7.6% to 8.6%. The gross profit as a number has increased on a year-over-year basis by 17%, leaving us with a net profitability highest ever, I said earlier, of $17.4 million, an 8% increase from Q1 last year. By product segments, smartphones continue to show a significant increase. For us specifically, we are mainly referring to iPhones.
The market is overall shrinking on the laptop and overall PC segment by a significant 20%-30% sometimes this year over last year, we expect. We decrease our business at a much lower percentage than that, meaning we still keep a strong market position and actually improving our market positions in the markets we trade. Processors, overall, we are decreasing. We are increasing with AMD. Intel faces a significant increase. Seasonality there, so sometimes you see monitors should, one would expect to go closer to the laptop segment, but all the processors or the HDDs, but that's not the case. We are growing on monitors. As I said, overall, the trend on the PC segment is to see another slowdown this year over last year like we saw last year as well.
When it comes to regions, we keep growing the FSU region. We show here an increase of 6%. Much increase in our countries like Kazakhstan, we will see on the slides to follow, is by far number one. Ukraine is also increasing significantly from last year. The growth and the expansion with Apple and not only in Central Asia markets like Georgia, Uzbekistan, Armenia. Azerbaijan is also giving us this growth on the FSU region. A minor slowdown on Central Eastern Europe by 4%, marginal increase on Middle East, and we see a significant growth in Western Europe. Though we are not fully fledged with subsidiaries in Western Europe, we are growing sales capability, and we have the right franchise with suppliers to grow in Western Europe. More analytical on the income statement for Q1.
Top line reaching $72 million, a 4% increase. Most importantly for us is that the gross profit margin kept increasing from 7.6% to 8.6%, leaving us with an operating profit of almost $29 million, noting an increase of 18% on a year-on-year basis. SG&A keeps increasing as a percentage of gross profit, but also given the investments we make in the new businesses. The financing cost, no wonder, keeps going up. We increased to 12% the weighted average cost of debt. We projected all these increases on the interest rates based on USD LIBOR, but also Euribor and local currencies. Therefore, our previous statements was we're gonna reach and maybe exceed the 12% WACC.
We all see that this is flattening out six to nine months from today, so we expect to see even decreases in the base rates even starting from this year towards the second half and maybe end of Q3. We ended up, as I said, with $17.4 million best ever net profitability, further improving the net profit margin from 2.3%-2.4%, which we consider overall this income statement, these results, to be very satisfactory given also the times we are in and the ongoing war in Ukraine and the overall trend of slower demand, higher interest rates, less disposable income due to prices and inflation for consumers. Still, we managed to grow both on the top line, but most importantly, on net profitability.
We see here a trend on revenues by quarter, and right below on the right side, we see the gross margin trends. Some seasonality applying especially for Q4, the highest ever in gross profitability and net profitability quarters. Given Q1 8.6% we've never seen it, as you can see on the slide, which we believe is sustainable at least to a level above 8% for 2023 is sustainable. Now by countries also explaining the growth in the FSU region. Kazakhstan by far number one. Ukraine is still growing significantly. UAE is number three. Slovakia is very big. We have the newcomers out of Central Asia affecting the FSU region numbers, Azerbaijan, Georgia, Armenia. The other thing to note on this slide is that we grow in Poland.
We keep our top 10 keeps in the top 10 league in terms of sales with an almost 19% increase on a year-on-year basis. A bit behind, even given the seasonality on the cash flow, especially cash from operating activities, we still live with higher than usual inventories. That's affecting the cash from operating activities and the cash position negatively affecting. We expect, starting with April, we saw a decrease to continue liquidating certain stocks, some of which we had purchased out of the big deal we had in December. That is expected to further improve cash flows. Yeah. We've done it, obviously it was not just one supplier, but we've done it to benefit the income statement, but now it's time to improve the cash flow as well.
Starting with Q2, we expect to see better generation of cash flows when it comes to operating activities and better cash positions. The debt of the company, we believe, is still at safe level. If I were to include factoring facilities utilization into the debt picture, we are still running with 0.7 as a ratio of total debt to equity. A quite healthy, we believe. Moving on to some details on the forecast for 2023. We believe, having also seen Q1, at least sales, we believe we should be able to hit a top line ranging between $3 billion and $3.2 billion. Compared to $2.7 billion last year.
Most importantly, profitability, we expect it to range between $78 million and $82 million comparing to an almost $76 million for 2022, which we consider a considerable and significant increase on a year-on-year basis, always subject to certain assumptions, certain conditions met. I remind everyone that the last so many years we announced a forecast, though certain of those conditions have not been met, we still managed to hit the numbers, and usual case is to overachieve the numbers we have forecasted. Dividend, we touched it earlier including yesterday's AGM approval to pay the $0.25. Overall, including the interim $0.45 relating to the results of 2022, we paid about $25 million in cash.
The final dividend is expected to be paid early July, as announced yesterday, and we will continue paying dividends according to profitability, according to growth, because we need to finance this up to $0.5 billion extra sales growth in 2023 over 2022. We will continue paying a significant part of our profits to our shareholders. Just to wrap it up, to summarize, Q1 2023 has been the highest ever in terms of profitability. The company continues to pay for seven years in a row, dividends, a significant part of its profits as dividends. We continue developing our business, expanding business to Greece, minor investments in Theramir. We keep signing new contracts and extending franchise to new territories, and we are further developing the Breezy and the robotic solution business.
We came out with a financial forecast for 2023 with the numbers I mentioned earlier. We are adjusting to the new realities. We are adjusting given the changes and the new trends that appeared into the market in the war-affected countries, but I dare say also globally. The company's adapting quickly to the new realities. We are being flexible, we are hedging our risks, and we continue to grow. I think that summarizes our key messages for today. Most welcome to your questions, any questions you may have on those results.
Maybe I would like to ask a question regarding these inventories. Could you please elaborate a little bit more when we should expect these inventories to go down? Because due to high level of these inventories, you had weak operating cash flow, but also much higher year-over-year financing cost, 40% higher. When we should see these inventories going down based on these extra purchases made with Apple in the fourth quarter?
It's not only Apple, Jakub.
Mm-hmm.
It's a combination of vendors. Already we saw a reduction end of Q1 over end of December. Maybe not a significant one, but a reduction. We will see more reduction by end of Q2 when we announce Q2 results. The big business we had with Apple is expected to flush out by Q4, maybe end of Q3, but I think Q4. This is expecting to give the opposite to the operating cash flows and cash position. At the same time, I think I said it earlier, that benefited the income statement, although it had a negative effect on the cash flow. These are business decisions we make on a daily basis. Maybe not a very usual decision, this one, to buy another $150 million extra over and above stock. We are in business. We value partnerships.
We help suppliers help us, and that's maybe another reason why we grow so fast when the market is shrinking. Yes.
On the other hand, you had 100 percentage points improvement in gross profit margin, but only 10 percentage points improvement in net margin because the weighted cost of interest debt is almost 12%. Yes.
There's so much we can do on the base rates.
Yes. Yes.
The base rates.
You have to increase your net debt.
Are at mid-50s. I've never seen anything like that. I've never seen the U.S. dollar six months, say, ranging today between 5.1% and 5.2%. Yes. With an expectation to hit almost 5.5% in six months and then start to flatten out and coming down. Similar, a little bit below, is the Euribor. We've never seen that. The previous time you asked me, I said we're gonna hit 2%. I hit myself. We are hitting 12%. It also comes into the mix because if the biggest country is Kazakhstan, we borrow very expensively in Kazakhstan today, given the increase in the base rates and the spread we pay the banks. You know, it's unavoidable that to run this business for Apple and not only, you need to run the financing cost.
Maybe that's another reason why the gross profit margin is increasing because some of this cost, financing cost, is absorbed by the customer.
Yeah. We should expect positive operating cash flow in first quarter or in fourth quarter?
For the standalone or for the nine months?
For standalone.
For the standalone, we expect positive in Q3 and positive in Q4, and we still expect the year to turn positive. Though we had the same expectation last year.
Mm-hmm
We didn't manage because of the big deal. We do expect the same to become positive on operating activities on the cash flow side for 2023.
Q2 shouldn't be positive? Any cash flow positive in Q2?
We expect that we may manage to generate a positive number from operating activities in Q2. Not a significant number, but we are on the right track. Depends how quickly you liquidate stocks.
Mm-hmm.
Maybe follow up, Jakub Płonka questions. What is the target at normalized level of rotation of inventories that you target?
Usually we target 37-38 days. Now it's higher, obviously higher. It depends on our success to liquidate quickly stocks. That would enable, especially if that turns into cash in Q2, that would create a positive number for Q2 starting Q2.
Regarding only the first quarter standalone, it wasn't inventories that caused this huge negative cash flow, but liabilities.
That's the indirect method. The direct method says you pay negative from operating activities. You receive money from customer, positive. If you see it in conjunction, because you buy, it depends. If you didn't pay the supplier on this stock, yes? It's a different story on the indirect method on the operating activity. You cannot see on an indirect basis a correct picture. The direct says how much I paid, how much I received. In these cases, this stock has been paid. Money not necessarily received from the customer, and this is causing the negative on the operating activity, not the stock itself or the payment of the supplier itself combination.
Okay. Still, higher purchases wasn't financed by suppliers.
You're right to say.
You paid in advance.
That's why. Agree 100%. You see, Grzegorz, now the opposite is happening. You already paid the supplier. The inventory is sitting in the warehouse. The disposal of this inventory and the receipt of cash will bring the opposite result to the operating activity. This is what we expect to happen starting Q2. We already saw some in Q1. Less than what we expected, but hopefully we clear it out in by Q3 or Q4 this year.
Do you expect extra profit on this, very big inventories?
Yes. That's why we have done it. We have weighted the income statement versus the cash flow, and we favored the income statement at the cost of the cash flow. That's why we have done it. Yes. Another reason why the gross profit margin is higher.
Can you say how much of the general costs resulted from your expansion in Q1?
To new business, you're saying? Expansion geographically?
Yeah. To the costs for opening new countries, new initiatives.
Actually, we are creating more infrastructure to run increased turnover as expected for 2023. We are adding people in two new distribution centers, Georgia and South Africa, to help growth in Central Asia and Caucasus on one, and grow business in Africa on the other. At the same time, we are investing more into Breezy and robotics business. I cannot quantify, but significant numbers are expensed, therefore affecting SG&A for this expansion of the company. At the same time, that also includes the extra $2 million we donated to Ukraine for Q1.
Can we expect that the ratio of sales and general costs will decrease in coming quarters or will stay at the same level?
I don't expect it to decrease. I expect to see the benefit of those SG&As on the robotics not in the first half, towards the end of the year, Q3, Q4. We want the benefit out of that, not to lower the SG&A as an amount. I don't believe that will happen in the next quarters to follow.
Have you already achieved the targeted level of the OpEx investments in the robotics and in the new markets, or it is still in the process?
Still something more to go, but the major part is already sitting there on the SG&As. Because you cannot continue investing without seeing the reward, the outcome. If the outcome doesn't come, of course, we expect to see adjustments, yes.
Regarding African markets, 'cause you are investing in the new markets, especially African. As we saw in the first quarter, structure of revenues, it was flat. About 1% growth only on the African markets. When do you expect that these investments will pay off with higher revenues?
The MEA region mainly includes North Africa that we are conducting business with Morocco, Tunisia, Algeria, Egypt for the last 20 years. Very little has gone to Africa because we are still in the establishment of distribution center, hiring people, putting sales people on the ground in many countries. Acquiring the customer, using the name ASBIS in South Africa and expanding not only to the country South Africa, but all the South African countries. We are at that stage. We didn't start loading on, at least on sales yet.
Okay. Have you considered carving out the new segment of these new markets just for us to see how is it developing? Because you're right that perhaps we are losing the dynamics because of your standard historical markets, which probably are much bigger than the new market that you.
You're right to say on one side. On the other, you're opening the door to the future. Yes.
Yes. I just suggesting.
Yes.
Carving out new segment in the presentations.
To cut out.
For us.
Which segments, for example? Africa?
African new market.
Yes. If it starts developing, Grzegorz, maybe at the first stage, no, because it will be little numbers. As the region grows bigger.
That's true.
we may decide if the growth is so and the numbers are so big, to break the MEA into ME, say, and A. Yeah? I think we are far away from there.
Yeah
Yet, at least 2023 years.
I have a question regarding.
Please
Imports from Kazakhstan. Possible, say
Yes
Imports from Kazakhstan or other countries in this region.
Yes
To Russia and
Yes
I know that you don't sell to Russia, and you have this like limitations. Can you say if you have any like numbers, how much of your sales is going to Russia, let's say, through the customers or just people going through the border and buying stuff from ASBIS? Can it be limited in the nearest future, let's say?
We don't have exact numbers of what is cross-selling to Russia from customers or customers of our customers.
Mm-hmm.
What we know is that we are dealing with technology companies. Therefore, a company like Apple. By the way, we have never been distributor of Apple in Russia. Yes?
Mm-hmm.
Apple is a technology company that tracks activations. They know. They have all the technological means to know what product of their, with what serial number, sold to which customer, ended up activating in Russia. This information is possible to obtain. At least the suppliers have that. In practice, I can tell you that we are only growing on the distribution side because a lot of vendors shrinking their customer base are choosing us to be the master distributor in a lot of countries. We have never been punished or defranchised by any supplier, though a lot of competitors have been defranchised by suppliers, meaning they have been cross-selling significant volumes to Russia. It's not any product what I want to stress, it's technology product, and technology product can be tracked.
As outside proof that we are being very careful, we are signing specific letters with all suppliers. We are watched by the banks, who also run their checks, especially U.S. intermediary banks, and they know that we don't do anything that is outside the regulation and the sanctions. We have multiple checks on what we do and what we don't do. I repeat, technology. It's different than selling any other commodity.
You still can activate your iPhone, let's say, in Russia? Yes? Is it possible?
A Russian can fly to Georgia, can fly to Kyrgyzstan.
They can fly.
Kazakhstan, buy an iPhone and go back home and activate the product.
Okay. The volume is unknown for you, let's say.
For us, it's unknown. I'm sure Apple and a lot of other vendors know the activation and know by serial numbers where the product is located. I think it's under control by suppliers and by the banks. They know.
Right
What and what not. Yes. Having said that, I think that's the last piece for Russia. We announced July last year that we sold Must. Must was historically carrying HDDs, PCs, SSDs, CPUs, servers, all of which have been sanctioned, therefore we sold the company last year. We are aiming to sell ASBIS Moscow as well, the second subsidiary. We didn't want to suffer, you know, these stocks we had and leave it to the country and then fly out. We wanted to liquidate stocks, decrease exposures, and then we do it. We expect that to happen this year, hopefully sooner than later. At the same time, you see, we don't stay with tied hands. We grow elsewhere.
Yeah.
We grow in Western Europe, we grow in Central Asia. We are about to grow in Africa to replace this lost business to other jurisdictions.
Right. That's why I can understand that the main part of the growth is due to defranchising the other suppliers in these markets, yes? That's why you grow so fast in this region.
When it comes to suppliers like Apple, they go hand in hand with us to explore different markets. We are franchised in 11 countries, including Ukraine. We have been doing this slowly. Once they, not us, we have never been in Russia, I said, with Apple. Once they've lost Russia, they go faster on other Central Asian countries. That's why we grow. We are the sole distributor. It's not because we are winning the other one or the other two distributors in the countries. It's only us. The channel for iPhone is the main telecom. The smaller the telecoms buy from us, the main franchise distributor, that's why we grow. We don't only grow with Apple, of course, but Apple is a big growth.
Okay.
Yes.
As I remember, your sales to Kazakhstan increased last year 378 times.
Not to Kazakhstan. Not to Kazakhstan. Kazakhstan has been big for a lot of years. Maybe smaller, the Central Asian country, yes, but not Kazakhstan.
Oh, I see.
No, we have it on the slide with countries.
Yes, yes.
Here. From $125-$175, Kazakhstan. 50 over 125, 40%.
Do you see prospects for extending the cooperation with ASBIS for new markets?
Yes.
Where and when?
When we are ready, we will tell you. We are in discussions. Possible, yes. But the first possibility is to further explore the other Central Asian countries, Georgia, Azerbaijan, Armenia, Uzbekistan. We are franchised in all these countries, and the growth recently has been very small. Now we want to grow quickly, and Apple wants to grow quickly. We still have Turkmenistan and the other Central Asian countries. We cross-sell to these countries, but not with full infrastructure, and we have a big potential there to grow.
You don't have shops in Uzbekistan yet, do you?
Uzbekistan, not. We plan to. It's in the plans.
Is the plans for this year?
Premium stores
Next year?
Maybe this year as well.
First, just one shop in Tashkent, and then maybe others.
Yes. Yes. I will check because I think maybe we already have one in Tashkent, and another one is coming. The second one is coming. Yes.
Can I understand correctly that the first quarter management costs were prudent with the explanation?
Yes. It's sitting in SG&A costs, $2 million.
Next quarter should be at a similar level without this $2 million, or?
We don't have approval to proceed further than that $2 million. $2 million we spent last year, the whole 2022, and now we spend in Q1. We need the board decision to go further. Today, we don't have any further decision to invest another $2 million in Q2.
If the management costs will stay flat, the cost will be like $2 million or less?
Yes.
Is there a risk that Apple will add on another supplier in the Central Asia markets?
I think they are very happy with us.
Okay.
We grow very significantly with them, and they are very happy. That's why they are exploring quickly the other Central Asian franchise for us as a sole distributor of countries. We are discussing some additional countries.
Say, in Poland, can you say how many distribution companies do they have?
They have different distributors. They have, for premium reseller stores. They have distribution. I think they have two.
In here?
Yes. They are very loyal to their distributors.
Okay.
They don't go bother other distributors that they are happy with. They bother distributors that they are not happy with because it's not the contract, it's the delivery of the numbers that keeps you going with Apple, yes. Not only with Apple, with any supplier. They give you targets. You achieve the targets and overachieve the targets, they don't look for a second distributor because they want to have a certain market share in that specific market. You achieve that, they don't need a second distributor. They don't think of defranchising long-standing, well-producing numbers distributor. They don't do that.
This risk is very low?
To my eye, it's very low, yes.
Okay.
Yes. We are hitting the numbers they are giving us. You see a lot of vendors don't grow globally, but in our emerging markets where we trade, they grow. The focus is on us.
Mm-hmm
on companies like us in emerging markets to grow.
Could you please explain the key factors standing behind changes in sales mix? Because on the one hand, we saw a dynamic growth of smartphones, but all other major lines decreased double-digit.
Not all. If I were to split processors, AMD significantly increased year on year. Intel went down on the CPU segment. Yes, but overall.
Yeah, all CPUs went down 20%. Yes.
Agree. I mean, these two make up 85%-90% of the CPU market. They are losing 30%.
Mm-hmm.
We lost 20%. That's why I said earlier that overall we are improving our market share on that specific segment in the markets we trade.
Okay.
This will not continue forever. Consumer demand is slowing down because of all the things we said earlier, inflation, high interest rates. Therefore, the disposable income of consumer is shrinking, but this will not continue forever. They will not wait forever to change their PCs. Yes?
Okay. Do you expect similar changes in sales mix also in second quarter?
Similar, but not necessarily we see displays with so big an increase. Depends on how saturated the market, the channel is on specific products, yes?
Okay. How these changes affects your gross profit margin? Because in the first quarter we had still in the base Russia, which diluted the gross profit margin, but in the second quarter it should be more or less, comparable. These changes in sales mix, how should affect the gross profit margin year-on-year?
You know, we never expected to see 8.6 in Q1, but that's there.
Mm-hmm.
That also reflects, I said earlier, the fact that we are paying a higher interest cost, part of which is transferred to the customers through a higher sales price, yes? We are still happy with the 8.6% we see. We believe that maybe we don't get in the slowest ever profitability quarter Q2, we don't expect to see the same 8.6%. Overall, for the year, I said we expect to see above 8%, which is very satisfactory.
Mm-hmm
Given the times, yes? Running a model with 8% for 2023
Mm-hmm
Gross profit margin, I think it's reasonable.
Okay. Thank you.
Can you tell that Breezy, is it important part of the business? How much margin does it add up?
We are still putting infrastructure for Breezy.
Mm-hmm.
Because if you see market research on the secondhand product, especially on Apple and Samsung, not only Apple, it's huge. It's multi-billion business.
Right.
With very healthy margins. You know, somebody buying a previous version of iPhone for $300 or $350 is a good bargain. That's how Apple approached, I think, the market, by not lowering price on one side, on the other side supporting.
Mm-hmm
The second-hand. Therefore, undoubtedly, the future is there. That's why we want to invest into this Breezy that still doesn't have significant numbers. But before we grow significantly into this, we need to make sure that the infrastructure is there, the right software is there, the right equipment is there to assess grading of the product.
The infrastructure, what is it? Like the production line, let's say, for Breezy?
Software.
Mm-hmm
Machines to grade the product. Because if you're selling to a corporate, say, client and say, "In two years' time I have an agreement to buy back with X, I will grade the product, and grade B I give you between this and this. Grade C I give you between this and this.
Right.
You need to be ready. If you're not ready, you may suffer significant losses.
Okay.
You could run the business and go volume business today because we are Apple distributor. They help us do the second-hand product business.
How long does it take, you know, to let's say, refresh an iPhone? How, you know, can we imagine that? I don't know if a guy is just, you know, taking every single iPhone and changing it. I don't know, change the screen. How does it look in practice, let's say?
I'm not an expert in this.
Okay
I know you need the right software, and you need the right people, and you need the right trainings to do that.
Okay.
Because we see that it's multi-billion business, it can become a multi-billion business.
How
I repeat, we need to be ready. I can refer you to details if you want to the right people to explain to you. Grading a product is not so obvious.
Okay.
If it's not C and it's B, and you want to make it an A, and somebody would pay you some money to become from C to A, you know, you need to name a price. You don't grade it well, you're gonna lose money, yeah?
Is it not time-consuming?
It is.
It is.
It is time-consuming.
Still, do you think it can grow so?
If
It's not a niche, let's say?
If you see the acquisitions happen in this sphere.
Mm-hmm
Amazon, for example, bought a very big, large Indian company into the second-hand business. We are talking about multi-billion market cap business.
Mm-hmm
Already.
Okay.
It's big. It's big already. I don't dream that it will become big. The question is if you are to grab something out of this big market that is aimed to grow much bigger, you need to be ready. These people, they could build their own stuff, but they didn't. They went through acquisitions. Same with American companies, buying mainly in India, companies that are good at this, you know, specialize into this. Yeah.
For these days, how much margin does it? I don't know if it's specified in the
Double digit, obviously.
Mm-hmm.
Nobody would get into this hassle without 12%-15%.
Mm-hmm.
This is something that is driven by suppliers like Samsung and Apple, because that goes into the green announcements, ESG, the recycling efforts.
Okay
To keep the environment clean, et cetera. They push for it, and they pay money for it. That's why we have all the assistance from Apple to get there. Who's gonna do the iPhone secondhand in the countries where we trade and where we franchise? Us. It's already business waiting for us there. We can do it elsewhere as well with the assistance of Apple and not only, yes, because we are an Apple distributor.
Who is a provider of these used smartphones? Individuals, telecoms, producers?
Open market.
Open market. It mix.
A mix. Through own channels.
Okay. What is the most important channel?
The retail channel is one, depending on the markets. We have some from resellers. We have some from the open market. Telecoms, the big telecoms usually do it on their own through their own third parties, but we could become one of those. Telecoms are not our customers, especially the big ones in the countries, Kazakhstan or Ukraine, et cetera. Usually, the smaller telecoms buy from us. They don't want to buy from their competition.
Could you share more information about the sale of own brands? Has the share of those products increased in your revenue?
As a percentage to revenue, it did an increase, about 3%. It ranges between 3%-3.5%, not because they are not doing well, but because the rest of the lines, especially Apple, is growing faster than the own brands. We expect growth in 2023, but as a percentage to much increased revenues, we expect it to stay at the same level, close to 3%.
In which markets is the share the highest?
Everywhere.
Everywhere.
Everywhere. In the past, we had a lot of business, most of the business, 30%-40% was Russia, but we don't send any more product to Russia. We're just trying to liquidate existing stocks.
How is it going? How much of stocks is still in Russia?
Significant part has been liquidated. We have about $11-$12 million today, and we are disposing that. As I said, the sooner the better we dispose everything, and we can then proceed with the disposal of the subsidiary itself, ASBIS Moscow.
A quick question about the gross margin. What are the risks for the margin? You know, you said a lot about better mix or this, selling of this additional, supplies you have. What are the risks that, for example, the gross margin could be lower than maybe standard you have?
I wouldn't say competition on the Apple side by the other distributors because we are the sole distributor. The margin also has to do with a lot of things. It has to do with the pricing by Apple to Euro customers and dollar customers. We are a dollar customer. As we speak, we are favored because of the dollar pricing. Different times we are disadvantaged, but now we are in the advantage stage. As I said, some of the unprecedented financing cost that you can see below the line, we transfer to customers. Another reason why the margin is higher. Yes. Also the product mix. I think you said it earlier. Our focus is to sell higher the margin products, not to increase sales at the expense of the gross profit margin. It depends on the mix.
With Apple, we try to sell the other products, not only the iPhone, because usually they come out with higher, the gross profit margin.
Do you expect to increase the dividend according to inflation rate?
At least.
The question, which inflation?
Which you prefer, Paul?
What's the inflation in Poland?
14.4. Official.
I know we adjusted salaries due to inflation. I didn't know we need to adjust the dividend. I hear you, I hear you. As we grow bigger in profitability, you see we are managing to pay more. Always, when we see that we can manage the growth, we can manage the CapEx, because recently we had a lot of CapEx. To put infrastructure in Georgia, we grew Czech Republic double. We are growing now South Africa, establishment, distribution center. That needs investments, CapEx. If we reach these numbers for 2023 on the forecast, you know, we should be able to pay more, I think. Again, depending on what the vendors expect us to deliver as additional sales the year after. It's a chain. I think the $0.45 for 2022, $25 million is not a bad number.
It's for sure the record dividend, but if we consider it in respect of payout ratio, it's about 30%. I remember that you are targeting 30%-50% of dividend payout.
Up to $50 million we said, yes. Up to $50 million. Now we see we move from $2.7 billion to hopefully $3.1 billion, $3.2 billion, yeah? If we reach $3.2 billion, that's a half a billion extra, you know? It's easy to say to the banks, "You give me another $50 million, $200 million," versus, "Why don't you keep your own and then I make the difference," you know? If you finance to pay dividends, the banks don't like that, as you know, yeah.
Of course. Perhaps it will be eager to borrow your money, but 12%.
It's cheaper, especially on the hard currency. Even dollar today, 7.5%-8%.
Could you elaborate on the U.S. dollar has been very volatile lately and how does it impact your margins and the markets you operate?
Well, the income statement is affected by this because we are consolidating under the parent company dollar, yes? It depends on the exchange rates of the countries we trade, the zloty, the hryvnia, the Kazakhstani tenge, the euro, the euro pegged, the non-euro pegged, you know, into the dollar. If it's an overall statement.
Mm-hmm.
The dollar will stay dollar. No effect. The rest, if the euro is appreciating, just to take a significant currency outside dollar, yeah, and you pay euro salaries to countries, you increase your expenses. Although you pay the same euro, you increase your dollar expenses, and we are reporting dollar. Yes. At the same time, you see higher the gross profit because you're translating a stronger euro profit, gross profit, sales gross profit into dollar. You have multiple the effect. The euro/dollar, I said earlier with Apple, they have two type of customers in EMEA. Euro billing, dollar billing. We are dollar billing. Today, we are advantaged over the euro customer, so it's a lot of factors behind. To the extent you borrow dollar is damn expensive, yes. Much higher than the Euribor.
Still, both of them much lower than what we pay today as a base rate in Kazakhstan, Ukraine, and these countries. Much lower. We pay there 22 to 23%. 27% in Ukraine, up to 26%-27% in Ukraine.
Weakening dollar is not generally a danger for your margin, so we understand this.
What in dollars?
We can.
We can eat.
Dollar against many country currencies, especially. For example, against zloty versus euro. Is that a danger for your margins?
Look, when it comes to Poland, for example, and a lot of other subsidiaries we have in Central Eastern Europe, we hedge. It doesn't matter what happens to the dollar over the local currency because we are hedging almost fully, and we hedge mainly by natural hedging by borrowing. When we borrow in Poland, we borrow in zloty. We don't borrow in dollar because it's cheaper. Why? Because we outweigh the effect of a possible zloty depreciation to the dollar. That drives higher the financing cost, but that's the business we are in.
Appreciating zloty.
Yes. We are hedging. We are paying a hedging cost and that's it. The US dollar weakens to the zloty, opposite.
It's near neutral.
Thank you for your questions. We have more time outside.