Thanks for joining today for us presenting Q1 report. Available anytime you wish to ask any question. Let's go look at key corporate events, follow up quickly with financial results, information about the final dividend, and then I can take any questions again you have either throughout or towards the end. ASBISc is expanding to different markets, last one being South Africa. We have recently opened another B & O store in Georgia. Yesterday, during the AGM, we approved another $0.30 a share, lifting the bar to $0.50 a share overall dividend paid based on 2024 results.
Revenues, given the difficulties we face, and we will go into detail and answer any questions you have on these, we are doing quite well because the company managed quickly to shift to different markets and to different product lines to make up for the lost smartphone business loss with regards to revenues. More importantly, starting from March, we saw a significant increase on the top line. We experienced a 9% increase in March, and so far, April and early May look very positive, at least on the revenue side. About financial results for Q1, overall increase of 3.3% on the top line, and we go into detail how is that managed. Gross profit, we reached $52 million. Everything is in USD, our reporting currency.
The gross profit margin dropped significantly from 8.28% last year to 7% in Q1 this year, and we ended up having a net income net profit after tax of $7.3 million. Here we see slides on the EBIT and on the right side on the net income on a quarterly basis starting Q1 2023. EBIT reached for Q1 2025, $16.4 million. As we said earlier, lower net income reaching $7.3 million, more or less with same expenses, a little bit lower financial costs. Just for Q1, I see a little bit higher effective tax rate, which we believe will adjust to closer to 18% for the whole year. When it comes to countries, a lot of things have changed in Q1 this year. UAE takes number one position out of Kazakhstan. Kazakhstan now sits in number two seat.
Ukraine drops into number three, but a lot of other countries are growing. Poland is retaining number six position in the quarter. Germany is growing nicely. Slovenia is doing quite well. South Africa is growing, yes, from a low base, but is growing very quickly, expecting significant number closer to $80 million, between $80 million and $100 million for this year. The company is doing its utmost to move quickly to different markets to make up for the lost sales of smartphones in the franchise countries and continue the growth. When it comes to regions, significant changes, CIS mainly affected by Kazakhstan and Ukraine, but I wanted to also say that the illicit trade is also affecting all CIS markets, some of which are important for us, like Azerbaijan, like Uzbekistan, like Armenia. Georgia is also significantly affected by the illicit trade.
That also has to do with the foreign exchange. In Q1, we saw a strong dollar overall. On average, a stronger dollar is working against ASBISc versus the illicit traders. The opposite is happening in April, though. We saw that the weakening of the dollar is helping us to lower, shorten the gap between us and illicit traders. Therefore, the business is growing nicely. Double digit is a pessimistic number to say double digit just for April. We are growing nicely in April. When we stay with Q1, we saw that the CIS has lost 32%, mainly from the main supplier, mainly, if I were to split that, mainly to smartphones. Central and Eastern Europe is growing by 19%, all the other regions, Middle East and Africa, by 55%. As we said earlier, by countries, UAE has become number one in terms of revenues for the group.
We are growing nicely also in Western Europe. We show here a 33% on a year-on-year basis with more emphasis on the group from a number of suppliers, with a number of suppliers to further grow in Western Europe. By product lines, revenues by product lines, you saw the significant decrease in smartphones. We have a very big price gap with illicit traders. They do not pay taxes. They have very little infrastructure, so the price gap is big. We are working with suppliers to enable higher sales. Given, as I said earlier, the weakening of the dollar, we saw a different trend starting from early April, continuing as we talk, both positively affecting our revenues, but also affecting our profitability and our price gap with illicit traders.
At the same time, not only geographically, we expanded to different markets to make up for the lost sales, but also we are expanding product line-wise with servers and server components. Though we play there with very big volumes, we play there with lower gross profit margin. That is another reason that is pushing the gross profit margin lower. This business is between 3%-4% business, but growing nicely and continues to grow nicely, we expect for the remainder of this year. CPUs, mainly AMD, but also Intel, is growing by 8%, laptops 32%, and networking is growing nicely by almost 50% this year. That on the product lines, revenues graph, given the issues we have and the lost smartphone business we have in our major markets. As I said, in all CIS markets, we are negatively affected.
We still show a 3.3% with the company, as I said, differentiating a bit and growing into other markets and with other product segments. On the right side, a graph of the gross profit margin. Yes, a significant decrease, but let's not forget that Q1 last year was unaffected by illicit trade. We came to the market early April and we said we are continuing, we are starting to be affected by illicit trading. No impact on Q1 last year. Please take this into consideration when you're making the comparison. Q2, when we see Q2, it will be a like-to-like comparison. Here we do not have a like-to-like comparison because the issue started early April 2024. I repeat, outside the high base of last year, this is coming from illicit trade affecting all our CIS markets.
That has to do with a strong dollar, average strong dollar to euro and local currencies throughout Q1. The opposite is happening from April. We saw, as we talk, we saw it 1.12-1.13 to the euro. That's a reversal of this trend, and we expect to see improved revenues and improved profitability going forward. SG&A costs overall are a little bit higher on a year-on-year basis. As a number, you see there the percentage to revenues. This is including an $800,000 one-off cost we had to bear in Q1. We decreased staff, especially in product segments that don't deliver to the expectations, robotics, some of it BRISI, some of it countries that don't deliver to their budgeted figures. Therefore, we expect a further improvement on the SG&A s from Q2 onwards.
We talked about the revenues and the more than 3% growth on a year-on-year basis given the challenges we faced throughout Q1. We talked about the gross margin and the reasons why we see this decrease. I emphasize once more the unlike-to-like comparison because we had a high base last year, no issues, no illicit trade in Q1 2024. I want to touch a little bit the financial expenses. We keep showing a decreasing weighted average cost of debt. If you saw the interim report, Q1 reports an 8.5% weighted average cost of debt, a significant decrease, and we expect to see further reduction in the financial expenses and net financial expenses in the quarters to come. This is because of lower base rates, especially the Euro, the Euribor, the Euro PECT, and the local currencies. We still pay expensively in Kazakhstan and Ukraine.
That also has to do with lower business, making the average less costly because these companies deliver less sales. Therefore, they need less financing. The prospect here is positive. We expect further improvements both in the weighted average cost of debt and the net financial expenses going forward. As a result, we ended up with $7.3 million versus $14 million last year, a significant decrease. Everything starts and finishes, I think, with the gross profit margin and the reasoning behind the decrease we mentioned earlier. That is on the income statement side. On the working capital side, given seasonality, we have a negative number from operating activities for Q1. Investments start to slow down, though still high for Q1, but sometime June or July, we will end up with significant investing activities and we will see a much decreasing number.
Overall, we still expect that the year 2025, we will be able to deliver a positive number from operating activities with a much increased cash position at year-end. About debt of the company, we believe we are sitting at very healthy levels. If I were to include factoring into debt, we are still running as at the end of March 2025 with a ratio of debt to equity of 40.4%, which is quite healthy, we believe. We are shifting more and more into cash lines that are less expensive overall than factoring lines or supply chain financing lines to save costs and further push the weighted average cost of debt lower. About dividends, yesterday we had the board and then the AGM. The AGM approving the payment of a final dividend as proposed by the Board of Directors to the AGM.
We have an approval for another $0.30 a share, a total of $0.50 for 2024. In terms of numbers, we are to pay a $28 million dividend based on 2024 results. That is historic highs, including last year, another $0.50 a share last year. We have been paying dividends for the last eight years in a row, something we wish to continue rewarding the investors for their trust to the company. I think that summarizes the main points we wanted to reveal and discuss with you today. Most welcoming any questions you may have on this Q1 results. Yakub.
Thank you. I have a couple of questions. The first thing I would like to ask about the full year guidance for this year. On the last meeting, you stated that we should expect it in May. We are after the fiscal quarter results. I would like to ask you whether it's still actual. Do you feel comfortable with the guidance and when we can see it? The second question considers gross profit margin because the drop was really significant in the first quarter. As regards the second or third or even fourth quarter of last year, when the illicit sales problem was already a case, we saw this gross profit margin much higher, between 7.6% and even 8%. What should we expect in the following quarters? Do you see that this gross profit margin may go to the level which we saw in the previous quarters? Is it still within your range? My third question regards SG&A because SG&A rose by 2% versus 3% growth of revenues in the first quarter despite this extra $800,000 cost. Could you please tell us what should we expect on this front in the following quarters, what savings we should expect, and what are our initiatives which you want to undertake to push the costs lower?
Thank you. Thank you, Yakub. Starting with the forecast, we discussed extensively yesterday on the board meeting whether a financial forecast should be released to the market. Given the uncertainties we have seen and the uncertainties we still have not seen, the U.S. administration, what will they do with the tariffs? How is that affecting our vendors? How is that in return affecting us? We said that it is proper that we do not release at this point in time a forecast to the market because of these uncertainties.
For us to be a little bit serious, it's not just to issue the forecast, it's to meet the forecast and raise the bar to what level and be comfortable for the number we say to achieve and for you guys to see. We decided that we are not issuing a forecast for now.
Only in May or you're not to announce the forecast?
We decided that in May we are not issuing a forecast together with Q1 results as we usually do. The next board meeting will be early August when we discuss the six-month results and the limited review on these results. Obviously, a meeting can happen before that. It's an extraordinary meeting. You don't need to wait until August. So far, we said that for May, we are not releasing a forecast.
Because of all these uncertainties I discussed earlier, and I'm ready to elaborate more if you need to, we are not issuing a forecast for now. The second question related to the gross profit margin. I repeat the four reasoning behind the drop from 8.28%- 7%. Very high base last year. We finished the quarter with no illicit trading affecting our major markets and our major supplier for the last three quarters of 2024 and full impact on Q1. As we talk, the impact still continues. We have this illicit trade. You saw on one of the slides what turnover impact had just on smartphones, which is one piece, a very significant piece. Still, the company did not relax. We increased other product lines on the product side. On the market side, we went quickly into different markets. We talked about South Africa.
Now we are talking overall Africa and increase. That is why Middle East is increasing because it is helping the East part of Africa to a big extent. We did a lot of things, not just for the revenue not to drop, but for the revenue to actually grow given these challenges we face. Yes, the gross profit margin has dropped because we grew with server and server components, very big volumes, very big customers globally from U.S. to Taiwan to globally. These high volumes come, server and server components come with low margin. We had a big increase on that. That is a second reasoning why. We talked about the dollar. The dollar strengthening throughout Q1 has a negative impact on us and on our margin. The opposite is happening from April onwards. That helped sales grow, not just the margin grow, and also the margin is growing.
Trying to approach your question from a different angle. I think on the gross profit margin from what we see today, we have reached the low end, the bottom. If the question is whether we expect a continuation of this deterioration of the gross profit margin, the answer would be no from today, from the things we see today. Yes, we believe we reached the bottom. Most probably we will see a revamp of the gross profit margin. Revamp will be probably limited and it will not come back to the levels we saw in the previous quarter. I do not have a number to say.
That is changing mix.
It has to do with mix. It has to do with the strong dollar or weak dollar that today we are in a weak dollar situation that is helping us and is shrinking the gap with illicit traders.
Okay, so would it be right to assume that this gross profit margin may be, let's say, in the range between 7%-7.5% in the following quarters?
7%-7.5% would be the range we would agree with. Yes. Now, when it comes to SG&A, given the one-off impact we discussed of $800,000, some of one-off will be in Q2. Therefore, we expect that we made significant cuts to non-producing units, starting with the robotics. We are only left with a number of kiosks, robot kiosks, and the rest we tried to do some OEM, et cetera. We abandoned that completely because we couldn't deliver profits. We were running very expensive infrastructures to enable this business. The business was small, was far away from our budgeted figures and our budgeted profits, yes.
Because we set the target to at least break even on these units this year, the cuts need to continue if they do not deliver. We still need to continue cutting out of what is left. Same with countries that do not deliver to the expectations. Yakub, yes, we see that SG&A costs are still high and this is a concern to us. We believe that given the April and given early May revenues, we are seeing a different picture. Therefore, we are skeptical to further reduce, but we are not skeptical to reduce where we do not see performance. It is not just about cutting 10% throughout to lose sales given the momentum, given the weakening of the dollar, given the shrinking of the gap between us and the illicit traders. We will continue if we need to do it, especially in the areas that we do not see a bright future when it comes to profitability.
Okay, with this gross profit margin in the range which you will, 7%-7.5%. Yes, it is rather inevitable that we will see a year-end net profit decline this year. The question is how deep it will go despite the savings on SG&A.
It is challenging. I do not disagree with you, but I think we have done it many times. I think we know how to react. Maybe this time we reacted a little bit slower. I see your concern. We share the concern. It is not coming from somewhere we do not know. We need to go lower. We need to go lower. Let us see how the momentum continues because a very strong momentum. We are talking very significant increase in April, and you will see it in a couple of days. Very significant could be more than 20% or 30%. If we need to continue cutting, we will do it. We will not hesitate.
Given the less demanding base of second quarter, should we expect that your revenues in Kazakhstan should show some progress starting from April, or should we still see?
We should. Given the weakening of the dollar, we should. And we are seeing already.
You are at the bottom as regards to the Kazakhstan revenues?
With this, the dollar-euro? Yes. Yes, obviously.
Okay, thank you. That is all questions from my side.
Pleasure.
Yes, a couple of questions from me. First, maybe the question on the server size. What was more or less the value of this one-off sales that impacted the first Q? I mean, there would be probably a visible decline in revenues without that server size, right?
The server and server components, we have it on a slide. If you take 90% of that, we're talking about big deals from America to Taiwan to everywhere in the globe. Even suppliers of ours buy from us these products. That's 90% of that number you've seen there, more or less. It's a very significant number. That's a very significant growth on a year-on-year basis. Suppliers like Micron, Supermicro, and the components coming with that. Components could be Western Digital, could be Seagate, could be very, very significant.
Okay, thanks. I would like to better understand the gross profit margin. You explained in the financial statements that one of the reasons for the drop in gross margin was the declining prices from your main supplier, which is Apple. But I suppose you get stable gross margin from Apple, like 5% or something. So declining prices is not impacting the percentage margin, right? It's just impacting nominal gross profit.
It is impacting. If a supplier or major suppliers are pushing prices down, why to come closer to the price of the illicit traders that do not pay the import taxes and the taxes to get product into the country? The suppliers are pushing lower the prices. They want to lower maybe their margin to some extent, distribute those margins, and also clients' margins, retailers' margins, yes. They believe that by lowering the gap, they should be able to run more sales. But the margin is affected because of that.
Okay. So in case of Apple, Apple is generally like they have one or two distributors on every market, right?
In all markets, it's only one. We have a sole distributor with the exception of South Africa that we are the second.
That's right. And Apple is controlling the volumes that they send to all markets, right? So generally, I mean, how is Apple trying to, I mean, Apple is forcing to decrease your margins? Given that they control the volumes, it should not be happening, actually.
It's a commodity, you see. It's different regions run by different managers. I'm not here to talk about Apple, of course, but to the extent that this affects us, I will not talk only the major supplier. I will talk many suppliers. They are trying to manage this gap. They're trying to manage this gap with different programs, with helping us offer financing programs for customers and customers to buy a product. Illicit traders cannot do that. They just push it through retail or they just push it out for cash, yes. You need to differentiate yourself. You need to come closer to their pricing. You need to offer programs. With Apple, we are offering programs and with other suppliers to manage this better to bring customers to our side.
Yeah, but it's the Apple's decision or your decision to decrease prices then?
It's usually a vendor-driven decision.
I would also like to understand.
The distributor would want to see lower margin at our end. That's another reason why our margin is shrinking, has shrunk at least in Q1.
The question on effects, I mean, the stronger or weaker dollar, how is it impacting your gross margin? Because I believe you have fixed prices. The prices are fixed in September with every new.
Twice a year.
Twice a year. Okay. It's not really the dollar, but for example, you have illicit trade to Kazakhstan from China, Japan, India, whatever.
Mainly those.
Yeah, but it's not really the dollar, but it's the change in local currency versus the currency in China, Japan, and India rather than the dollar.
Also. Also.
So this. I mean, a weaker dollar means generally for you a stronger yuan and yen and all those currencies, right?
If you're buying from Japan and the yen behaves differently to the dollar. You know, also the pricing. I mean, we get dollar pricing from up. Others get euro pricing from up. Others get yen pricing or yuan pricing from upward. That makes a difference. When we say that sometimes we see a price gap of more than 20% versus illicit trade, it's not all coming from taxes and import duties that they don't pay. Because that could be depending on the country, 11%, 15%, 12%. We see 20% sometimes price gap or even more. What is the more if the taxes is less than, call it, 12%? The rest is coming from this dollar or yen or yuan to the local.
Okay, so Apple is not really, I mean, so Apple is selling also in euro? It is not in U.S.?
The European distributors buy euro. Local distributors here, if you ask them, they buy euro.
No, they buy in U.S. dollars.
They buy dollars?
Yeah.
Okay. I know that the Greek one that is also doing business in Cyprus is buying euro. It is buying in euro.
So maybe for some.
Maybe there is an arrangement for dollar.
Okay. Thank you very much.
Pleasure. Pleasure.
Do you see actions taken by the Kazakhstan's government to cut this or to decrease the illicit trading? What is your opinion about these actions? About the sales in April, have you seen some kind of panic buying because of the Trump's taxes that can be implemented?
With Kazakhstan, unfortunately, I cannot say the same thing with other CIS markets. Kazakhstan has done a lot with this IMEI project. The country is losing a lot of money because of illicit trade. They want to do something about it to earn this income. They implemented this with the assistance of Apple. I think it will take some time to show real results, tangible results, but it will. All these countries realize quickly that there is big money, big billions lost there. They have to do something and they did a lot. I wish Ukraine, maybe Ukraine with different priorities now with the war.
Other markets of ours, I said earlier, Armenia, Georgia, Azerbaijan, Uzbekistan are significantly affected also by illicit trade. Follow up with the actions of Kazakhstan. It took them some time to take the actions, but they've taken actions and we expect good results to come. Now, when is it Q2? Is it second half? To what extent? I cannot quantify. We cannot quantify, but we expect to see positive results coming of these actions. The answer to your question is that yes, they have taken actions. Our stance is that we expect tangible improvements, positive improvements coming from these actions. When it comes to April sales, significant increase on a year-on-year basis, we said earlier. Now trying to assess the U.S. administration's stance, we still don't know. Still, our suppliers don't know.
Still, the American citizens do not know whether what they said will finally happen. I understand that with China, they have negotiations starting in Switzerland these days on import duties, on duties. Let us see where they stand. So far, we are not affected. So far, we are not affected because of the 90-day tenor period given as a relaxation, as a cool-off relaxation. Also, prior to the announcement of the 90 days, they said that technological products will not be included in this plan. Will they finally be included together with other sectors like pharmaceuticals, et cetera? For our business, we do not know if this product will be included in the announced and now delayed, now under negotiation actions. We do not know. If our suppliers do not know, because the first thing is that the suppliers will give us a hint and help us. Today, we cannot assess the situation because we don't have anything constant yet. Yes, please.
Yeah, two more questions for me. First, one on the tariff side. Let's say Trump is back with his crazy idea 100% on electronic equipment and so on. So Apple is probably in a need to raise prices like 50%, let's say, whatever, 20%-50%. So what would be, I mean, your customers on your local markets, how would they react? I mean, in the first place, they would be like a fraud loading of demands, but over the mid-term and long-term, I mean, how that can impact the demands? I mean, how is visible price change on iPhones impacting sales on your local markets?
That's a good question. I don't know the answer of. I don't know the answer whether, first of all, as I said earlier, we don't know if this will happen in the U.S. to start with because they are importing in China and because they are producing in China, yes?
Yeah, it will happen, but.
I'm assuming that this will work. They will impose a tariff of 100%. Theoretically, the iPhone instead of $1.2 will sell at $2.5, roughly, yes? That will make demand much less in the U.S. or anywhere this is applied. We don't buy from the U.S. We are buying from a U.S. company, from products existing in Europe, shipping directly from China, mostly China, yes? They are not ready to produce a similar product or this product anywhere else today. They are not autonomous today to shift production either to the U.S. or to India 100% or to anywhere 100%.
You see, we do not have a lot of given to make the assessment. But assuming this happens, I do not know too many people who would buy at double the price an iPhone in the U.S. Obviously, this will drive inflation. I am afraid to say this is not good for our company. It will drive the labor or the successor of the labor to higher levels if he finally does not intervene, the Federal Reserve. It is a messy situation to assess, too many unknowns. But theoretically, if this comes to our markets at double the price, which we do not believe it will happen, it will slow demand. It will lower demand. A lot of people will buy an iPhone for $1,000 or $1,000 something thousand, but less people, much less people will buy in our markets with this disposable income. Yeah? It is not an accident that although we do not fully understand the situation to take action, the company is not staying with tight hands. We are moving to new markets. We are moving to new product lines. Yes, some of which will lower the margin, but we have big volumes and we have big growth prospects, yes? Because we do not want to solely rely on one vendor or one product type. Yeah?
Yeah, maybe one more follow-up. It might be the case that Apple will consider different prices for different markets in U.S. dollars, not in local currencies, I mean.
That the vendor will do, not us.
Yeah, yeah, but is it possible? They never did it, right?
No. They say theoretically that they apply one price for the globe.
Forever. Okay, so one more like a theoretical question from me because let's say there are tariffs like whatever, 50% on China with different countries, different tariffs. I bet there would be a kind of tariff arbitrage, right? This is, I mean, the suppliers, everyone would be trying to find out how to have cheaper, like to buy cheaper goods and then sell on the local markets. Do you consider that could affect your business to even a bigger extent negatively? I mean, the illicit traders, they will definitely or not.
We don't expect that will make things even harder than what they are because of this. I think they will put pressure on other agreements to happen with India or other countries or even Europe sometimes, I don't know, or US back home to make similar productions. This will take some time. They are not ready today.
I have a question regarding the Kazakhstan market with this IMEI registration program because you said it will take time to have impact on ASBISc. As far as I can understand that, only properly bought iPhones can be registered in the system. Theoretically, it should be day one impact on the market. Why is it not day one impact, but it will take time?
First of all, there is a lot of stock in the market. I mean, same with when a vendor announces a new pricing, it takes time to make an impact because of the stocks. There are stocks in the market. There are inventories all over, yes?
As I understand it, only legally bought iPhones can be registered in some systems. The rest cannot be registered.
Let me put it differently. Let me put it differently. We've seen a positive impact already. Yes, because also the weakening of the dollar in April, maybe because of that. We cannot yet quantify to what extent this has helped sales of April for the specific market, yes? We will see, but it will be a positive impact sooner or later. We expect, yes.
Hello. I would like to ask about the oversupply of Apple products in China. The Apple sales in this biggest market in Asia has decreased, and I believe it had a spillover effect to Central Asia. That is why there is so much pressure on the market to lower the prices, lower the margin. My question is, how do you intend to stabilize the gross margin in an environment like this? I think the problem in China will not change anytime soon. How do you plan to perhaps countermeasure those effects?
I said earlier that the weakening of the dollar has already helped the situation because the tax is one piece of the gap between us and illicit traders. The other is this foreign exchange from not only the dollar, you rightly said, but also from the yen and the yuan and the likes to the local currency. That plays an impact with a weakening dollar that comes to our favor and shortens the gap with these illicit traders. This is already happening. This is not something we believe is happening in April, full April, early May, continues to happen. The second is that the supplier understands that and they do not want that. They are trying to do things. Suppliers, not only the supplier, they come with different programs. They help us run financial programs to the end customer, something that the other channel does not offer today.
They come with different rebates, different benefits, tailor-made by country if you want, because not every country is the same because of what is happening and this illicit trading and this price differential and all the rest we discussed earlier. There are things happening. No wonder why April has turned around. With this EUR 1.12, EUR 1.13 to $1 helps a lot. Helps a lot. The customer will not buy, especially with this IMEI in Kazakhstan, will not buy from an official channel, an illegal brought into the country product. If the price gap is not 20%, it is 8%, it is 9%, they will not buy. At least they will not buy so much.
Are there any changes to consumer credit regulations in Kazakhstan?
Sorry?
Are there any changes to consumer credit regulations in Kazakhstan?
Continuing the same. They saw an overspending by consumers. They came with this consumer law again sometime in Q2 last year, full impact to what we are discussing today, Q1, 2025. No change. I believe they expect to come to normalized levels of consumer debt, and then maybe they will relax it a bit. So far, no change.