Dustin Group AB (publ)

Thank you very much, operator. And good morning, everyone, and most welcome, both to our existing and new and potential new shareholders to our first quarter presentation and conference call. I hope you're all well and have a good morning. And despite the continued difficult time in our history, here on our side of the call is myself, Tomas Ekman, and Johan Carlsson, and Fredrik Satterström in the room as well. So today we present our first quarter results for fiscal year 2021. We are, as you know, and all of us are doing, we are navigating ourselves through our different markets through the current fairly terminal conditions. But I'm very proud of our achievements and everyone at Dustin for their strong contribution in helping and supporting our customers and continuously enable them to stay in the forefront, especially, of course, when also that hard work shows up in the numbers. The five market trends that we are, for the last couple of years, have built our strategy on, the online shift, the growth of mobility and cloud services, demand for predictable IT costs, focus on security and integrity, and last but not least, of course, sustainability. Those trends have all skyrocketed during the pandemic, and that makes, of course, our long-term position even stronger. But with that said, let's go into today's presentation and over to slide two, Dustin at a glance. This you have seen before, this picture. So just as a refresher of the holidays here now, we are by far the biggest e-tailer in the Nordics and with the largest assortment within IT, and we provide fast deliveries, great customer support, and competitive pricing. Sweden is our biggest market with 40% of sales, and with the other Nordic countries between 15% and 20%. And the Netherlands, which we entered two years ago, now on 7% of all space. We are, of course, developing ourselves and offering our range of service offerings. And currently, the split between hardware and software and services is 83 versus 17. And last year's revenues, full year revenues, was 13.2 billion SEK, delivered by around 1,800 colleagues in our footprint. But then moving on to slide three and for the financial highlights to see how we are improving and performing now during Q1. We continue to strengthen our total market position despite the current uncertainty. Net sales for us was nearly 3.7 billion SEK, up with 5.3% versus last year. The organic growth was up 8%. of which SMB showed a positive 7.1%, S&P 8.2%, and B2C 16%. So overall, strong organic growth in all segments with an increased activity level among all our customers. Gross profit was 577 million SEK compared to last year's 560 million SEK, and that gives us a gross margin of 15.6. Sliced down from last year's 16, but sequentially up from Q4. Our adjusted EBITDA came in at 171 million SEK versus last year's 156, which is a good uptake also on EBITDA. And that gave us an adjusted EBITDA margin at 4.6% for the quarter versus last year, 4.5. And that's also sequentially improved since Q4. The margin is improved by, of course, good performance overall and the structured changes we are doing, combined with good cost control within all segments. Both SMB and LCP show good progress in margin uptake. We have also done changes in our marketing mix during the quarter where we will close our business center in Stockholm. We phased out some marketing functions and we'll also shift our marketing mix more towards building our brand in line with our updated position. And with these changes comes items affecting comparability at 13.9 million SEK. And that gives us an EBIT of 132 million SEK compared to last year's 180 million SEK. Cash flow from operating activities was 265 million SEK, up compared to last year's 225. And ETS, earnings per share, also up to 102 SEK per share versus last year's 097. And our leverage is at 2.2 versus 2.6 than last year. in the lower part of our leverage target, which is between two and three. And apart from an intense quarter overall, from an operational perspective, we have, as we have previously announced, acquired a Danish company, Exata, during the quarter. And to remind you on that, Exata is specialized in standard services, such as security and infrastructure, primarily within the Microsoft suite. Roughly half of the income comes from subscription services, and Exata will complement our portfolio First of all, of course, in Denmark, but it will also strengthen our capacity and the complement portfolio further on of managed services in our other markets as well. So that is very exciting, of course. But Johan, can you take us through the financial for different segments? I will, and then please move to slide four and the SMB segment in some more detail. So sales for the quarter in SMB ended at 1,622,000,000, an increase of 4.3% over last year, representing an organic growth of 7.1%. The acquisition of the Danish service company Exato affected the quarterly sales numbers with 0.7%, so 10 million Swedish kronor. Sales improved significantly from Q4's negative organic growth of 2.6% as our customers were coming back to purchase. In the quarter, the hardware sales were strong in all markets, and particularly the small and mid-sized customers showed increased purchase needs. Geographically, we saw good growth in all markets, but especially in Norway, growth was strong. The services sales still affected by the pandemic as sales cycles are longer and the willingness to change supplier is lower during the pandemic. Further to that, are many customers still restricting access to their offices. Segment margin for the quarter was 10.0% compared to last year's 10.1%. If you then compare to Q4, sequentially, we saw a fine increase from 8.3% and further improved from 7.8% in Q3 last year. The main reason for the good margin was effects from cost reductions made during last year. It was also very good development in the private label sales and scale effects as volumes were increasing. Sales mixed with more basic hardware and less project-related sales had a slight offsetting effect on the margins in the quarter. Services and software sales as part of the total sales was at 21.2% during the quarter compared to 23.6% last year. In total, segment results ended at 162 million compared to 157 million last year, or an increase of 3.3%. All in all, a strong sales performance in SMB where we in previous quarters have seen more effects from the pandemic. So then move to slide five and the LCP segment. So sales to large corporates and public was 1,907,000,000 in the quarter, an increase of 5.6%, of which 8.2% was organic. During the quarter, we see continued good sales to the public customers and encouraging increasing trend towards the larger corporates. However, still sales to the corporate customers are lower in activity level compared to the same quarter last year. And so far, the more focused on basic hardware such as PCs and mobile phones. Geographically, we saw good sales in the market with high public share, such as Denmark, Finland, and Norway. Segment margin ended at 6.7% compared to last year's 5.5% and following Q4, 6.1%. The increase over last year is mainly explained by generally improved margins in some of our larger contracts, scale effects from high volumes, and some of the effects from last year's cost efficiency activities. Segment result improved by 27% from 100 million last year to 127 million this year, continuing the strong performance we have seen in the LCP segment during the last four quarters. We then move to slide six and B2C. Thomas said we had a very strong B2C quarter. From a sales perspective, we thought the sales was 168 million compared to 148 last year. which was an increase of 13.4% and that resulted in an organic growth of 16%. The main reason for the sales increase was the Black Friday calendar effect with more sales days in Q1 and the overall trend towards more online sales during the pandemic. The segment margin was up from 6.2% last year to 6.3% this year. As a result of strong pricing discipline and cost control, especially successful was the margin work during Black Friday campaigns, where a good product mix affected margins positively. Moving on to slide seven and networking capital. Networking capital was negative 531 million compared to last year, negative 157 million. Again, our strong position in the value chain continues to give us the opportunity to push working capital to low levels. We have continued the work with our partners in distribution and maintained payment terms from previous quarter. Further to that, we have utilized opportunities made available by the authorities in many of our markets to delay tax payments by 135 million. Further to that, our customers continue to maintain the high payment discipline we have been used to over the years. All in all, this has made it possible for us to maintain the low level of working capital during Q1. If we then look at the details, we can see that inventory was down by 52 million compared to last year, mainly as a result of good demand during the quarter and some delays in deliveries that could explain the difference from last year. Accounts receivable was down 75 million, mainly as a result of better payment discipline from customers, but also coming from a customer mix with less corporate sales that is possible, positive to the payment days. Looking at accounts payables, which was 172 million lower than last year, which is mainly an effect of a different supplier mix. In total, we continue to see strong performance in the area of working capital. Then moving on to net debt and leverage, as Thomas said, leverage ended Q1 at 2.2, where our target is to stay between 2 and 3. The main reason for the decrease from Q4, which is 2.6, was the increased result and the good cash flow mainly coming from the working capital development. Then move on to slide eight and cash flow and investments. We can see that cash flow for the quarter was 176 million compared to 109 million last year. If we look at the parts, we can see that cash flow from operating activities before change in equity and capital was 169 million, which is the same level as last year. Change in capital was positive, 96 million compared to 55 last year, with the main difference coming from the change in inventory and current liabilities. Cash flow from investment activities was negative 52 compared to negative 78 last year, where the acquisition in Denmark affected the numbers by approximately 39 million this year. Cash flow from financing activities was negative 37, which was in line with last year. Total investment amounted to 53 million compared to last year's 62. CapEx related to IT development amounted to 8 million compared to 12 last year. And investment in assets related to service delivery increased from 6.5 to 11.7 this year, as the centralization of the data centers is continuing. All in all, 13 million out of the 53 million in investments was affecting cash flow. The others were changes in lease or rent contracts. And that concludes, and we'll go back to Thomas. Very good. Thank you very much, Johan. And then over to slide number nine. As you have seen previously, we have and are of course continuously doing both structural changes and changes in our way of working and in the delivery of our offerings. And just to update you on the progress of three important ones of those. As you know, previously we grabbed the opportunity during the spring to increase the pace of implementation of our strategy within services and solutions, and we closed 14 local offices and reduced our workforce. This is expected to generate an annual saving of 40 million SEK, and it had the full effect during the quarter now. Further, we have since June our new robot solution in place in our central warehouse, and we are really getting to know each other. And getting along well, the robot and ourselves then. We had a target that the robot should handle 75% of all the order life, but during the quarter we have optimized that even further, so now it handles well about 80%. And this is of course very good and will further improve the customer experience. And from the robot we expect around 10 million second annual savings, and we also have a full effect on that in the quarter now. And then to our consolidation of our data centers, where the consolidation as such now is completed in all four locations. And we are now migrating our customers over to the new technical design and the new environment. And this we expect to be ready by in Q3. And here we as well expect to generate an annual saving of 10 million SEC with full effect from Q3. Continuing then over to slide 10 and our update to sustainability targets and commitments. By 2030 we aim to have zero carbon emissions throughout our value chain. We will have a fully circular offering and we have by that time then done 100 initiatives and actions to improve social equality. And these commitments are, I mean we have designed them to redefine the impact of our business and how we behave and how we act. It will of course naturally involve a lot of innovations and solutions that we so far do not know of but we will over time. And with those around us throughout our value chain. But again, hard work will pay off. And we see that these commitments really keeps us, or not only us, but also our whole sector moving forward. Our initial focus on these three areas are, if you start with climate, it is to expand our partnerships with our strategic suppliers, distributors, and freight carriers. We are continuously integrating our commitments into our business and our strategic planning. Target for the year. This year is to complete the transition to electricity from renewable sources in all our premises and that also 28% of our sold products must carry an eco-label. To that we are also detailing the plan to reduce the total emissions in our full value chain. On circularity, we will focus on broadening our partnerships in all markets to promote increased collection of end-of-life returns for reuse and recycling. And that, of course, builds on our success with our take-back as a service, which we implemented a couple of years ago. And that, of course, we continue to offer. If we then move forward to on social equality, we continue to conduct regular factory audits among our manufacturers. Target is to do 820 audits during this year. And we will, of course, continue that new suppliers also adopt to our supplier code of conduct, and where we are right now at 99.8% of that, aiming for 100%, of course. In this work, when we do that, we also do a risk assessment to evaluate our suppliers' ability to long-term also comply with our code. But all in all, these are strong commitments that will require... I've said it will require hard work, but that's what's needed. So over to slide 11, and let me sum up our first quarter and our fiscal year of 2021. And before we go into questions, net sales grew with 5.3% to nearly 3.7 billion SEK. Our organic growth for the group was 8%, with SMB at 7.5%, LCP at 8.2%, and B2C at 16%. So good, strong organics all over. Gross margin at 15.6%. versus 16% last year. Downs likely due to mixed effects with a higher share of basic hardware and lower share of project-related income, as you almost into as well. Adjusted EBITDA came in at 171 million SEC, giving us an EBITDA margin at 4.6%, an increase from last year's 4.5%, and sequentially also up from Q4. The initiatives and actions we have taken on the cost side, both the strategic ones, the structural changes and the short term has of course given effect and that is good to see. EBIT came in at 132 million SEK and EPS at 102 SEK per share. And on balance sheet operating cash flow 265 million SEK and leverage at 2.2, just in the lower range of our target. From the operational side we acquired Exato in Denmark and as I said also we implemented changes in our marketing mix and as a consequence of that we closed our business center in Stockholm. I mean that also that business center served us very well during the years but the increased pace of digitalization has changed our customers behaviors and therefore we are changing as well of course. So to summarize the quarter, I mean, the corona pandemic and its effects, of course, naturally dominate. It is a challenge both in our markets and society, and it continues to be short-term disturbances in the supply chain, which we work heavily on. However, we have also demonstrated great things, I would say, with the speed at which all colleagues at Dustin have adjusted to meet the needs of our customers, both in the short term, but of course also to adjust to the long-term behavioral change brought to us by the increased pace of digitalization. So with the good organic growth and earnings trend in Q1, we see that we are correctly positioned based also on the underlying trends that builds up our strategy. We have a strong and unique digital relationship with hundreds of thousands of customers and even more now in optimized e-commerce platform, as well as the ongoing build up of our standardized services and the offerings to further increase our relevance and benefits for our customers. And that combined with our strong financial position, means that we are well equipped to face the opportunities and of course the challenges that is presented by the business, by the overall environment, of course, and our customers. So with that, Johan, we are very happy to take any questions you might have. Please, operator.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. And if you wish to withdraw your question, you may do so by pressing 02 to cancel. You can ask as many questions as you wish, but please ask one at a time. Our first question from the line, Ramil Coria from SCB. Please go ahead.

Thank you, operator. Morning, gents. Thank you for the morning presentation. I guess I only have one question allowed, so I'll ask one about the large corporate sales. You're writing in the report that you're seeing a significant improvement quarter over quarter. but activity remains low. How should we read that development? What's the difference between activity and sales, if you will?

On the large corporate side? Yeah, exactly. What we said before, as we've heard also before, really, is that, of course, as we see, the movements and the changes in customer behaviors usually come first in SMB, and then the larger corps is slower in breaking, but they're also slower in starting up. And that is what we see. We can see that the underlying tendencies are coming on the large corporates, but they have been a bit slower than the...

uh smb side and the sales cycles are longer so activity means that they've started to to consider purchasing and some of them have have actually done it but others are in the process of doing it yeah can i just ask a follow-up on that i mean could there be any kind of demand from uh well you're mentioning denmark norway and finland in particular being strong could it be and i mean those three countries were more impacted by lockdowns than Sweden was so could there be any pent-up demand component in this equation?

I think on the public side not so likely because they have continued in a very good speed during this year or during last year and then the beginning of this year. Probably on the corporate side and on the SME side you would see tendencies of that and I think part of that we've seen in the SMB side. But of course that might, I mean to follow that, it of course depends on how the large corporates, how we will behave, how much will you provide your employees with home office equipment now when we come back to sort of a normal or a new environment. And that of course is a good opportunity for us to provide that. So we'll see how that development goes now. That's very clear.

I think I'll get back into it.

Yeah, sure.

And the next question comes from the line of Daniel Torsson from ABG. Please go ahead.

Yes, hi, Daniel here. Thanks for taking my question. So I start out with one on the supply chain. We see some negative comments about the supply chain during December and freight rates are shooting up. And you also show that your inventory was down already in the end of November. Is this something that you have seen accelerated in December for certain products? And is this a potential risk for meeting client demand short term?

I think what we have seen is that the global supply chains are in a bit of a chaotic situation. We have managed it relatively well, I would say, because remember that the way we sell to the SMB customers primarily is, of course, that we push the products we already have on stock to them. So that makes it easier for us to sell any kind of product that we have in stock. becoming whichever pc we have we can sell it slightly harder to the larger corporates and that demands a specific configuration and there we have seen delays in deliveries but i would say no significant effect on on sales but of course if there is a delay delivery it can affect the inventory level at a certain point in time which was the which was the case in the end of the quarter yeah

And have you seen that accelerated in December? Can you comment anything on that or beginning of January?

We have seen no acceleration of that. It's a continuous complicated situation, let's say, of the global supply chains at the moment. We are trying to manage within that space.

Okay, excellent. I'll step back. Yeah, thanks.

And the next question comes from the line of Mikael Lessin from Carnegie. Please go ahead.

Hi, good morning. I have a question about the project related services. If you can elaborate a bit on development in Q1 and differences between countries and overall utilization and what you can take out more from the organization going forward.

I think overall you can say that this of course has been a bit off and on during the during the fall depending on how countries have behaved whether it's going to harder lockdowns or not but and that has of course still been been challenging to come into offices to to do installations and so forth however we see also that that is sort of I mean offices will change going forward now so that might change going forward but we'll see but it has been uh during the fall um it has been been challenging on that side and that of course creates a lower utilization when we have the people that are sort of ready to do that and but cannot come out today to the different kinds and then do the work um so yeah but you saw an improvement uh quarter and quarter compared with the summer Yes, we did that and that's also back to the fact that that was also what we also talked about in our Q4 report that we then we saw some lights on the activity or the increased activity among our customers especially down on SMB side and that of course is an improvement from Q4 in Q1 where more companies are adjusting to the new environment and then also see the need of increasing or implementing new solutions in their offices, which of course benefits us. So we are very much on our toes here, but we have more capacity than we needed in Q1, but still there's an improvement quarter on quarter.

Thanks.

And the next question comes from the line of Frederik Stinkhild from Nordea. Please go ahead.

Good morning. Congrats on a good report. Thank you. I was wondering if you could talk a bit about acquisitions, kind of your outlook on that. I guess debt levels have started to calm down quite well for you. And if you could talk a bit about kind of the pipeline or the short list you have and how the discussions are going if I guess you're looking for service oriented companies and if they're willing to sell at a time like this when it might not be peak earnings here for them if you see what I mean

Sure, sure. I mean, as you know, we have quite a clear acquisition strategy and it's quite a clear part of our overall strategy to do acquisitions. And I should say the pipeline of possible acquisitions for us is good. And we are evaluating constantly several different targets. And as we also mentioned before, I mean, what we can see now is that given how our portfolio have developed now, we can be much more targeted in our sort of acquisition hunt, going towards much fill out where we have white spots in our storage portfolio. And I should say the market is good. I mean we haven't seen that much changes in pricing or in multiples. There are still everything as we have as all our multiples have been between six and nine. So and that continues. I would say the pipeline is among the strongest we've seen in the last five years actually coming after summer. So it is a good environment for that but of course we are We look thoroughly to what kind of targets we should look at.

And the next question comes from the line of Christopher Björnson from D&B. Please go ahead.

Good morning and thanks for taking my question. So I was just wondering, I guess you don't want to give any guidance for the current year because you just give any further comments on what kind of environment you're seeing in the current quarter where you have visibility over the rest of the year. Is this kind of momentum we're seeing in terms of organic growth in Q1 something you expect to be sustained during the year based on what you're seeing now or is it still a bit of a black box in terms of the trends you're seeing?

I mean we of course monitor everything as you know very closely every day and without giving any forecast to it. I mean that's also building on what you want that we see some difficulties in the supply chains and that will monitor carefully and work hard with. There is a strong demand in the market has been in Q1 and we see now how things come along now when January starts up as well. But overall, I think long-term our position, as was mentioned before, long-term our position is getting stronger and stronger in this new environment where everything goes more online, everything goes more for security and mobility, the demand for sustainability and so forth, what we have mentioned before. So that, of course, is encouraging for us to have that and to further build that and strengthen our position. Overall, the changes for everyone, it's of course a bit hard to see what the future might hold, depending on how the lockdown changes. But if we look from the society as a whole, there will be more and more people get vaccinated, more and more people can come sort of back to a normal position. But that's how long time that will take. We'll see.

Yeah, sure. Just a quick follow up. Are you seeing any kind of changes in this market dynamics in terms of, for instance, in the public sector where some of the big entities are kind of splitting up previous contracts and more kind of narrow contracts where they're separating software and hardware or infrastructure and clients and also inviting a higher number of vendors per frame agreement so that they're kind of driving the public sector. Customers are driving higher competition and that is hurting margins or your ability to win or hasn't there been any changes there over the last months?

No, no specific changes. I mean, the public sector just goes on. um right now which is of course very good and that's that's also back to the mix we have with with the smb large corporates in public and the public side is good to have as a base and but there hasn't been any changes um probably contrary all right thank you for taking my questions sure sure thank you and we have a follow-up question from the line of ramu korea from scb please go ahead

Thank you. A question on networking cap. A few quarters ago you were talking about having temporary improved terms with your suppliers and now it seems like the story is somewhat different. Should we read your comments today as this level of payables versus sales or what have you as a rather sustainable level?

I think how you should read them first of all temporary we've always explained by the fact that we don't have longer than three month contractual agreements on the payment terms that's why we call them temporary that doesn't mean they will fall due or change within three months so it can continue for longer at the moment given the situation we have prioritized in the mix of let's say customer terms T's and C's that we have with our distributors. We have prioritized payment terms with all of them at the moment. That's why we are on such a high level. I think over time that will change slightly. So we might keep some of these longer payment terms to some of the distributors, but not to all of them. So we will come back to more normal numbers. And then, you know, again, that normal number might be the label of where we were last year compared to where we were this year. It depends a little bit on our own priorities when it comes to the decencies we would like to accept with our suppliers.

Just a follow-up. Could you, going back to evaluating on other factors than payment terms, lead to high gross margins or is such an impact negligible in the grand scheme of things?

I think limited, actually. I think it comes more to reducing other kinds of risk. Let's say returns of products that we have bought, for example, would be one that we could go back to a higher number. So that would take away more of the risk in the inventory rather than maybe pure margin effects. Okay, thank you.

And the last question is from Daniel Trojan from ABG, please go ahead.

Yes, hi, final one from me please. On private label, you said that that was pretty strong in the quarter. What products specifically are performing the best and does it have any positive pandemic effects, for example, products related to work from home? Could you also give an update on what's the share of today's sales versus your targeted level in the financial target? So what's the progression on that?

Yes, I mean, PyroClevel has been a strong quarter and what we sell, I mean, displays have gone very well. Everything from home offices, this is fairly basic hardware and sort of low complex products. I should say displays, keyboards, mouses, cables, of course, as always, they are very good. And also headsets. And now we also have moved into webcams and we have managed to have quite a good Actually, production on webcams, given the fact also that Logitech and other suppliers have been out of stock. So that has been very good for us. So we are moving towards the different kinds of new product categories, like webcams, for example, and also developing that. So I should say it's quite broad on private labels. But in all segments, but everything you can think of that you need for your home office, we cannot provide. And we have special packages for that on private label also. So private label, we have done a very good job on that. And I think in terms of financial targets, remember we set the target to add 40 million of profit. In the first three years, we added 45 actually on the first. And then we set out the new targets for the next three years, which was another 45 added. which would accumulate and become 90. And we are now in the first year of that journey between 45 and 90, and we're doing really good progress. I mean, compared to three years ago, we were doing less exchange of sales, let's say. So we are selling less, but with a much better margin improvement than we thought from the beginning. Comes a little bit from the categories that we are selling, so displays and cables. Primarily cables where the the margins are improvements are better So compared to sales as such so we're doing very good on profit when it comes to private label slightly that they Less we're bit behind the absolute number of exchanged sales from branded products to private label products, but that is that doesn't change the total adoption sales because we're just exchanging sales.

So what's the rough fraction of sales coming from private label today in SMB versus LCP for example just to get a feeling where you are?

Oh, I think it's still at the level of between, depending on the category that we have launched in, we are somewhere between, you know, on some very broad now again, and some categories displayed, for example, we might be on the level of 10 to 20 percent of sales being private label. Cables we are much higher and others we are on the lower side of 10% of sales. So it differs very much between the categories.

Excellent, excellent. Thanks a lot. Thank you, thank you.

And we have just one more follow-up question from Ramiro Correa from SBB. Please go ahead.

Thank you. Sorry guys, final one from me. Thank you. On the OPEX side, just You know, just calculating a bit backwards, it seems like underlying cost inflation is in the bottom three to four percent, you know, squaring in the savings you've been able to in the last few quarters here. Is that sort of how we should reason about the levels going forward, you know, three to four percent increases, or is there anything else to reap in terms of savings? Could this business center closure, for instance, lead to any savings in the coming quarters?

I think you should see the business center close more as a change of marketing mix. So we would probably continue with the same level of investments in the market mix, let's say, moving towards, as Thomas was saying, more towards maybe brand marketing. We are constantly, of course, increasing the paid search investment. So I wouldn't look at that as a possibility of cost saving. I think your number... is more or less in the range where we expect costs to develop. That will be slightly different in different quarters due to the fact that the variable pay and the provisions are, of course, varying depending on how well we perform this year compared to last year. So that could vary a little bit between the quarters. But if you take a slightly longer period, I think your number is good.

Great. That's very clear. Thank you.

Thank you.

And as there are no further questions, I will hand it back to the speakers for closing remarks.

Very good. Thank you very much. And thank you all for listening in to our Q1 call. And thanks for your question. And just please follow up with anything else. Just email or call us and we're ready for you. Thank you very much for that and have a great continued day and talk to you soon.