Dustin Group AB (publ)

Thank you very much, operator. And good morning and most welcome, everyone. Both, of course, our existing and new and potential new shareholders to our second quarter presentation and conference call. Hope you all have had a good morning so far. Here on the call is myself, Johan Teckman, and Johan Carlsson, CFO, and also Fredrik Satteström, head of IR in the room as well. So today we present our second quarter results for our fiscal year 2021. and we are continuously navigating ourselves in our different markets through the current conditions i must say i'm very proud of our achievements and everyone at dusting for their strong contribution in helping and supporting our customers and continuously enable our customers to stay in the forefront especially also now when you see that the hard work also shows up in the numbers um we as you know as you have seen we have also announced an acquisition of central point in the netherlands in the benelux region today And we will, of course, come back to that later on in this course. But let's first just go through the quarter in brief. And if we look at the quarter, then I should say that we have strengthened our position in the markets and we report an organic sales growth of just over 6% for the second quarter. Our productivity and strong position in the value chain have, of course, benefited our performance in the market. which has been impacted by component shortages and supply chain disruption due to the pandemic and this in combination i should say with with a strong cost focus resulted in an adjusted beta increasing more than 30 percent and the beach morning strengthening to 5.5 percent and in addition of course our online core business performs strongly in pace with the high share of online retail and greater need for mobility cloud service security and driven by the underlying strong trend And continuously, as I also mentioned the previous quarter, I mean, the five market trends that we build our strategy on, the online shift, the growth, mobility, cloud services, demand for predictable IT costs and focus on security and integrity, and last but not least, of course, sustainability. They have all skyrocketed during the pandemic and making, of course, our long-term position even stronger. But with that said, as an introduction, let's go over to slide two, Dustin at a glance. Most of you know us, but just briefly as a refresher. We are by far the biggest retailer in the Nordics and also in the Dutch, in the Benelux region, with a large assortment, fast deliveries, great customer support and competitive pricing. Sweden is the biggest market in the quarter here with 40% of sales, and then the other Nordic countries between 15 and 20. Netherlands, which we entered in a little more than two or two and a half years ago, soon three years ago, is currently 7% of sales, but we should of course be more now with Central Point. uh so that is shortly about dustin and moving on then to slide number three for the financial highlights to see how we are improving and performing now during q2 as said we continue to strengthen our total market position Net sales were 3.6 billion SEK, up with 4% versus last year. The organic growth of that was 6.4, of which SMB showed a positive 8.3, LCP 4.9 and B2C 5.5%. So overall strong organic growth for all segments with an increased activity level among all our customers. Gross profit was 591 million SEK compared to last year's 5.57%. And that gives us a gross margin of 16.1% up from last year's 15.7%. And as I said earlier, our adjusted EBITDA increased with 30% and came in at 201 million SEK versus last year's 154 million SEK. And that then gives us the adjusted EBITDA margin of 5.5% for the quarter versus last year's 4.3%. So overall, strong performance and record earnings, which is of course really good. I mean, the margin improved by, of course, good performance, but also on the structural changes that we're doing, combined with continued good cost control within all segments. Both the SMB and S&P showed good progress in the margin uptake. And then, consequently, EBIT was up to 177 million SEK compared to last year's 133 million SEK. Cash flow, operating activities was 218 compared to last year's 155, and EPS, earnings per share, Also up to 1.38 SEC per share versus last year 1.04. And our leverage in the very lower part of our target at 2.0 versus last year's 3.1. And as you know, our leverage target is between 2 and 3. And apart from an intense quarter from an operation perspective, we have, as previously announced, we closed our business center in Stockholm due to the change to customer behaviors. And we have launched E2 Workplace, which is a true online service aimed towards smaller SMBs. And of course, as announced today, we have acquired Central Point in the Netherlands, giving us a leading position. And we become an IT powerhouse, not only in the Nordics, but also in the Benelux. But we will come back to that, as I said before. But let's just briefly go through the segments. Johan, can you take us through the different segments? Yes, let's move to slide four and SMB segment in some more detail. Stakes for the quarter in SMB was 1,615,000,000, which is an increase of 6.9% over last year, representing an organic growth of 8.3%. Stakes growth continues to improve quarter over quarter despite challenges in the global supply chain. During the quarter, we saw good sales development in all the hardware categories from all customer groups in the segment. Recurring sales of services is slowly coming back after last year's negative effect on the pandemic and grew by 6.3% in the quarter to an annual sales rate of 838 million. We saw positive sales numbers in all countries, with Norway and the Netherlands performing particularly well. The project related installation and services was still suffering from people not being in the office. However, the situation is getting better and we saw a slight positive trend quarter over quarter. Segment margin for the quarter was 10.6% compared to last year's 9.3%. The main reason for the good margin was strong sales of private label products and high pricing levels in the market due to shortages and the effects from our cost efficiency initiatives. This was somewhat offset by lower sales of high-margin projects related to services and advanced hardware. The share of software and services was 21.6%, down from 22.8% last year, mainly due to the strong hardware sales this year. In total, segment results ended at 170 million compared to 140 million last year, or an increase by 21.6%. Segment margin at 10.6% was 1.3 percentage point higher than last year. All in all, a very strong quarter for SMB, both in regards to sales and margin. We then move to slide five and the LCP segment. We can see that sales in LCP was 1,894,000,000 for the quarter. This was an increase by 1.7%, of which 4.9% was organic. During the quarter, we saw continued good sales to the public customers with strong performance in Norway and Denmark. Sales to the larger corporates declined slightly as they were affected negatively by both component shortage and deliberations. This effect was stronger for the larger corporates than it was for public customers. Segment margin ended at 7.2% compared to last year's 6.3%. The increase over last year is mainly explained by generally improved margins in some of the larger contracts, scale effects from higher volumes, and effects from last year's cost efficiency activities. Segment results improved from last year's 118 million to 136 million, or about 16.4%. Continuing the strong performance we've seen in the LCP segment during the last five quarters. Moving on to slide six and the B2C segment. B2C had a strong quarter from a profit perspective. Sales was up from 169 million last year to 175 million this year, representing a growth of 3.3%, of which 5.5% was organic. The main reason for the sales increase was a strong underlying demand for home office equipment and gaming. Segment margin was up from 5.4% last year to a record high 8.6% this year. Good product mix and high price levels due to the shortage of supply in the market contributed to the good margins. Leaving the B2C and moving on to slide seven and network and capital. Networking capital was negative 549 million compared to last year, 154. Negative last year. We continue to deliver low working capital numbers as we use our strength in the value chain to get good terms with customers and suppliers. Further to that, we have utilized the opportunity made available by the authorities in our markets to delay tax payments of 135 million. All in all, This has made it possible for us to maintain the low level of working capital in Q2. If we look at the details we can see that inventory increased in the quarter to 575 million compared to 495 million last year. The main reason for the increase was higher purchase volume due to our as an activity to mitigate the risk of shortage of components also the higher sales of private label contributed to somewhat higher inventory levels accounts receivables was up with 88 million as a result of higher business volumes and if we look at the accounts table we increased 236 million mainly as a result of the actions taken last year during the pandemic In total, we continue to see strong performance in the area of working capital and remain at the level of Q1. The average at the end of Q2, as Thomas mentioned before, was 2.0, where our target is to be in the range of 2 to 3. The main reason for the decrease compared to Q1 is the stronger business result. Moving on to slide eight. cash flow and investments. So cash flow for the quarter was negative 32 million compared to last year's negative 9 million. Looking at the parts of the cash flow, we see that cash flow from operating activities before changing working capital was 207 million compared to last year's 159 million. Changing net working capital slightly positive plus 10 this year compared to negative 4 last year. And cash flow from investing activities 123 million last year and last year's numbers was affected by earn out payments that period. Capital from the financing activities was negative 231 million compared to last year's negative 42 where the main reason was that we took up a new financing last year of 256 million in the period. Total investments for the period amounted to 43 million compared to last year's 216. Cap tax related to IT development amounted to 9 million, which was the same as last year. And investments in tangible and intangible assets decreased from 191 million last year to 23 million this year, as last year's numbers were affected by prolonged rental agreements. Investments in assets related to services service delivery was 5 million compared to 11 million last year. All in all, 18 million of the 43 in CapEx was affecting cash flow. The others were changes in lease or rent contracts. With that, moving back to Thomas. Good. Thank you very much, Johan. And continuing then on over to slide number nine and our updated sustainability targets and commitments. And just to highlight a little bit on our work here. In the previous quarter, I explained more in detail about our zero carbon emission target, as well as our ambition in creating a fully circular offering by 2030. Today, I also want to highlight our work within our third target here, 100 initiatives for social equality. And again, all these three commitments, they are designed to redefine the impact of our business and how we behave and how we act. And it will, of course, naturally involve innovations and solutions with all those around us throughout our value chain. And as always, we believe that hard work will pay off. And these commitments really keeps not only us, of course, but also our whole sector moving ahead. If we look at the 100 initiatives and 100 actions, to set those, we start off this year with setting 10 of those. And let me just briefly go through some examples of that. As you can see on the slide, we will work to close the gender pay gap in all our markets. Here we have reached a good way in Sweden. But we also want to emphasize that work, of course, so we close that in all markets. Health and safety training has been established for all our private labor suppliers. We have introduced diversity and inclusion training internally. And we have also introduced sort of a stamp, which is factory audited by Ad-Dostin as a guarantee for fair working conditions in our factories. And with this, of course, also with the diversity inclusion work, I should also mention that we form partnerships within that work with different partners that support this and can drive this work forward together with us. We have also trained all our managers in the competence-based recruiting, how that is worked. I hope that is done, and we are also working on introducing competitive parental leave conditions for all employees in all markets. And we have, when it comes to recruitment, also activated an anonymous recruitment in our recruitment systems. And I think these are just very practical and pragmatic examples and clear examples of how we work with this. There are lots and lots of actions that need to be taken, but all in all to sort of improve the social equality all around us and all the things we can have an effect on. To this, of course, we also continue to ensure that our suppliers adopt our supplier code of conduct. And we're right now at 99.8%, aiming, of course, for 100% on that. In this work, we also do a risk assessment, I should say, to evaluate our supplier's ability to long-term comply with our code here. So all in all, these are strong commitments, and they require, of course, hard work, all three of them, all three of the commitments, but that is also what is needed. So before moving on and telling you more about our acquisition now this morning, let me just sum up our second quarter for fiscal year 2021 on slide number 10. and net sales grew with four percent to 3.683 million sec 3.6 billion sec where organic growth for the group was 6.4 with smb at 8.2 and lcp 4.9 and bgc at 5.5 gross margin 16.1 versus 15.7 up to the positive product mix and our our dynamic pricing model working together with with the higher volumes of course and strong sale of private label products uh adjusted the beta came in at record high 201 million sec giving us in a beta margin at 5.5 which is as you know spot on on our financial target and an increase from last year's 4.3 and initiatives and actions we have taken on the cost side both on the strategic ones and the short-term ones has of course given effect as well as the strong performance as we want to also do in the quarter uh ebit at 177 million sec and eps and coming in at 138 sec per share And on balance sheet, operating cash flow at 218 million SEK and the leverage at the lower end of our range at 2.0 EBITDA. And operation, of course, worth mentioning. We closed our business center, as we announced earlier, in Stockholm due to change in customer behavior. And we have launched our EC workplace, as I mentioned before. So as I summarized, the corona pandemic and its effects are still very present, of course. It is a challenge, both in our markets and in society as a whole, and it continues to be short-term disturbances in supply chains. However, we have also demonstrated, I think, great strength during this quarter with the speed at which all colleagues at Dustin have adjusted to meet the needs of our customers, both short-term and through the long-term behavioral change that is brought on to all of us by the increasing pace of digitalization. So with the good organic growth and record earnings in Q2, we see that we are correctly positioned with the strong and unique digital relationship with hundreds of thousands of customers and even more optimized e-commerce platform, as well as the ongoing build-up of our standardized service offerings, where each workplace is one example of that, to further increase our relevance and the benefits for our customers, of course. and that combined with our strong financial position means that we are developing to face the opportunities and challenges that comes to us through the climate business climate and our customers and building on that we would of course like to take the opportunity now while we're on the call to present our acquisition of central point and I suggest that we take any questions you might have on the quarterly result as well as our expansion in Benelux after that so let's proceed over to the acquisition and and move over then to slide 12. i mean with this dustin we take a leading position in the benelux region by acquiring central point we become the market leader in the region and of course creating an european ic powerhouse we expand our whole market so it's not only nordics it's also benlex now and that is of course paving the way also for continued expansion It is a very accretive effect on this. If you look at EPS, it's more than 50%. If you compare it on a performer basis, we see that we, given the fact that it is a very strategic fit in this, and we know the drill, we know the business, we know how it works, we see, of course, significant sales and efficiency synergies in this. And we also see that we can, due to this, we do not change our financial targets. If then moving on to slide number 13 to go through a little bit about the strategic rationale and key facts on the business. I said this is an opportunity for us to establish Dustin as the market leader across all customer segments in the Benelux region through combining existing operations that we have in the Dutch market with Central Point. And I also said it is a strategic fit with attractive valuation opportunities for us. It fits very well to our current business. um and we get also critical mass in the market and across all segments to enhance the local service offering and of course introduce additional value-added service in the market um i said also we see significant sales and efficiency synergies and the areas worth mentioning here is support procurement i mean we can we will also introduce private label our private label products in in the market and uh we see also of course uh synergies within it and the technical platform And then, not to say the least, we of course have knowledge sharing and SMB sales in this that we can leverage on even further. And it will also be a natural platform for us when continuing expanding in Europe, both organically, but of course also with bought and acquisitions. Central point then, some short facts on that, that it is an IT supplier or a value-added reseller with focus on hardware and software to the LCP as well as the SMB segment in the Benelux region, Netherlands and Belgium. It's approximately 600 employees and it's present in three locations in the Netherlands and Belgium. Revenues amounted approximately to 7 billion SEK within a beat of approximately 280 million SEK in 2020. And it is a market leader today in the Netherlands, with a market share of around 5% of the total addressable market. What is really good here also, of course, is that they have strong tender capabilities, and that results in high revenue visibility, which is good. And management will also stay in their current positions. If we move on to slide 14 and look at the financial impact and expected sales and efficiency synergies, the combined revenue of the companies will be approximately 20.4 billion SEK. And then combined revenue, if you look back 2018 to 2020, will be approximately 7%. The combined beta will be approximately 800 million SEK. And with the combined meta margin, if you look back, 2018-2020, about 4.3. But the EPS accretive effect of more than 50% on a performer basis, including the cost synergies. And we see expected sales and efficiencies in all this where we expect to find those in areas of procurement, increased labor penetration, the IT and technical platform asset and of course knowledge sharing between both LCP and SME and the online operations. um and we see that the it is expected to generate uh approximately 150 million sec of of sales and efficiency synergies fully implemented fully implemented in 2023 and we expect to invest approximately 50 million to accelerate the extraction of those synergies and central point has an omni channel approach very similar to dustin in the nordic It's a combination of consultative sales or relation sales, outbound sales and of course online sales. And it also has, Central Point also has the same hybrid supply chain model as we have in the Nordics where we work directly with vendors but we also work a lot through distributors. So it's a strong company that fits us very well. uh and again just to brief so you get the full picture of the company um it's a leading supplier in the benelux hardware software as well as services it was formed through a combination of uh of infotainment and central point in 2018 but the company was originally founded in 2001. It's based in Nijmegen in the Netherlands, where they have the headquarters and the sales office for the Netherlands. And it's also in Vikern in the Netherlands, where warehouse and distribution center, and in Arsholt in Belgium, where the Belgium sales office are situated. They have very efficient and gentle logistic operations to serve the Netherlands and Belgium, and a total of 600 employees with around 36,000 customers across the Benelux. And financial interest is 7 billion SEK and around 280 million SEK in EBITDA for 2020. So with that, Johan, you can proceed on slide 16 to talk more about the other. Yes, let's move to look a little bit on what Thomas was talking about, the value creation going forward coming from the acquisition together with the Dustin organization. With these four building blocks, we think we can explain how the value creation will be generated in the coming years. And you will start on the left hand side with the business plan of Centerpoint, which is quite a growth inspired business plan. And it builds on, I would say, three fundamental pillars in order to grow. These would be to expand in the Belgian market to become as strong in Belgium as they are currently in the Netherlands. It is to expand the offering also to software and grow software business in combination with hardware, mainly in the Netherlands market. And then to add infrastructure offerings and sales on top of the basic hardware sales that is currently done mainly in the Netherlands. so that forms the part of the local central point this plan then on top of that obviously we as thomas was saying we have identified 150 million result synergies coming from both sales and efficiency initiatives moving to the efficiency initiatives i would say that purchasing power and what we can do with the purchasing power is one of the strongest part of this plan. It's clear that as you know from before we are one of the leading IP partners in the Nordic region where we can use our power of purchasing to a great extent. Now we will have the same situation in the Netherlands but also We can use the fact that we are now a true multi-regional player, which we believe will give us an even better position with the vendors and distributors in the European market. So that will clearly contribute to the synergies going forward. That, in combination with launching our own private label assortment to a greater extent in the Netherlands, will add to profit. Moving on to, let's say, the competence and capability transfer. And you can, to some extent, also take them with you from the synergies. Because one of the competencies that we can clearly use is our Nordic excellence in online S&B sales. This is an area where I think we can generate a lot of sales synergies coming into the Benelux market. and we have a very strong plan and targets in this area but also not forget the excellence that the central point organization has on tender business and i think we can in many cases we'll be able to to leverage on that knowledge also in the nordic in the nordic context and last but not least we will of course continue to look for both the nordics we are now in it in a better even better position in the vandalized market to to continue that journey so all in all we believe that this this makes it the prospects of continuing with the good speed of both sales and profit growth in the vanillax region and also for us When I move to slide 17, we basically say that this acquisition will not affect our financial targets as they are stated today. As you know, the growth target is 8% organic growth over a business cycle. As you can see on the slide 17, if anything, we believe that the acquisition can support that growth target. Moving to margin, I think we discussed a bit before that Our firm belief is that the margin potential in the Vanillax region is the same as in the Nordics. Now, as the customer split in the Vanillax region, including Central Point, is slightly more skewed towards the MCP side, we are currently at a slightly lower level of margin in the Vanillax compared to the Nordic, but that is also one of the possibilities for us to with a better scale support our SMB expansion in the land relax and that by itself will improve margins going forward and then if we look at capital structure obviously after the acquisition you heard that from Thomas that in the end of the Q2 we were at the leverage of 2.0 and After requisition, we will end up at 4.5, but with the proposed right issues, we will be back on 3.3. So we believe that we will be leveraged with the cash flow generated by the business down to the area of 2 to 3 within a reasonable future. So no change of the financial targets. Now, moving to slide 18, if we look at the transaction in the middle summary. The total consideration was 425 million euro on a cash and debt-free basis and we bought the central point from Infotech holding EV. The acquisition multiple is around 15 excluding synergies and 10 including synergies and as part of the consideration We have issued about 8.2 million shares to the former owners. And obviously, the acquisition is subject to competition clearance by the Dutch competition authorities. In terms of financing, we have a breach financing from Swedbank to cover the initial period. And then we will propose the rights issue of 1.2 billion to reduce leverage in the first instance. And that we will summon an EGM which will give authorization to the board to resolve the issue in time and the rights issue that will be held on the 18th of May. and at the moment the main shareholders are supporting that decision and i think with that back to thomas yes thank you one and then let's uh let's summarize it on on slide 19. um and to summarize the acquisition i mean this will this will create the market we will become the market leader in the benlux region of course i said paving the way for continuing expansion The combined LTM revenue of around 20 billion SEK and in the beta around 800 million SEK. ETS accretive effect of more than 50% for the last financial year on a performed basis. And we see of course, as Johan was saying as well, that with the strategic fit we see significant sales and efficiency synergies in this. And we do not change our financial targets due to this acquisition. So very exciting of course and it's a strong quarter, Q2 quarter. It shows our position and our strength in the value chain and combining that with this acquisition of course makes and put the foundation for us to create the IT powerhouse that we are building here. So with that Johan I think we are ready for questions. Any questions you might have? So operator over to questions.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. 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 comes from the line of Frederic Stensil from Nordea. Please go ahead.

Hi, good morning guys. So I have a question on the synergy target of 150 million. I was wondering, you did talk about it a bit, but if you could be a bit more precise of how much are sales synergies and how much are cost synergies out of that? And I'll wait with my second question.

Rough numbers, you can divide them, split them into 50-50. So sales would be 75 and cost would be 75 or efficiency would be 75. Clearly most important are purchasing and our ability to exchange, let's say, accessories with our own private label accessories. These are also the ones that we have greatest visibility of, I would say, to start with. But then, sales images are clear in the sense that we get scale now in the Benelux region. So we can, from that scale, we can add our online competence and SME competence also to that region. I think that is a very important, both short-term but also long-term growth opportunity for us.

Okay, makes sense. Thank you. And then my second question. uh you write up that the organic growth kegger has been 12 and that seems like quite an attractive number to me um what would you say have been kind of the main driving forces uh for them to be able to have that sort of growth because i assume the market has not been growing at that pace i think they have had they they have a very strong competence in how to handle large

RSPs, let's say, both in public and corporate tenders. And that is one of their strongest parts. That in combination with really good relationship with the local vendors to get good pricing. That has been a success factor, I think, from before. Okay.

Excellent. And if I can just add one last, if you want to disclose if it was a bidding process or if it was an exclusive negotiation.

This was a bidding process. Thank you very much.

And just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. We have another question from the line, Ramil Coria from SEB. Please go ahead.

Thank you, operator. Morning, guys. A few questions from my side as well. Just starting off on the financial targets, I couldn't help but notice the fact that you're not mentioning the payout ratio. How are you sort of given the balance constraints now, also post-rights issue? How are you sort of reasoning around potential dividends?

I think overall that's of course for the board to decide later on during the fall. But of course they will consider how the overall balance sheet looks at the time for the possible dividend. So that will be for the board to take decision on later on.

That's clear. And the margin target which Susie outlined you were aiming at, to reach in the next fiscal year is that sort of still valid as per your cmd communication was it 18 months ago or does that change now i i think it's still valid and we are now working on it will

The possibility to reach it will be affected by how fast we can implement the synergies. And that plan we are doing in more fine-tuning is now when the deal is actually signed. So we will have to come back on exactly that. But there is no change in our ambition to reach the financial target in margin or in sales.

Thank you, Johan. And perhaps the two final questions in one go. So first off, if you could shed some light relating to Fredrik's question earlier about synergies and the cadence as to when they will be. You're saying full synergies will be visible in 2023-2024, but you're also taking a one-off right after the closing of the deal. Shouldn't we expect some cost synergies to be reached in the initial phases here?

I think you will see efficiency synergies coming through in 2021-2022 for sure. And then of course on the SAFE side, it's more of a ramp-up situation on SAFE. It will start uh pretty fast but that that is a much more uh how do you say we need to build that business in in a more long-term way so it's not the one thing that you you end up with them but of course on on procurement for example you can move faster so i think there will be a let's put it that way it's not one third every year at it it's probably more in the beginning but it will take some time to get the fullest energy out

Okay, and perhaps on the gross margin side, could you shed some light as to how the gross margin structure looks like in the company?

Gross margin is pretty similar to what you can see in our LCT business. Actually, the business down there is pretty close to that.

Okay, and then a final one, if I may, guys. Yeah. Sort of on a more high-level basis, I think you earlier mentioned that this is sort of It gives you the potential to continue to expand in Europe, perhaps I'm mistaken, but how are you reasoning in terms of accumulating market shares on your existing markets versus continuing to expand geographically? You have in the high single-digit area market shares in both the Nordics and in the Netherlands now, and some presence in Belgium as well. How are you reasoning for the future story here?

I mean what we see of course I mean as you understand we have a lot of things to do in the Nordics and the Benelux region right now but we also see the what we have what is clearly visible is that our business model is very it's very what you call it exportable it is possible to export our business model and that that of course for that we need a platform so what we're seeing is that we have a now two strong platforms with the or one combined platform with the benlex and nordic region which gives us those opportunities um however now as said also we have uh we uh we still want still are want to prove ourselves in in continue for ourselves in the north and continue to ourselves of course in the military but it's very possible for us to do that so and we see that our business only works in in of course other european areas as well but now we see with the entering into belgium as well we see that there's also a room for further expansion also there it's very clear thank you so much thank you and as there are no further questions i'll hand it back for any closing remarks Okay, very good. Thank you very much, operator, and thank you very much for everyone listening in. And please just revert if any questions to myself, Johan, or Fredrik, and we talk and see each other very soon again. Thank you very much for today. Thank you.