Dustin Group AB (publ)

Thank you. Thank you. Good morning, everyone. And most welcome to our third quarter call presentation today. We hope you're all well and have a good morning so far. Here on our side of the call is myself, Thomas Ekman, and we have Johan Karlsson, CFO, and Felix Hettarsson, head of IR also in the room here as well. So today we present our third quarter results for our fiscal year 2021. And we are continuing to navigating ourselves on our different markets through the current conditions. And I also want to emphasize to that I'm very proud of our achievements and everyone at Dustin for their strong contribution in helping and supporting our customers and continuously enable our customers to stay in the forefront, especially now also when the hard work also shows up in the numbers. As previously announced, and as you know, we acquired Central Point in the quarter in the Benelux during the quarter and that is a transformative move for us and it will enable us to step up and to the next level. We closed that transaction on June 3rd, why Central Point numbers are not within our Q3 numbers, but we will however come back later on in the presentation today with an update. But first though, let us go through the quarter and moving on then to slide number two for financial highlights to see how we are improving and performing now during Q3. We have strengthened our position in the markets and report an organic sales growth of .1% for the third quarter. Our productivity and strong position in the value chain benefited our performance in the market, which has been impacted by component shortages and supply chain disruptions due to the pandemic. This in combination though with intense cost focus resulted in our adjusted beta increasing by nearly 50% and the beta market strengthening to 4.7%. And in addition, our online core business performed strongly in pace with a higher share of online retail and a greater need for mobility and cloud services and security driven from underlying strong trends. I mean that the different market trends that we have been that we build our strategy on the online shift, the growth mobility, cloud services, demand for predictable IT costs, focus on security and integrity and last but not least of course sustainability have continued to be strong and increasingly important during the quarter. And that of course makes our long term position even stronger. And that sales were at nearly 3.4 billion SEC up 3.8 versus last year. The organic growth as said was .1% of which SMB showed a very positive .5% growth. LCP at the negative .6% and BTC at positive 6.5%. So overall strong organic growth for primarily SMB and the small decline as a consequence of the shortage for LCP with delayed deliveries but with continued strong demand. Growth profit was 557 million SEC compared to last year's 493 giving us a growth margin of .4% up from last year's 15.1. And as said earlier our adjusted EBITDA increased with nearly 50% and came in at 158 million SEC versus last year's 106 million SEC. And that gave us the adjusted EBITDA margin at 4.7 for the quarter versus last year's 3.2. So strong performance and strong earnings. The margin improved by good performance and the structural changes we're doing combined with good cost control within all segments. Both SMB and LCP show good progress in margin uptake and consequently EBITDA was up to 140 million SEC compared to last year's 52 million SEC and ITEMs affecting comparability was a negative 20.8 million SEC. Then cash flow from operating activities was minus 93 million SEC compared to last year's 468. We will come back later on in the presentation to describe the changes in working cash flow. And EPS earnings per share was 0.85 SEC per share versus last year's 0.35. Our leverage at 2.1 versus 2.5 last year in the lower part of our leverage target which is between 2 and 3 of EBITDA. And apart of course from an intense quarter from an operational perspective we have as previously announced acquired central point in the manual act and more on that later on. Now Johan you can take us through the financials in our different segments. Yes, thank you Thomas. Moving to slide three and the SMB segment in some more detail. So sales for the quarter ended at 1 billion and 571 million, an increase of .3% over last year. And as Thomas said, representing organic growth of 14.5%. Sales growth continues to improve quarter over quarter despite challenges in the global supply chain. I think you too with a good sales development in the hardware categories from all customer groups in the segment. However, compared to last quarter where the small customers were driving the growth, we also saw mid and large customer groups in SMB performing well. Recurring sales of services is continuing to recover after last year's negative effects from the pandemic and grew by .3% in the quarter to an annual sales rate of 856 million. For project related services, the quarter started slow, but momentum has gradually improved during the quarter. Geographically, we saw good growth coming from all markets, but Norway, Sweden and Finland in particular. Segment margin for the quarter was .2% compared to last year's 7.8. The main reasons for the good margins was higher volume growth with shortages in the market. Strong sales of private label products and effects from cost efficiency initiatives. This was, as in the last four quarters, somewhat offset by lower sales of high margin project related services. The share of software and services was .4% down from 23.7 last year and 21.6 in Q2, mainly due to the strong hardware sales. In total, segment results ended at 161 million compared to last year's 109 million, an increase of 48%. Segment margin of .2% was .4% higher than Q3 last year. All in all, a very strong quarter for SMB both in regards to sales and margins. Moving on to slide 4 and LCP. Sales and LCP was 1 billion, 660 million in the quarter, a decrease of 4% of which .6% was organic. During the quarter, we saw continued positive signs in the corporate customer group where sales continues to recover. While the public customer group was affected both by component shortage and delivery issues. Our current view is that the long lead time will remain for some quarters, but that we have seen the worst of it and it will gradually improve back to normal. Theoretically, we saw strong sales in Finland and Sweden, while larger contracts in Denmark and Norway were affected negatively. Segment margin ended at .6% compared to last year's 5.9. The increase over last year is mainly explained by generally margins in some of the larger contracts, improved sales to larger corporates and effects from last year's cost efficiency activities. Segment results improved from last year's 102 million to 110 million or by 7.2%. This was especially positive as we had seen the issues with hardware availability. Moving to slide 5 and the B2C segment. B2C had a very strong quarter from a profit perspective. Sales increased by .4% from 155 million last year to 163 million this year. Of the growth, .5% was organic. The main reason for the sales increase was strong underlying demand of computer hardware and accessories. The segment margin was up from 7.7 last year to a record high .1% this year. Good product mix and high prices due to the short supply shortage contributed to the good margin. Moving on to slide 6 and networking capital. Networking capital was negative 293 million compared to last year's negative 530 million. Last year was highly affected by the extreme situation in the beginning of the pandemic where we focused on securing working capital to mitigate potential risks in customer payments. This year, the customer situation is more stable while the supply situation is more challenging. During the quarter, we have continued to use our strengths in the last year. We have used our value chains to get good terms with customers and suppliers. However, more focused on getting products delivered on time and in full than prolonging credit terms. Looking at the details, we see that inventory has increased in the quarter to 607 million compared to last year's 537 million. The main reason for the increase was higher purchase volume to reduce the risk with shortages of components. Accounts receivables was up 120 million mainly as a result of higher business volume. Moving on to accounts payable which was 281 million lower than last year mainly due to the actions taken last year as a result of the beginning of the pandemic. In total, we continue to see strong performance in the area of working capital where we have now shifted focus from a short-shifted focus to support good margins by opportunistic sourcing rather than prolonging payment terms. Leverage at the end of Q3 as Tomas mentioned was at 2.1 where our target is to stay in the range of 2 to 3. The main reason for the increase compared to Q2 where leverage was 2.0 was the increase in working capital compensated by the operative cash flow. Moving on to slide 7 and cash flow and investment. Cash flow for the quarter was negative 167 million compared to 332 million last year. We look at the different parts. We see that cash flow from operating activities before changing net working capital was positive 136 million compared to last year's 109 million. While changing net working capital this quarter was negative 228 million compared to 369 million positive last year. The main difference being the decrease in accounts payable and increase in inventory this year. Cash flow from investing activities was negative 24 million compared to last year's negative 96 where last year's was affected by exposition. Cash flow from financing activities was negative 50 million compared to negative 38 million last year. This mainly consists of repayment of lease and rent liability. Moving on to the investments. The total investments amounted to 54 million compared to last year's 125. CapEx related to IT development amounted to 11 million which was in line with last year. Investments in tangible and intangible assets decreased to 18 million from 94 last year and last year's numbers were affected by prolonged rental agreements. Investments in assets related to services, to service delivery was 26 million compared to last year's 21. All in all 24 million out of the 54 in CapEx was affected cash flow. The others were changes in lease or rent contracts. Moving back to Thomas. Good, thank you, Johan. Then continuing over to slide eight and talk a little bit more about the acquisition that Central Point that also marks a new chapter for Dustin. And I think looking at this graph you can say that Dustin, I think Dustin is a textbook example of how companies develop under different management and different ownerships. And if you look back here we can say that we have had a founder's phase from 1984 where we were mail order sales of B2B hardware and development also the online platform already in 1995. With the foreseen founders who understood the beauty of a cost efficient sales models towards many small companies. Then on to the second chapter where we were in private equity ownership and expanding to new territories, new countries. We built our warehouse, we supported a lot of the development of the IT platform. Then listing at 2015 where we have clarified the strategy, continued growth, moving further on into services, developing ourselves or professionalizing ourselves you can say. And then now taking next steps and starting to write our fourth chapter here within European expansion with the acquisition of Central Point. Building up as a true multi-regional player with a strong foothold in the Nordics as well as in the Banelux. And that is of course an exciting part going on here. And then continuing to slide nine, now when we paved the way to build our European IT powerhouse combining the dust in a central point. We will be around 2300 people in the company and a little bit more than 20 billion in sales. If you take the last LTM numbers or if you look at the EBITDA at around 800 which is also from the LTM from last year. And then around 500,000 customers and making us the eighth largest IT partner reseller in our region of the world. And of course as you know being large in our industry is a good thing in terms of purchasing power, in terms of the influence of the whole value chain. Driving both sustainability and of course profitability at scale. So this is exciting and of course now when we look into the combining the entities and combining the two companies. If we move on to slide number 10. We have set out an attractive value creation agenda to speed up the ability to achieve our long term targets. Where we will keep the strong momentum in the core LTP segment within Central Point. We realize safe and efficient synergies of 150 million SEC annually on both local and group level. And we can also see that we can accelerate the growth of both in the Nordics and the Benelux through targeted capability transfers both in SMB and in LTP. And of course we continue to the road market fashion in Benelux based on our proven Nordic recipe. And the synergies here they are expected in areas such as procurement, increased private label penetration, IT and technical platform, knowledge sharing of course and the SMB online operation. And those expected as we see them now and as we have estimated them and we can sort of continuously confirm them is that we expect annual sales and efficiency synergies of approximately 150 million. And they should be fully implemented by 2023, 2023 and 2024. And investments to extract those is around 50 million and those we are estimated to incur during next fiscal year 2021-22. We closed the deal as I said on June 3rd so now it's full speed ahead. And as a starting point of that as you probably saw also last week we announced a new organizational design. On the leadership team level with two strong regions running both operations and segments and efficient team of group functions with finance, HR and brand. And those two in those two regions with the Nordics and the Benelux we will have the operations functions including IT customer operations, procurement, warehousing among others. And of course we set those up to gain scale and leverage on and also the countries that this is on and maximize the synergy capture on this. So this looks good and now we start off of course also with setting all the other synergies in this. And from Q4 now this coming quarter we will of course also include all numbers of the central points within our reporting. And so exciting times ahead. And now before going into Q&A let's summarize the third quarter. Net sales up nearly 4% up to 3.394 million SEC where organic growth for the group was 5.1. With SMB at the really strong growth of 14.5. LCP at the minus 2.6 and BTC at the 6.5. Gross margin .4% versus 15.1 up to positive product mix in our pricing model together with higher volumes of course and strong sale of private labor products. Adjusted EBITDA came in at the solid 158 million SEC giving us in EBITDA margin of 4.7. An increase from last year's 3.2. And the initiatives here and the actions we have taken on the cost side both strategic and short term has given effect as well as our strong performance during the quarter. EBITDA at 140 million SEC and EPS at 0.89 SEC per share. And on balance sheets operating cash flow at minus 93 and leverage in the low range of our target at 2.1 to EBITDA. So with the good organic growth and the solid earnings in Q3 we see that we are in a correct position with a strong unique digital relationship with hundreds of thousands of customers. And now an even more optimized e-commerce platform combined with strong relations sales towards our cost and public. Which is now even more enhanced with the acquisition of Central Point. With our service offerings now coming back in demand we further increase our relevance to benefit our customers. And that combined with our strong financial positions means that we are well equipped to face the opportunities and challenges that will be presented to us by the business climate and of course from our customers. Good and with that I think we are happy to take any questions you might have. Operator.

Thank you. If you'd like 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. Our first question is from Daniel Jubay from Handelsbanken. Please go ahead.

Thank you very much and good morning. Good morning. My first question would be on LCP and especially the public was hit by the component shortage as expected I would say. But can you possibly give us any flavor of the order backlog in terms of you know book to bill or increase percentage wise or something in terms of how the order backlog and the outlook for especially I guess Q1 22 looks. I think what we have seen lately is the order lead time expanding. So it takes actually customer are placing orders further ahead of when they want to have delivery. So order book is significantly bigger. Doesn't mean that all that is increased demand. It's mainly a longer order cycle time. Let's put it that way. So we have orders for the full calendar year of 21 now which is not the normal way of also having the order book in our industry. But what we see is we have orders for longer periods and we believe that we have now reached the peak of the order cycle time and it will now stabilize and improve. And gradually we will empty out the order book that we have at the moment. If that will happen in Q4 or in next year's Q1 or Q2, very difficult to answer. But it will not happen in one go. It will gradually move back to normal. Perfect. Thanks. And another question if I may on the central point now consolidated. Can you give any lesson learnt, early lesson learnt, so to say positive negative surprises and any comments on the 150 million as soon as if it's if you consider it reasonable still or it's a tab low or something. I think overall it has been it has been on the sort of no surprises in the acquisition and the closing process. And we still see that the 150 million is reasonable and within the target. So that's good. And we have started to work on those and we see that they can for sure materialize in the period that we announced earlier, Q24. So it's good. And also we have seen the same development in the in the Van Laks region as we have had in the Nordic. Strong demand on SMB site, longer phase that you want into on the LCP site with component shortage, but still strong performance and strong demand. So it's encouraging. It has been during the spring now. Perfect. Good to hear. And the question to you and the last one here on cash flow again. Inventory volume up on growth and active working purchase work. Still, I guess I would expect that it's mainly LCP that gets inventory other than SMB. And this division had a negative minus two point six percent organic growth. So can you elaborate on the inventory and also accounts payable being as low as it was in the quarter? And what to think of cash flow or working capital in Q24? Yeah, I think it's a good question. And I think it's good to explain and discuss this subject a little bit because we see a situation in Q3 this year, as you would have seen in Q3 last year when we actually moved into a more drastic situation coming from the pandemic. And if you look at the graph on that working capital that we presented before, you see very clear that in Q3 1920, working capital went down dramatically compared to the quarters before. And we also said at that time that we were securing working capital in order to if the customers wouldn't be able to pay us. So we used all our leverage towards the suppliers to extend payment terms. That was a year ago. And now having lived through the year with customers actually continuing to pay on time and in full, we have now shifted a little bit the focus on from payment terms to the suppliers to availability because we think that is better for Dustin and better for Dustin's results. So we have moved payment terms back a little bit towards more normal situations and at the same time use the leverage to get products in a very difficult market situation. And that has paid off on the SMB side where we can capture the availability of products and push them to our customers because as Thomas said before, on SMB we sell what we have on stock and the customers are willing to buy what we have on stock because they need a computer. While on the public side, they have already predefined product that they need to buy so they cannot just change the skew that they buy and hence they have a problem with delivery. Perfect. Thank you and good luck here in Q4 and have a great summer. Thank you. Thank you.

And our next question is from Christopher from DMV. Please go ahead.

Good morning guys. Morning. So first of all, coming back again to the sidechain challenges that you mentioned, especially in the public sector. So could you maybe just help us out, understand better why there is more problems with the public sector than the other segments? I guess they have more stringent requirements related to which models they can buy and stuff like that. But haven't you seen any kind of issues related to that in the other segments at all or just to elaborate a bit?

Yes, yes, sure. No, it is true. The short, what we said there, I mean the public sector buy customer specific orders like a laptop with a specific processor or specific graphic card and so forth. And they order those and they are stipulated in the contract. So it's sometimes a longer time for public entities to shift out to move to other models. And that of course affects the sales towards or delivers, I should say, towards the public entities. On the SMB side and on the large corporate side, which are more flexible in their contracts and especially SMB, of course, they are more open to buy other types of models of laptops and computers and peripherals. And hence we have managed to, as Johan also was into, put them on stock and also deliver to the SMB customers. So that's also why we can explain the strong growth in SMB because there we sell, we sort of push out the sales more than sort of pull out the sales. So there is a difference in model there. But we see also openings for the public sector, given the fact that they need the equipment and then they also open up for a bit more flexible in their way of doing that. Of taking on hardware that they need. But that is the reason why.

All right, thanks a lot. And then on that headwind, in LTP, what do you think the revenue growth would have been organically in the quarter? Is that an issue? What was kind of the demand in the quarter looking like compared to the -over-year?

Really difficult to say, but a couple of percentages for sure it has affected. Somewhere in the range of, I would say, five-ish.

All right, that's great. And then one final question for me is on the, you said that the gross margins were helped by a maturing contract in, you know, payment agreements in the public sector. Could you help me understand that dynamic? Because I was also understanding that it's become more and more normal that there are more stable margins of these kind of frame agreements through the whole lifetime, all that agreement. But still, if you're kind of seeing this maturing and then maybe next year coming toward the end, does that mean we should see kind of a gross margin decline? Are we going to a new frame agreement in the beginning of 2023 or something like that? Or how should we think about that dynamic now going forward?

As we have talked about before, there is this dynamic of improving margins within at least some of the public contracts and actually most of the public contracts, I would say. And then, and therefore the age, the average age of the contracts in the portfolio will have an impact on the overall ability to deliver margin. One good thing with the acquisition of central points is that the portfolio has increased significantly of these little bit larger contracts and hence there will be a more even spread of the contracts. So we believe that the spike effects of this will be reduced as a consequence of the central point acquisition. But there will be, of course, changes in margin due to the fact that we win or lose large contracts.

All right. Thank you. That's all for me. Thank you. Thank you.

And our next question is from Daniel from ABG. Please go ahead.

Yes, thank you very much. So a question on the component shortage as well. I mean, you mentioned the shortage of processors and graphic cards specifically, which we all know have been highly demanded in Bitcoin mining, for example, with a price coming down significantly in the last two to three months. Have you seen any stabilization in the components market lately that could help you already in the current quarter, you think? Yes, we have. I mean, we also we have, of course, intense, intense talks and meetings with all the major vendors. And I think on a global level, you can say that the semiconductor shortage is more under control now. So the shortage is decreasing with that. What has been what has been slightly more problematic now in the quarter has been the more low cost components like video codecs, the Wi-Fi connectors, analog video components, which is sort of seen from an IT perspective as non strategic components. And they are they are having a shortage. So so I think we have had a period of processors and graphic cards with the shortage of problematic supply chain. And now we have also seen on other types of components. But overall, I mean, the we see like in this tunnel definitely. And that the sort of shortage period is also coming to end and more of the world's stabilized as well. OK, I see. Thanks. And then secondly, on on the private label, you mentioned that you see a strong development for private label. Do you see that more in B2C or SMB or LCP? I think in general, overall, we see that mainly SMB has been a key driver during this quarter. But we also see it, of course, in we get more and more into the larger deals with the public sector and especially large corporate. Given the fact that as we said before, we are in low complex areas like cable sectors and the brand sensitivity for those is not high. So it's possible for us to exchange it to our type of product, our private label product. Sure, sure. It's very similar in the different segments of private sector. OK, that's clear. And do you see the same opportunity in all of the three segments? Yes, we do. We do. We do. OK, great. I also saw that you mentioned non-recurring items related to Vinciere in Netherlands. That was a couple of years ago. Is that still integration with Dustin Group or is that integration with Central Point? It is with you could say Dustin Group. It is to we are now melting the companies down there together and then slightly or moving on to the Dustin ERP platform. That's what we haven't done before. That's what we have initiated. OK, OK. So that's with Dustin. OK, and then finally, we've already got some questions on cash flow. But when you say coming back more to normal level, do you mean the minus one percent of sales that we have seen in the last two, three years? Or do you see any other underlying changes in that market causing a new? I would say exactly what you said. Yeah. OK, excellent. Yeah. Thank you very much. Good. Thank you.

And just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our next question is from Ramil Koriya from SEB. Please go ahead.

Thank you, operator. Can you hear me, guys? Yes, we hear you loud. Super, super morning. A bunch of very good questions already been asked. Let me add some from my side. So first off, on Central Point, with the risk of this already being answered in previous calls, could you could you tell us how much of Central Point is large core perspective and public segment, respectively? Out of seven billion six is basically LTP and one is SMB. Yeah. OK, OK. And could you elaborate a bit on how Central Point has been affected by the by the component shortage since since you announced the deal basically? I mean, we see the same development in the Netherlands or in the Benlax as we do in the Nordics. For that, they're of course also affected by the component shortage, but also the same strong and the same sort of future we see there as well. I mean, on this scale, it was sort of on a global global question. So it's the same sort of pattern in the in the different regions. Right. And in terms of sort of margin impact, etc., I mean, is it a tangible step down in profitability in Central Point or have you accounted for it in the updated performance figures closed in this presentation material? Yes, yes, no, no, it's not affected in that. And yes, it's updated in the numbers here. OK, OK. And then on the OPEC side, there's a minor cost step up in the quarter. Should we and I mean, you've been you've been quite successful in taking out some costs in the last few quarters. Is it fair to assume that OPEC has sort of has troughed now and from here on forward, it's a bit of pandemic savings coming back and you continue to invest as you now enter sort of the next phase of the company trajectory from here? Yeah, I think it's a fair comment. Last year was extreme, I would say, then a kind of short sighted action to help secure situation. Now we're back to more normal, but with the effects of some of the efficiency projects, with the full impact of that in the cost numbers. So I think the current run rate is more or less a continuation that can continue, maybe with the exception that the traveling has been very low in this quarter and not come back a little bit after summer, but these are relatively small numbers. Right, that's that's clear. Thank you, John. And a final one from my side, perhaps touching upon Daniel's last question as well about the gross margin side. I mean, how sustainable is this level? Everything said so far, there seems to be a lot of moving parts here, you know, with the service revenues picking up towards the end of Q3, but still some positive mix, etc, etc. So what should we expect for the coming few quarters? Of course, not considering central point having structurally lower cost margins. So just dusting group as is pre central point. Well, I think if you look at SMB, we have a very good margin due to the supply situation on the hardware. So that's the positive sign at the moment, I would say compared to an average margin. So we're probably going to see over time, you know, at least the challenge to keep the margins that we have at the moment, while at the same time, services have been hit quite hard from a pandemic situation. So they are on the low side at the moment. So overall, I would say you can expect margins to not move a lot. And if we're successful with services, of course, our ambition is to improve margin. Right, right. It's very clear. Thank you both. Thank you.

And just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. And there seems to be no further questions. So I will hand the word back to the speakers for any final comments.

Very good. Thank you very much, everyone, for tuning in today and listening. And just stay tuned for us. And if you have any questions, just come back to call or email. Great. Have a good day. Thank you very much, everyone.