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, Tomas Ekman, and we have Johan Carlsson, CFO, and Fredrik Satterström, 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 navigate ourselves on our different markets through the current conditions. And I also want to emphasize 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, while Centrepoint's 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 5.1% for the third quarter. Our proactivity 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 with intense cost focus, resulted in our adjusted EBITDA increasing by nearly 50% and the EBITDA margin strengthening to 4.7%. And in addition, our online core business performs 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. The different market trends 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 net sales was uh were at the three nearly 3.4 billion sec uh up 3.8 versus last year the organic growth as said was 5.1 of which smb showed a very positive 14.5 percent growth lcp at the at the negative 2.6 and btc at the positive 6.5 Overall, strong organic growth for primarily SMB and a small decline as a consequence of the shortage for LCP with delayed deliveries, but with continued strong demand. Gross profit was 557 million SEK compared to last year's 493, giving us a gross margin of 16.4%, up from last year's 15.1%. And as I said earlier, our adjusted EBITDA increased with nearly 50% and came in at 158 million SEK versus last year's 106 million SEK. 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 S&B and S&P show good progress in margin uptake. And consequently, EBIT was up to 140 million SEC compared to last year's 52 million SEC. And ISIM's affecting comparability was a negative 20.8 million SEC. Then cash flow from operating activities was minus 93 million SEG compared to last year's 468. We will come back later on in presentation to describe the changes in working cash flow. And EPS earnings per share was 0.85 SEG 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 operational perspective, we have, as previously announced, acquired Central Point in the Benelux and more on that later on. Now, Johan, you can take us through the financials in our different segments. Yes, thank you so much. 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 13.3% over last year, and as Thomas said, representing an organic growth of 14.5%. Sales growth continues to improve quarter over quarter despite challenges in the global supply chain. I think Q2 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 effect from the pandemic and grew by 6.3% 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 10.2% 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 21.4% 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 10.2% was 2.4 percentage points higher than Q3 last year. All in all, a very strong quarter for S&D, both in regards to sales and margins. Moving on to slide 4 and LCP. Sales in LCP was 1,660,000,000 in the quarter, a decrease of 4%, of which 2.6% 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. Geographically, we saw strong sales in Finland and Sweden, while larger contracts in Denmark and Norway were affected negatively. Segment margin ended at 6.6% 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 five and the B2C segment. B2C had a very strong quarter from a profit perspective. Sales increased by 5.4% from 155 million last year to 163 million this year. Of the growth, 6.5% 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 of 9.1% this year. Good product mix and high prices due to the supply shortage contributed to the good margin. Moving on to slide six 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 strength in the value chain to get good terms with customers and suppliers. However, more focus 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 of higher purchase volume to reduce the risk with shortages of components. Accounts receivables was up 120 million, mainly as a result of higher business volumes. Moving on to accounts payables, 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 to support good margins by opportunistic sourcing rather than prolonging payment terms. Leverage at the end of Q3, as Thomas mentioned, was at 2.1%. where our target is to stay in the range of two to three. 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 seven and cash flow and investments. Our cash flow for the quarter was negative 167 million compared to 334 million last year. If we look at the different parts, we see that cash flow from operating activities before change in net working capital was positive 136 million compared to last year's 109 million. While change in 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 liabilities. 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 service delivery was 26 million compared to last year's 21. All in all, 24 million out of the 54 in CapEx was affecting 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 has also marked 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're mail-order sales to B2B hardware and development also of the online platform already in 1995, with foreseen founders who understood the beauty of cost-efficient sales models towards many small companies. Then on to a 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 uh taking next steps and starting to write our fourth chapter here with an european expansion with the acquisition of 70 points building ourselves a true multi-regional player with a strong foothold in the in the nordics but as well as in the benelux and that is of course an exciting part going going on here and then continuing to to slide nine uh with a with now when we paved the way to build our european id powerhouse combining the dustbin and central point we will be around 2 300 people in the company and 20 a little bit more than 20 billion in sales if you take the last ltm numbers also if you look at the ebitda at around 800 which is also from from the ltm from last year And then around 500,000 customers and making us the eighth largest EMEA 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 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 a keep the strong momentum in the core lcp segment within central points we realize safe and efficient synergies 250 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 targeting capability transfers both in smb and in lcp and of course we continue to to the roll lock expansion 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 operations. 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 and 2024. And investments to extract those, it's around 50 million, and those we are estimating to incur during next fiscal year, 2021-2022. We closed the deal, as 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. um 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 a the operations functions including IT, customer operations, procurement, warehousing, among others. And of course, we set those up to gain scale and leverage, and also the country specifics and maximize the synergies captured 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 SEK, where organic growth for the group was 5.1, with SMB at a really strong growth of 14.5, LCP at the minus 2.6, and B2C at 6.5. Gross margin, 16.4% versus 15.1. up due to a positive product mix in our pricing model together with higher volumes of course and strong sale of private labor products adjusted the beta came in at the solid 158 million sec giving us an abita 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 EBIT at 140 million SEK and EPS at 0.89 SEK per share. And on balance sheet 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 correctly positioned 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 startups 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 Juberg 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. uh but can you possibly give us any flavor of the order backlog in terms of you know book to build or increase percentage wise or something in terms of how the order backlog and the outlook for a special i guess q122 looks i think what we have seen lately is the order lead time expanding so it takes actually customers are placing orders further ahead of when they want to have delivery so audiobook 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 audiobook in in our industry so what we see is we have orders for longer periods and we believe that we have now reached the peak of, let's say, order cycle time. And it will now stabilize and improve. And gradually, we will empty out the, let's call it, 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, not consolidated. Can you give any lesson learned, Olle, lesson learned, so to say, positive, negative surprises, and any comments on the 150 million synergies, if it's considered reasonable still, or it's a tad low or something? I think overall it has been on the sort of nowhere, 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, 2024. So it's good, and also we have seen the same development in the Benelux region as we have had in the Nordics. Strong demand on the SMB side. Longer sales that you want into on the LCP side with component shortage. But there's 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 purchase work still i guess i would expect that it's mainly lcp that builds inventory other than smb and this division had a negative minus 2.6 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 a working capital in that Q4. 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 uh 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 and we also said at that time that we were securing working capital in order to uh if the customers wouldn't be able to pay us so we used all our leverage towards the suppliers to extend the 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 let's say 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 a 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 johnson from dmv please go ahead

Good morning, guys. Good morning. A couple of questions. 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 problem for the public sector than the other segments? I guess there are 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, yeah, just...

you can elaborate a bit yes yes sure no it is it is true the the short what you said there i mean the the public sector by 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 deliveries 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 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 to be more flexible in the way of taking on hardware that they need. But that is the reason why.

All right, thanks a lot. And then on that headwind, you know, In LTP, what do you think the revenue growth would have been organically in the quarter? Is that an issue? What was the demand in the quarter looking like compared to the year-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, you said that the gross margins were helped by maturing contracts and 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 margin for these kind of frame agreements through the whole lifetime of that agreement. But still, if you're kind of seeing this maturing and maybe next year coming toward an end, does that mean we should see kind of a loss margin decline when we go into 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 therefore, the average age of the contracts in the portfolio will have an impact on the overall ability to deliver margins. One good thing with the acquisition of Central Point 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 the spike effects of this will 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 thanks a lot 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 have, of course, 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 said. 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 component, which is sort of seen from an IT perspective as non-strategic components, and they are having a shortage. So I think we have had a period of processors and graphic cards with a shortage of problematic supply chains. And now we have also seen on other types of components. But overall, I mean, we see light in this tunnel, definitely. And then the sort of the shortest period is also coming to end, the more the world stabilizes itself as well. Okay, I see. Thanks. And then secondly, 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. I mean, primarily, I mean, SMB has been a key driver during this quarter. But we also see, of course, we get more and more into the larger deals with the public sector and especially also large corporates. 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 to our type of product, our private label product. share sales is very similar in the different segments of privacy okay that's clear and do you see the same opportunity in all of the three segments yes we do we do we do okay great i also saw that you mentioned non-recurring items related to vince theory in netherlands that was a couple of years ago is that still integration with with dusting group or is that integration with central point it is with with uh you could say dustin groups it is to we are now uh melting the companies down there together and and then slightly or moving on to the dustin erp platform but that's what we haven't done before so that's what we have initiated now okay okay so that's what that's been okay and then finally we've already got some questions on cash flow but when you say coming back you know 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 no i i would say exactly what you said yeah okay 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 korea from scb 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 tell us how much of Central Point is large corp and public segment, respectively? Out of seven billion, six is basically LTP and one is SMB. Could you elaborate a bit on how Central Point has been affected by the component shortage since you announced the deal basically? I mean, we see the same development in the Netherlands or in the Benelux as we do in the Nordics for that. They're, of course, also affected by the component shortage, but also the same strong demand and the same sort of future we see there as well. I mean, on this scale, it's sort of on a global question. So it's the same sort of pattern 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 performa figures enclosed in this presentation material? Yes, no it's not affected in that and yes it's updated in the numbers area. Okay. And then on the OPEX side, there's a minor cost step up in the quarter. Should we, and I mean, you've been quite successful in taking out some costs in the last few quarters. Is it fair to assume that OPEX has sort of has troughed now and from here on forward, it's a bit of pandemic savings coming back and you continuing 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. A kind of short-sighted action to kind of secure the 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, you know, that can continue. maybe with the exception that the traveling has been very low in this quarter and come back a little bit after summer but these are relatively small numbers right that's that's clear thank you john and um 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 um know with with the service revenues picking up towards the end of q3 but still some positive mix etc etc 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 you if you look at smb we have a very good margin due to the let's say supply situation on hardware. So that's a 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 more than right right it's very clear thank you both thank you thank you and just as a final reminder if you do wish to ask a question please press zero one on your telephone keypad now And there seem 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.