Dustin Group AB (publ)

great thank you very much and good morning and most welcome everyone uh to our conference call our third quarter presentation both welcome to our existing and new and special new shareholders uh and i hope you are all well here on outside of the call it's myself tomas ekman and we have johan carlson cfo also in room and uh our head of ir as well good so today we present our third quarter results for our fiscal year 21 22. And I think we can proceed directly into the presentation. For your reference, we have Dustin at the glance on slide two, but I think we can move directly to slide three for the financial highlights to see how we are improving and performing now during Q3. We report a very robust organic sales growth of almost 20% for the third quarter, mainly driven by strong demand for hardware and, to a certain extent, price increases. Our site and our active work in purchasing has created a high degree of availability for our customers in a market that has been affected in various ways by disruptions in supply chains and an overall unstable geopolitical environment. Zooming in on our market, the availability of standard hardware such as computers and mobile phones is normalizing right now, while the more advanced hardware like infrastructure, network equipment and AV equipment, for example, is still scarce. The fact that we see a normalized availability on standard is good, given that the vendors and manufacturers logically now can produce more of advanced hardware, which in turn is good for the balance of our product mix. Still, though, there are disruptions in supply chains that create a certain unpredictability, of course, in delivery. Total net sales were 5.8 billion 94 sec, up with 83.4% versus last year on reported level. And the organic growth, as said, was 19.7%, of which SMB showed a very positive 14.2%, and LCP at a very good 30.7%. B2C came in at a negative 33.6%, as an effect of much less campaigning there. Our SMB segment performed strongly in the quarter, and our LCP segment had a very strong growth, while slightly lower margins due to a high share of sales of low-margin standard hardware, such as computers and mobile phones. But overall, strong organic growth, which shows not only good underlying demand, but also, of course, our capability to make use of it and deliver. And we have clearly strengthened our position in the markets during the quarter. Gross profit was 842 million SEK compared to last year's 557 million SEK. That gives us a gross margin of 14.3%. The change versus last year is mainly attributable to an auto mix with higher share of sales within S&P related to the acquisition of central points. together with a high organic growth in LCP. Our adjusted EBITDA increased with 27% to 201 million SEC versus last year's 158 million SEC. And that gave us the adjusted EBITDA margin at 3.4% for the quarter versus last year's 4.9%. The EBITDA margin was obviously affected by the current customer mix towards LCP and product mix of lower margin products within LCP. And the integration of rebranding of our required operations are proceeding as planned. Gave us some extra cost in the quarter for the rebranding and the marketing. And everything in Benelux is now adopted, which is very good. And that is, of course, strengthening our position for continued profitable growth in our markets with increased clarity, with increased efficiency, and with increased impact. Items affecting comparability was minus 19 million SEK and that's consequently giving us an EBIT at 140 million SEK compared to last year's 114 million SEK. And EPS earnings per share was 0.75 SEK per share versus last year's 0.87. Cash flow from Operating activities was negative 277 million SEK versus last year's negative 93 million SEK during the quarter. As to improve, EBIT could not in full offset an increase in tied up working capital. Johan will come back on that later on in the presentation to give you details on that. Our leverage in the end of the quarter was 3.7 versus 3.4 for last year as the increased inventory levels to prepare for large public rollouts. during Q4 and also to mitigate for the ongoing uncertainty in the supply chain. So apart from an intense quarter in general from an operational perspective we have continued the integration work with our Benelux companies and clear steps have really been taken in that perspective. Johan, now you can take us through the finances for our different segments. Yes, let's move to slide four and the SMB segment in some more detail. So sales for the quarter ended at 1,862,000,000, which was an increase of 24.1% over last year, representing an organic growth of 14.2%. Another quarter with strong sales growth despite the turbulent environment, And the challenge is with the global supply chain. Hardware sales continues to be strong with good demand among especially large and medium-sized customers. And price increases have affected sales volume for the month positively with no significant negative impact on demand. On the services side, the standardized recurring services developed well in line with the overall growth of the segment, while consulting continues to be weak as we are strategically moving away from consulting. Shortage of infrastructure and AV products also affected the services sales negatively. From a geographical perspective, sales was strongest in the Netherlands, Finland, and Norway. Segment results for the quarter ended at 185 million, up 15.2% over last year, with the segment margin of 10.0% compared to last year's 10.7%. High share of sales coming from computers and mobile phones affected the margins negatively, while a positive sales development in private label products compensated positively. As Thomas mentioned, we continued the integration in the Benelux during the quarter with the change of the brand to Dustin for all entities. This is especially important for SMB, where a lot of the web traffic is generated by a strong brand. As we're now using the same brand in the whole group, we can benefit from the Nordic experience to a greater extent in the Benelux. All in all, a very strong sales performance in SMB for the quarter in very turbulent times. We then continue on slide five and look at LCP. Sales in LCP was 3,921,000,000 in the quarter, an increase of 162.9%, of which 30.7% was organic. During the quarter, we saw very strong sales increase in both public sector and large corporates. As for SMB, price increases had positive effects on sales during the quarter, but also good supply of standard hardware, such as computers and mobile phones, affected sales positively. Also, software sales grew rapidly during the quarter, as we were gaining ground both in the Danilax and in the Nordics. From a geography perspective, growth was strongest in Denmark, Norway and Sweden. Segment margin was at 6.4% in line with Q2, but down from 7.1% last year. The good supply of computers and mobile phones in the quarter was mainly aimed towards our largest public and corporate customers, affecting the margins negatively compared to last year. This was also the case for the software side. The price increases during the quarter had a slightly negative effect on margins as the subsequent price increase to customers in some cases had some time delay. Segment results was up from last year's 110 million to 250 million, an increase of 127%. All in all, a very strong quarter by LCP where we managed to supply our customers demand in the best possible way. Then move to slide six and a short look at the B2C segment. Sales in B2C was down by 31.7% to 111 million. The main reason for the lower sales was the reduction in price campaigns as the supply of products was still scarce and all focus on delivery was put on SMB where margins are higher. segment margin continues to be high at 9.4% due to the lack of price campaigns affecting margins negatively. Segment results, it was 11 million down from 15 million last year. We then continue to slide seven and networking capital. So networking capital was 4 million compared to last year's negative 293 million. The higher networking capital is mainly attributed to the Benelux region where we are in progress of changing the customer offerings and the working method towards the nordic one if we look at the details of working capital inventory in the quarter was 1 billion 470 million up 210 million from previous quarter and 862 million compared to last year the main reason for the increase over last year was the inclusion of country point adding 592 million and the higher purchase volumes to reduce the risk with shortages during summer, where large LCP rollouts occur. Accounts receivable was up 1,484,000,000, mainly as a result of central points adding 1,048,000,000 and higher business volumes. And in accounts payable, which was 3,665,000,000, 1,000,000,000 slightly more than one billion above last year there the main difference was the addition of central points in total we saw slightly higher networking capital this quarter mainly due to stock built up to cover large rollouts in lcp and we continue to believe that our target range of negative 1 to 200 million is realistic leverage that is net death in relation to rolling 12 months in the ta At the end of Q3 was 3.7 where our target is to stay in the range of 2 to 3. The higher net working capital and currency differences affected the number upwards. Then moving on to slide 8 and cash flow. The cash flow for the quarter was negative 380 million compared to last year's negative 167. Looking at the parts, we can see that cash flow from operating activities before change in network capital was 184 million compared to last year's 136, mainly as a result of vector operating results coming from the acquisition of Central Point. Change in network capital was negative 461 compared to last year's negative 228. The main difference being higher inventory to avoid uncertainties for the larger rollouts during summer. cash flow from investment activities was negative 52 compared to last year's negative 24 where the majority comes from capex and cash flow from financing activities was negative 51 in line with last year and the main component there being the amortization of least debt so then look at the investment they amounted to 67 million in the quarter compared to last year's 64 capex related IT development amounted to 41, that is 31 million higher than last year, and it's mainly coming from project-related IT investment in Central Point, where we are moving the ERP system to default. Investment in tangible and intangible assets decreased from 18 million last year to nine this year, and investment in assets related to service delivery was 17 million, which is down from 26 last year. All in all, 52 million out of the 67 million in capital was affecting cash flow. The others were changes in lease or rent contracts. And with that, moving back to Tom. Thank you, Johan. And over then to slide number nine. And let's do a little detail in our EBITDA margin development here. As you know, as we've been through before, our long-term target is to be between 5% to 6%. And we are not there yet, but we are on our way. The challenging turmoil in the markets obviously affects us as everybody else. And to give you some flavor to it, you can see the graph on the left-hand side of the slide here showing the development since Q3 last year as a reference. And what has affected the margin in Q3 now is the customer mix or the segment mix with a higher share of sales of LCP given the acquisition of Central Point. And that currently affects the margin with roughly 0.4%. And also strong sales to public and with standard hardware affecting also the margin with about 0.5%. We are transforming, as you know, and we are building out our SMB position in the Benelux to balance the share of sales. We're, of course, also growing the SMB part in the Nordics to even more balance the share of sales, which in turn is improving the margin. However, we are not there yet. On SMB, in general, we also have had this quarter a high share of standard hardware and less of infrastructure, network and AV equipment, as an effect of the scarce supply in the world. And that affects the beta margin with 0.2%. And last in this graph, as you can see, affecting with approximately 0.4%, is the increased marketing distribution cost in a quarter due to rebranding to Dustin in Benelux. There are still irregularities in supplies caused by the disruptions and supply chains. It is somewhat difficult to assess the immediate short-term effects from both lockdowns in China as well as the Russian invasion of Ukraine. But I can, of course, assure you that we for sure have our eyes on the margins to continue to improve that given the circumstances we have in the world. Also now, I think, Johan, we can do an update also on the Yes, let's move to slide 10 just to be clear on the changes in accounting policies coming from the effect of the accounting board's decision on how to recognize revenue from software sales. This means that part of Dustin's software sales will be recognized on a net basis rather than on a gross basis. That means that it will be 100% margin on that sale. And as you can see in the graph on the left-hand side, That has an effect in this quarter of 278 million less sales compared to the old way of reporting. And it has no impact on the EBITDA or gross profit number, meaning that the margin increase is 0.1% on EBITDA level coming from this change in accounting procedures. The change has not resulted in any changes in our financial targets. Yes. Good. Then we can continue to slide 11 to do an update. As you know, we update on our 2030 commitments regularly or quarterly. And in Q3 now, we increased our share of circular revenue to 23.6%, which is really good. And we have now included all entities in the numbers. As you might know, our target is to reach 100% of circular revenue until 2030. You can see our long-term targets there on the left-hand side of the graph, with zero CO2, 100% circular revenue, and 100 actions to improve social equality. So good development there. So far this year, we have also taken back 296,000 products, also strong development and a good number as an effect of improved work, both in the Nordics as well as in the Benelux. We now can include that very clearly in our offering and that we see a strong demand for that also increasing from the public side but also from the large corporate side. We have also launched our carbon calculator during the third quarter to help our companies and customers to get an overview of their climate footprint of their IT products and how to reduce it. I would urge you all to go into our website and try it out and see what you can do to reduce your own carbon footprint. and and how to act on that and all in all we work hard to fulfill our 2030 commitment so before going into q a let me just sum up our third quarter results on slide 12. net sales grew with 83.4 percent to 5.894 million billion sec where organic growth for the group was 19.7% with SMB at a strong 14.2%, LCP at a very strong 30.7%, and B2C at minus 33.6%. Gross profit, 842 million SEC versus last year's 557 million SEC, and gross margin came in at 14.3% versus 17.3% last year. A change in sales mix with a higher share of LCP as we've been through, and VAT deliveries in Standard Harbor is behind the change in gross margin. Adjusted EBITDA, it increased with 27% and came in at 201 million SEK, giving us an EBITDA margin for the quarter at 3.4. Reasons for that is, of course, due to the flow-through of the reasons for dropping gross margin and some of the extra costs for marketing and distribution in the quarter for rebranding in Denmark. EBIT at 140 million SEK, an increase from last year's 140 million SEK, and APS at 0.75 versus last year's 0.87. And cash flow from operating activities at minus 277 million SEK and leverage ended for the quarter at 3.7 as an effect of changes in network and capital. So all in all, robust growth in the quarter with the mixed effects impacting the margin. The pandemic is still present over the world, teaching us a lot, not least the new way of working. The continued escalation of the war in Ukraine also puts pressure and we sincerely hope for an end to that. The market trends continue to accelerate with distinct changes in customer behavior. The IT service demand is there. There is an increased demand for instance availability online as well as security, mobility and remote management. Security is obviously a big topic at the moment and will continue to be given the overall uncertainty in the world. We have extensive experience and knowledge and can serve our customers in all our markets. And for us, the last years has really meant that our position is clearly strengthened and shows that the business model we have is very robust. In short, we are very well positioned. And I am, as always, very proud of everyone at Induction Group for doing their outmost every day to deliver a great customer experience and driving our competitive edge now when we are also exporting our SMB model to new territories in the Benelux. And with the rebranding done now in Benelux and the continued integration work, we have taken clear steps this quarter to build one Dustin with one brand, one culture, one platform, and a unified offering in all our markets. So that's good progress on that. And with that, Johan, I think we can conclude our presentation and are happy to take any questions you might have. Operator.

Thank you. And 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. Our first question comes from the line of Daniel Thorson from ABG. Please go ahead.

yes hi thank you very much my first question is that i'm a little bit curious about the strong organic growth in the quarter here do you also see a solid organic growth in the start of q4 as well or what's the latest development you have seen post q3 which obviously ended up very strong here yeah we can continue to see i mean there are signs of demand that it continues to be um and and yeah so it continues as it has we can say okay and what's your pipeline in lcp because that has been the main driver of organic growth in the in the past few quarters here do you have a strong pipeline in q4 and in q1 as well

Yeah, I think we are not significantly higher for the Q4 when it comes to pipeline. What has happened is that the order book is quite big, but that is mainly because customers are placing order further away. We have a lot of orders for, let's say, January and February already. So the order book is really big compared to what it used to be two years ago. But it's mainly coming from the fact that the time period in the water book is longer.

I see. Okay, that's helpful. A second one on product mix. You say that this is characterized by your lower margin products and standardized hardware and software. What type of products do you have the highest margins in and do you see any signs of these trends coming back and when may they come back?

I think, yes. I mean, what we sell is, of course, the traditional mix is that we sell a lot of PCs and we sell a lot of mobile phones and peripherals around that. But then we also sell a lot of advanced hardware or what we call advanced hardware, which is typically a higher margin. And that is network product for network. It could be infrastructure products and it could be, for example, AV equipment. And those products have been scarce or there has been disruption in that. mainly due to the reasons that the larger manufacturers have focused on producing PCs, given the strong demand that has been during the pandemic for moving on to laptops and PCs. So it has shifted there during the pandemic, but now we see that the, as we said here in the call also, is that the production or the availability of standard hardware is coming, sort of normalizing a bit. Which logically then can make the manufacturers starting to produce more of the advanced products. And then of course there's still disruptions with the lockdowns in China and the war and so forth. But still the logic here says that, and also what we hear from manufacturers is that they tend more focus on producing more advanced products, which of course is good for us all I think.

Okay, that makes sense. Has this been a supply uh problem for you with a higher margin and advanced products rather than a demand problem it's not that demand is lower than before it's just that you haven't been able to supply those products rather the opposite i would say i mean the demand is there and then it's a supply issue yeah i see okay excellent my final question is around the leverage here it's a bit above the target range and soon we are coming to dividend season for you where you target a pretty high payout ratio as usual. How should we think about the leverage and also your capability to do acquisitions ahead? You have a tradition to do lots of bolt-ons, how should we think about that?

I think the cash generation is still very good and then we see some Fluctuations, of course, become obvious when you look at working capital effects on the leverage number. We don't see any change in the cash generation ability. And by that, the model that we have used for the last six, seven years with the fact of dividend and the leverage has worked and served us well. And we believe that will continue. Obviously, with the integration of such a big entity as the central point, organization and some of the companies that we acquired three years ago with that work ongoing i think we will be a little bit restrictive in adding further acquisitions in in any of the regions actually in the near coming future so i mean if there is a good opportunity we see it we might consider it but i think it would be relatively restricted okay that's more of a management thing rather than the financial position in your view yeah it's clearly a management thing because we need to focus on the integration and the launch of smb in the banner like that is of utmost importance for our yesterday's future development yeah it is i mean the whole idea for us exporting us to our exporting ourselves to the new market is to to export our SMB online model, because as you've seen before, our playbook has been to move to another country by acquiring typically an LCD tray, because that is what is available, apart from the bolt-ons that we can provide from the service part. So the focus on that is, of course, to continue to build up the SMB online model alongside growing at the peak. The reason for us exporting is to build up the SMB online model.

Excellent. Thank you very much. Thank you.

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

Okay, good morning. A few questions here. First of all, continuing on this product mix question, can you explain the TC Mobile phone mix, how much that part contributed to your sales in Q3 in the S&B segment compared to Q3 last year? So we get an understanding of the magnitude of the advanced versus more standard PC mobile phone mix.

Yeah, you could say that about, I mean, two thirds are related to PCs and accessories to PCs and mobile phones in the product mix. And that has changed in, let's say, I think double digit numbers in change of share. And that in combination, actually, it is a combination of higher share of PCs and mobile phones, but also, let's say, prioritization from the manufacturers to give products to more larger customers. That means either larger public institutions or larger corporates. And obviously these customers might not be the ones that we have the highest margin on. So in combination with more PCs and mobile phones, it's also sales to less profitable customers, particularly in this quarter. That affects the overall margin in that combination. Then that happens also in SMB. As you could see, we commented a bit on that the larger customers in SMB also performed better this quarter, and that is also an effect of HP and Dell and Lenovo wanting to give their most important customers a share of what they produce.

Okay, so 2000s are roughly with pc access to mobile phones normally and now it's is it 75 it's a little bit less normally and now it's a little bit more okay but you get the impression that it's a significant mix change that you have seen year on year but it's basically 10 percentage points roughly yeah yes exactly yes okay okay got it And when do you expect this to normalize? Are you in the hands of the OEM side and supply? So you just deliver what is coming in? Or what do you see in terms of demand and your order book? So when this could normalize, what do you expect?

I think I mean following also what you commented on Daniel's question there it's also that we see a normalization of PCs coming from that there are more pieces available in the world in such which of course is good I said because then the demand for pieces is still there but there's more supply which can in turn make the manufacturers produce more of advanced hardware In turn, it's good for our product, of course, because we have a strong demand in it, but still there has been a scarce supply there on more advanced hardware. So we see a normalized market, and that can come from several effects, of course, given how the consumer end of the market, that affects us not so much, as you know, given our small portion of consumer sales. But let's see how the demand develops on that, given inflation, given interest rates and so on. But there's still, and that can sort of provide more supplies of standard hardware to the market in general, and especially to B2B. So we have, it's good for us that the supplies on the basic and standard hardware is coming more to a normal position. even though we have benefited of course a lot from the growth of that given that we can take on large empties or large quantities of that.

How is this impacting the price situation in the market in order creating for example you mentioned that you were supported by price increases but if you have more supply it typically leads to a bit so less favorable situation for companies may be having access already earlier.

Yeah I think you should count between three and five percent of price increases in the quarter now but and that of course that is very interesting for everyone I think to see how that will continue to develop given that if there comes more supply then typically uh as the police when we went to school but then that typically puts down the prices so that should happen here as well um but that's as you know it's it has some effect for us but typically we can on a general level on a high level we can there's a flow through our pricing from from us towards our customers so we are not that much affected of changes in pricing given that the the prices in our product is fairly standardized

Do you see any price pressure in the market, increased competition in the Nordic region and in the Netherlands?

No, not really price pressure yet. We don't. But I think we are moving faster than we did many years ago when it comes to movements in market and how inflation rates develop and pricing price develops. So we keep a close eye on that. But so far, no.

All right, thanks. And maybe two more, if I may. It's about the F&B segment margin. I think a year ago or so, you moved the NCRS LCP sales from that segment to the F&B segment, and also the central function cost, and that supported the margin. But now the margin is unchanged year to year, and the central function cost is up. So how does that work? Come again. Didn't you move from only being reported in the SMB segment? You split that revenue stream into the SMB part and the SMB part. And also moved the central function cost to central function cost. And that had a positive effect on the SMB margin. and increase the central functions cost but we really can't see any positive margin effects from this at this point so just wondering if you can explain this if this still is impacting that can be modern positively or if it's neutral or wash well i mean the move the move to from segment cost to central cost obviously has a positive effect on segment margin

The customer moves is a little bit more, let's say, depending on the quarter, how it affects. So you can see that we wrote in the report that it has a negative effect with 0.1% this quarter on SMB, which means that the effect of the customer moves was bigger than negative 0.1, because the cost move is always positive.

Okay. And my final one is about the seasonality in your margins. If you can say something about that, how you should think about Q4 and the coming Q1, Q2.

Yeah, previously, if you would go back in history, you would see that Q4 had a lower margin in Dustin because the LCP share was stronger during Q4. uh because of the rollouts in lcp this i think has changed a little bit now because we've had such a strong quarters on lcp in q2 and q3 so i would assume that that mix is not as or the seasonality is not as strong as we've seen historically coming from let's say lcp increasing in share during q4 I think it would be a little bit less than the normal. There is still a seasonality towards more LCP during the summer, but I think that difference will be smaller this year compared to other years. Got it. Thanks. Thank you.

And we have one final question from Claes Engelsson from Rodea. Please go ahead.

Thank you. Good morning and thank you for taking my questions. Most answered already. Just a quick follow-up on the order backlog. Since you're saying it's increasing 2.5 billion, I guess that's on a year-on-year basis. But could you maybe give us some flavor on the quarter-over-quarter development from Q3 to Q2? I think we have seen a

stabilization of the backlog in the last, I would say, one to two quarters. It's clearly above last year, but we don't see the expansion of the backlog as obvious as we did in, let's say, two quarters ago, where it was really growing. And I think that has to do with what Thomas said before, that the market is getting more and more comfortable with the fact of supply of, let's say, standard hardware is getting better and better and then you don't have to order stuff for let's say next calendar year already now so you can relax a little bit. But if you take the last three quarters I would say the backlog is give or take the same quarter by quarter.

Okay that's very good. Could you maybe help us also kind of understand what's the absolute level of the order backlog at this point? Two and a half billion.

Okay, so it is two and a half billion in total, that's not the actual increase. Okay, that's very good. No, thank you for me, that was all. Good, thank you very much.

And as there are no further questions, I'll hand it back to the speakers.

Great, thank you very much everyone for listening in, also you on the web call. Please just get back if any more questions during the day. or whenever and we're happy to answer everything there and we continue to work our way forward in the world great thank you very much and have a great day thank you thank you bye