Dustin Group AB (publ)

Good morning, everyone, and welcome to this Q3 presentation from Dustin Group. My name is Johan Karlsson. I'm the CEO. With me here in the room, I also have Alexandra Fischt, who is the COO of Dustin. She will help us to better understand the work we do with networking capital and investments later on in the presentation. Also in the room is Fredrik Setterström, head of IR. Let's move to slide two and kick off the presentation with a short introduction to Dustin. Dustin is an IT reseller with its base in IT hardware and software products. As you can see in the graph up to the left, 86% of sales is IT hardware and 14% is software and services. Our assortment is primarily sold online. 60% of sales go through our online platform. The share in the Nordics is about 80% and in the Benelux 50%. As you know, we have recently launched our online sales model in the Benelux and the aim is to move to similar share as in the Nordics when it comes to online sales. We're present in six markets in Europe with our main markets being Netherlands and Sweden. And as you can see, our key customer focus is B2B representing 98% of sales. With that said, let's move to Q3 summary on slide three. In the quarter, we see some areas with really strong performance and others where we have challenges. We have in the quarter continued to develop Dustin in accordance with the plan that we shared with you in our capital market update earlier this year. I'm particularly proud of the team as we have in a challenging market been able to develop our business and improve gross margins and at the same time reduce networking capital back towards the targeted levels. The low demand in all our market is continuing to affect net sales. Net sales for the quarter was 5 billion, 582 million or 5.3% below last year. The organic growth was negative 9.4%. And as before, we see stronger performance in LCP than in SMB. LCP's organic growth was negative 5.5 and SMB was negative 17.4. During the quarter, we've been able to improve our gross margin, mainly due to strong pricing discipline in SMB and due to facing out of low margin contracts in LCP. But more about that later when we talk about the segments. In total, gross margin was up from 14.3% last year to 15.3% this year, and gross profit was up from 842 to 857 million. adjusted EBITDA at 169 compared to 201 million last year, resulting in an adjusted EBITDA margin of 3.0% compared to last year's 3.4%. Items affecting comparability was 25 million, mainly attributed to the integration of former Central Point and Vichiero Group in the NED Labs. EBIT was 97 million compared to last year's 140 and EPS was down from 0.75 to 0.21 for the quarter. Cash flow from operating activity was strong coming from the reduction of working capital and came in at 431 million positive compared to last year's negative 277 million. Leverage at 4.5 was above the company target of two to three. If we look at some of the operational highlights of the quarter, we can note that the new management team now has been formed by the recruitment of Jenny Ring, who will be the EVP for People, Culture and Sustainability, who already started, and by Julia Lagerqvist, who will take over as CFO in December. Further to that, we have expanded our financing facility with one year, now expiring in October 2025. The synergy extraction is moving according to plan, And for the SMB launch in the Netherlands, we now see 500 new online SMB customers coming in every month. A really good success there for the online team in the Benelux. So then move to some more detailed numbers on SMB on slide four. So sales in the SMB segment was 1,654,000,000 or 16.2% below last year, where the organic growth was negative 17.4%. The economic uncertainty continues to affect the demand in the market. This is especially true for small and medium sized customers. In the quarter, we have seen no difference between size of the B2B customers and the demand. However, for consumers, sales is stable on last year's level. In the quarter, we have seen lower sales of computers and mobile phones, as these categories are more affected by the economic uncertainty. Service chair, of sales continues to be around 12%, but the mix is moving towards services rather than software. The standardized managed services launched in the Nordics continues to deliver double digit growth. Gross margin develops positively in the quarter, mainly due to a strong product mix with less computers and mobile phones combined with strong price discipline in a price conscious market. Inflation puts pressure on the cost base and due to the shortage in sales, The cost base burdens the segment margin that ends up at 3.9% compared to 5.5% last year. Total segment result ends at 65 million compared to last year's 109 million. We then move to slide five and LCP. So sales in the LCP segment was 3,928,000,000 in line with last year. The organic growth was negative 5.5%. The expiration of the Danish contract affected the growth by 8% in the segment. The public customers group continues to perform well in all markets while the corporate sales slowed down somewhat in this quarter. Availability of all hardware categories is now back to normal. And from a geographical perspective, sales was strongest in the Netherlands, Finland, and Belgium. Gross margin developed positively coming from a stronger product mix with more advanced hardware and less computers sold. Further to that, less volumes in low margin public contracts improved the gross margin. Positive to gross margin was also the continued good development of private label sales. Now the strong sales is coming from the launch of our private label products in the Benelux. Despite the high inflation with pressure on cost, segment margin developed positively and ended at 3.6% compared to last year's 3.0. Segment result was 141 million, up 18% above last year. A very strong performance by the LCP team in this quarter. I will now hand over to Alexandra Fisht who will take us through the development of networking capital starting on slide six.

Thank you, Johan. Our networking capital is improving towards our target range of negative 100 million to negative 200 million. And we are closing the quarter on minus 22 million SEK versus last year plus four. And this is an improvement from Q2 with 228 million and an improvement of 336 million versus Q1. On total inventory, we decreased with 439 million SEK versus last year to a level of 1,031 million SEK. And the decrease is to the larger part related to customer specific inventory. And I'll come back to some more details on this on the next slide. Accounts receivable increased by 348 million SEK compared to last year, mainly related to higher business volumes at the end of the quarter. Accounts payable is lower than last quarter, mainly due to lower purchase volumes as a result of the decrease in inventory and lower business volumes overall. Moving on to slide seven. Let's look at some details on the inventory levels. Inventory decreased by approximately 190 million SEK in the third quarter compared to the second quarter, and as stated, 439 million from last year's Q3. We find a decrease in all parts of our inventory, but mostly in our customer-specific one. The core inventory, which is mainly attributable to our online sales, decreased slightly versus the second quarter and also compared to a year ago. This is due to, amongst others, optimized stock keeping and procurement of selected product categories. Inventory of private label products decreased slightly compared to the second quarter, but increased by 37 million year on year due to the successful launch in the Benelux. Customer specific inventory decreased the most by approximately 150 million compared to the second quarter. This inventory level of 1,031 million and its decrease is made possible by active collaboration with customers and partners benefiting from Dustin's strong position in the market that Johan talked about initially. We also benefit from the changes done to our procurement processes and foremost in the Benelux region. With this, we conclude a quarter where total inventory already is below the year-end targeted level of 1,100 million SEK. We aim to stay around this level for coming quarters and feel comfortable in this by our procurement changes implemented and a strong focus on inventory levels. Handing back to you, Johan.

Thank you, Alexandra. I think it's really good work from the team here to deliver on our target when it comes to inventory levels. If we now move to cash flow, cash flow for the period was 323 million compared to negative 380 million last year. Looking at the details, we see that cash flow from operating activities before changing networking capital was 142 compared to last year's 184, mainly attributed to the lower business result. And cash flow from changing networking capital was positive 289 million compared to last year's negative 461, mainly affected by the lower inventory level, as Alexandra was previously explaining, and the better cash from change in accounts payables. Cash flow from investing activities was 58 million compared to 52 last year, where the majority comes from the project of implementing the new IT platform. And cash flow from financing activities was negative 50 compared to negative 51 last year, where the majority is the amortization of lease debt. Let's then move and look at investments. So total investment in the quarter was 120 million compared to 68 last year. However, the cash investment was 58 million this quarter. The majority of the 58 million was capex related to IT development, which increased slightly from 41 million last year to 45 million this year. Investment in tangible and intangible assets was 52 million this year compared to 10 last year. Of the 52, only 13 was affecting cash. This year, this should be compared to five last year. The non-cash item is mainly lease contracts for offices and cars. Investment related to services was 23 million compared to 17 last year, and it's mainly attributed to the harmonization of data centers. But then move to net debt. The net debt increased slightly in the quarter from previous quarter and from last year. Net debt is up from 4 billion 450 million to 4 billion 613 million, mainly due to currency fluctuations. Leverage was at 4.5 up from 4.4 in last quarter. where currency affected the 4.5 number with 0.2 compared to the previous quarter. If you then move to slide 9. On this slide, we're trying to give you an update of our short-term actions and priorities. At the top, you can see the priorities where deleverage is our top priority short-term. However, margin and growth are, of course, remaining on our priorities. Deleverage You have heard us talk about the reduction of networking capital and the positive effect that will have on leverage. We still have some way to go, but the job with inventory is starting to give results. We're also negotiating better terms with our suppliers, and part of that will be seen in improved payables that will take us to the target networking capital of negative 100 to 200 million. Important to leverage is, of course, also the business result, here represented by margin and growth. If you move to the middle box margin, we are short term working hard with cost initiatives in order to improve margins. This is a key component in the integration synergies in the Benelux. Further to that, the work with both private label and take back is improving margins. Due to the market sentiment, we're also including the price discipline as a key component. In times with low demand, there is always price pressure. But here we need to use our strong position in the market and act to preserve margins. Then move to the growth box, where we still remain with our ambition from the financial targets over time. However, with current market conditions, this is hard to meet, but we remain active and already when the market turns. With the market data we have currently, we believe this to be at the end of this calendar year. important is that we continue to invest for the future. We do that under the umbrella of one. We spend time working with our culture so that every member of the Dustin team understands the culture and how we work together. We spend time on harmonizing the way we work in order to scale and drive down costs. We have also moved to one brand and we are now using this and make harmonized branding campaigns in all our markets. Further to that, We work on our IT platform. Alexandra will now go through some of the key activities in this area.