Dustin Group AB (publ)

Good morning everyone and welcome to this Q4 presentation from Dustin Group. So my name is Johan Karlsson, I'm the CEO and with me in the room is also Alexandra Furst who is the COO of Dustin and she will help us to better understand the segment results and how we work with inventory and working capital. Also in the room is Fredrik Setterström, head of IR. Let's move to slide two and Dustin, in summary, just to make a brief update on Dustin. So Dustin is an IT reseller with a base in IT hardware and software products. And as you can see in the graph, up to 82% is IT hardware and 18% is software and services. Software and services increased its share during last year by 4 percentage points. Our assortment is primarily sold online and 60% of sales go through the online platform. The share in the Nordics is about 80%, and in the Benelux, the share is lower. And as you know, we have recently launched our online sales model in the Benelux, and the aim is that we move to similar share in the Benelux as in the Nordics when it comes to online sales. We are represented in six markets in Europe, with our main markets being the 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 slide three. As you probably have seen, we today announced our intention to do a rights issue in Dustin with foreseeable 1,750,000,000. We will talk more about that and the quarterly result in this presentation. But let's kick off with the quarterly result.

Sales in the quarter was affected in many of our customer groups. Sales in the quarter was $5,088,011.4 million. below last year. In S&P, organic growth was negative 11.8%, and in S&P, negative 18.9%. LCP was affected by the trend and by changing count and treatment effective sales by approximately 80%. Gross profit at $745 million. was down 9%. However, gross margin can improve from 14.2% last year to 14.6%. A strong product mix with more service and less mobile. It's also important to see that our position in the most important markets and that our price leadership gives us the possibility to maintain markets also in challenging times. Adjusted EBITDA ended at 142 million in the quarter compared to last year's 200 million. items affecting comparability was 20 million, and these are mainly costs related to the integration of previous required tentatives.

EBIT was 75 million compared to last year's 147, and cash flow from operating activities ended at 23 million compared to last year's 104. Leverage at the end of the quarter was 5.0, but more about that later in the presentation. Some other highlights in the quarter was we, during the quarter, as previously announced, expanded the credit facility by one year to 2025. good to see that our continued focus on costs start to happen, which we will also see later in this presentation.

Now, let's move to S&P and the numbers in some more detail with David's contract. Thank you, Juan. Starting with S&P on slide four. Sales to the S&P segment was 1,459,000,000 in the quarter and 1029% below last year. The organic growth was negative 11.8%. The general economic uncertainty continues to affect the market and within most customer groups. For consumer sales, we see a positive The lower demand in the market is primarily related to computers and mobile phones. in the Nordics and with weak hardware sales. The standardized managed service continues to grow in the Nordics, and recurrent services are showing more stable demand from our customers in this quarter's market. We have a fairly stable gross margin in the quarter, mainly due to good product mix with less computers and mobile phones. Combined with strong price discipline, price-conscious market, and the margin contribution from growth. Cost base has been lowered to reflect the cautious market, but inflation puts pressure on the cost base. and due to the drop in sales volume, the cost base temporarily burdens the segment margin. That ends up at 4.4% compared to 4.7% last year. Total segment result ends at 64 million,

And I will come back with some more details on cost later on in the presentation. Despite this, a good performance by our SMB segment in the quarter, showing stable gross margins. Moving over to LCP in slide five. Sales in LCP was 3,629,000,000, and a decline from last year's 4,105,000,000, and hence a negative growth of 11.6. The organic growth was negative 18.9, but adjusted for the terminated Danish framework agreement and a major contract where net accounting has now been applied, organic growth was around negative 8%. The public customer group showed stable demand in general, while demand from corporates was somewhat cautious in the market affecting organic growth.

Geographically, organic growth was positive in Finland, Norway, We see a positive growth margin development due to better customer product mix with an increased proportion of more advanced hardware and a lower proportion of standard hardware. A robust increase in And the expired framework agreement with Danish fee. That's the second. market, however, the lower volumes together with the generally higher inflation-driven cost levels have had a negative impact on the segment margin, and leaving segment results with 104 million for the quarter versus 148 million last year. And the segment margin decreased 0.9% from last year's 3.1%. Now, moving on to some more details on cost . paid off in decreased costs for the quarter. In the quarter, we have, amongst others, outsourced parts of our markup functions. We have continued to transform our and we are scaling on common competencies when harmonizing ways of working. These activities are partly counteracted by inflation and fluctuations in currency, but looking And adjusted for currency fluctuations, a decrease of 8%. Average full-time equivalents amounted to 2,252 in the quarter and corresponds to a decrease of 9%, or 227 FTEs, versus last year.

We ended the year with 2,214 FTEs.

And we also end the year with a more solid cost base to both run our business from as well as execute our strategy from. But cost consciousness and synergy captures continue to be a focus onwards. Moving on to networking capital on slide seven. Our networking capital is continuously improving towards a normalized level for our business of around negative 100 million.

And we are closing the quarter on negative 36. versus last year's positive $80 million. On total inventory, we decreased by $353 million versus last year's to a level of $987 million. And the decreases to the larger part related to customer-specific inventory. I'll come back to some more details on inventory on the next slide. Accounts receivable decreases 476 million set compared to last year, mainly related to lower business values at the end of the quarter. Account stable is lower with 780 million set versus last year. purchase volumes as a result of the decrease in inventory and lower business volumes overall. Moving on to slide eight. compared to the third quarter. We are well below the targeted level of 1,100,000,000 by year end. which is mainly attributable to our SMB segment, decreased versus the third quarter, and slightly also compared to year end last year. with focus on optimized housekeeping and procurement of selected product categories, such as PCs and phones. In terms of our private labor product, we could slightly compare to the third quarter but was unchanged year on year. The increased sales volumes for private label drives higher inventory, so it is mitigated by our move of some production to Europe with shorter lead times.

Customer-specific inventory increases compared to the third quarter, but year on year we see a decrease of 354 million SEK. The inventory level of 987 million and its stabilization to this level is made possible by active collaboration with our customers and partners benefiting from our strong position in the market. We also continue to benefit from changes done to our procurement processes, foremost in the Benelux region. And with this, we conclude a quarter and year end where total inventory is below the year end targeted level.

And we aim in the future to stay around one billion second inventory for the coming quarters and feel comfortable in this target by having implemented our procurement processes for the group and use in a strong position in the market. cash flow and investments and the cash flow for the quarter was negative 160 million compared to last year's 8 million positive looking at the D This is before the change in operating capital was $164 million compared to last year's $212 million. The reduction is mainly coming from a lower ETA and higher ETA. As you heard before, we saw good progress in the reduction mainly due to the lower business activity and the reduction in inventory. 8 million, up from 45 last year, where the main difference is the development work done on the common IT platform. And cash flow from financing activities was negative 71 million. compared to negative 51 last year, mainly attributed to the repayment. With that in mind, the investment in the quarter was 91 million, or 25 million a of last year. Out of 91 million, 68 affected cash. Cash related to IT development was 64 million, up from 35 million last year, as we are focusing

our work on the commonality platform. Investments in tangible and intangible assets was 26 million up from 20 million last year. And finally, investment in assets related to service provision was 11 million at the same level as last year, and this is mainly related to the consolidation of data centers in the Benelux region. Let's move to slide 10 and the rights issue. As announced this morning, it's our intention to propose a fully guaranteed rights issue of 1,750,000,000. The rights issue is fully covered by a combination of subscription undertakings and guarantee commitments by Axel Jonsson.

This is the two, to the right you can see on this slide, you can see the overall time of the rights issue. Just to mention, due to the completion of November 7th, and there will be a DGM in the last group on The of the rights issue are intended to be used to secure to use that in order to support the implementation The rights issue would ensure the extraction of synergies from previous acquisitions and make further improvements and improvements possible. continued expansion in Europe. The right-side tissue will decrease the leverage from end of Q4 for 5.0 to approximately 3.2 on a pro forma basis. And it will give us the opportunity to, with our strong operative cash flow, work towards our leverage target of two to three times. Moving on to slide 12, and more about the rises. issue there. As a result of the rights issue and the lower debt, we will be able to also focus on business operations and strategy implementation to improve margins and growth. The first step on the journey has been to the leverage coming from the change that we've made in the world of capital management and from the right issue. And this is where we can now put more focus.

Looking in the margin area, business result, we will continue to maintain the cost focus when it comes to synergy extraction and on the OPEX side. but also in private label and procurement efficiency in the BenLux we see possibilities to expand. Another area for margin expansion is take back where we now put all our local organizations into one global with the aim of increasing sales and efficiency. Moving to growth where we remain with our ambition from our financial target. This means we need to strengthen the customer offerings and grow the customer base. We have to continue to develop our offering portfolio to support future growth in those segments.

All in all, with the right issues, the focus will be more balanced between the deleveraged work and the implementation of our business strategies. Moving on to slide 13 and a short summary of the full year 2022-2023. As you know, we can just find the financial year 2022-2023. In summary, you must say that it's been a complex year to manage. It's been a very cautious market affecting the sales. Organic growth was negative 5%, whereas the deal from 979 last year to 724 22, 23, as cost was affected by high inflation. If the market was down from 5, to 3.1%, mainly as a result of the lower volumes. EPS at 1.54 was down from previous year, Of course, this cash flow from operating activities that was up from $534 million to $619 million. And as we talked about before, leverage at the end of the year was 5.0%. We end a challenging year, but we have done activities and we have activities in place to secure

that we can implement our strategy and remain momentum in the business in the year to come. And with that, we conclude the presentation and we open up for questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Daniel Thorson from ABG Sundal Collier.

Please go ahead. Yes. Good morning, Johan and Alexandra. Frederick as well. I start off with a question on S&P here. I previously have said that S&P weakness typically lasts the two to three quarters. And now you mentioned IDC's forecast on return to growth in H1. 24, which seems highly speculative in my view at least. But how do you see the near-term organic growth development for SMB specifically? Should we expect to see improved numbers or is there still too much weakness out there in the market for coming quarters? I don't see any big... change there. Obviously, the quotes will get worse as we move along, so in percentage, it will start to look better after the new year. And we, as you said, we are looking at the market institute numbers that first of year will start to improve. Okay, I see. And then a question on LCP. You hear, I guess, that the Danish contract in the last year had the lower margins. than the segment as a whole, which means that the margin mix should be favorable this year. Is it true to assume that the underlying margin decline year over year in LCP is even larger than what we actually see in the numbers? Is that true?

But there is a mix, of course, of margin in new and old contracts. But if you only take the Danish contract, by not prolonging that one, we have improved the margin in FCP, for sure.

Yeah, I see. And then my final question is on the leverage here. Now you conduct the rights issue. But I mean, the leverage increased quite a lot here in only three months. But I still wonder what was the key trigger for announcing the rights issue? Was it forced by the banks or a decision by the board because net financial increased to an unsustainable level? Or what was kind of the key trigger here?

It was a decision by the board, and I think triggered by the fact that we have a hard time to predict when the market will turn, and we need to change focus from We want to be there and capture the shares that we can have. And this was the strategy that actually made that happen. I see. Thank you very much. Thanks, Ivan. Please go ahead. Hi, it's Daniel Huber here from Handelsbanken. Good morning, Johan, Alexander, Patrick. my question is a little bit on starting with you did have done a good job on inventories falling back But it seems that you are a little bit of a squeeze between DSO and DPO. one time impact here on the accounts payable or is it that we will see this to continue to squeeze continue this way here in the year. Thank you. I don't think it's a trend that we ever squeezed in the tool.

when we are reducing inventory and in particular in Q4 where you have a lot of customer sales in August after summer. So that timing is not ideal for the relationship between receivables and payables. So I think it's a Q4 issue rather than, you know, continuing issue.

Okay, perfect. And if I may, on the mix outlook, if you can give us any comments on the order backlog and especially LCP in terms of mix and impact on gross margins, etc. The backlog is not any different

In terms of more I think we are doing a good job on both take back and private label in SAP. how many new contracts we take in depending on how the sales growth will look like it will affect the margin And in the region. of the contractors. Depending on how fast we grow, it will have an effect on gross margin in S&P. Okay and finally from me on, you mentioned the cost base and obviously inflationary impact there. when should we expect the ease from this pressure to be an analyzed effect for this new Is it next year or is it before that? I think this is a continuous inflation pressure in the last 12 months. And as you saw from the presentation, we have taken a lot of measures to reduce the total cost by reducing FTEs.

Inflation pressure I think will go down. I mean gradually goes down in society. We will still have some salary inflation coming from slightly higher salary increases than I think it's over time average. But I think we will come back to normal levels during next year.

Perfect. Yeah, that was all for me. Thanks. Good luck. Thanks.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad.

this time so I hand the conference back to the speakers for any closing comments thank you very much everyone for attending