Dustin Group AB (publ)

Welcome to this Q1 presentation. I'm here with, as the speaker said, Julia Lagerqvist, who is our new CFO, but also with Fredrik Setterström, that is head of IR. And I think before we start, maybe you, Julia, could give a short introduction of yourself.

Yes, of course. My name is Julia Lagerqvist. I joined Dustin in mid-December, so still fairly new here. Before Dustin, I worked at Skandestandan, a chicken producer that is also listed here in Stockholm, and I was the CFO for the last four and a half years. After that, I was mostly in FNCG, or fast-moving consumer goods. But now I'm very happy to be here and joining what I hope will be a very exciting journey with Dustin.

Thanks, Julia. And let's then continue and move to slide two, Dustin at a glance. So Dustin is an IT reseller with its base in IT hardware and software products. And as you can see in the graph up to the left, 82% of sales is IT hardware and 18% is software and services. Software and services is becoming a larger share of the total sales and has increased its share of sales by four percentage points in last financial year. Our assortment is primarily sold online and 60% of sales go through our online platform. that 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 a similar share of online sales as in the Nordics later in coming years. We are present in six markets in Europe with our main markets being the Netherlands and Sweden. And as you can see, key customer focus is B2B representing 98% of our sales. Let's move to slide three and the bit of the quarterly result summary. Sales in the quarter was affected by a challenging market with continued and a general cautiousness by the customers in many of our customer groups. Sales in the quarter was 5,793,000,000 or 12.7% below last year. Organically, sales was down 16.2% for the group and 9.3% in SMB and 18.8% in LCP. Sales was affected by the termination of the frame agreement in Denmark and by changing in accounting treatment that affected sales by approximately 9% for Dustin Group. Gross profit at 888 million was down slightly, or 0.6%. while gross margin improved from 13.5% last year to 15.3% this year. A strong product mix with more service and less mobile phones and computers affected margins positively. Software and services share was up from 17% last year to 19.7% this year. Again, we saw the strength of our position as we were able to maintain margins in core categories through price leadership in these challenging times. Adjusted EBITDA at 192 million compared to last year's 201, but with an EBITDA margin up from last year's 3.0% to 3.3%. Items affecting comparability was 17 million as our integration work continued during the quarter. EBIT was at 129 million compared to last year's 138, and cash flow from operating activities ended very positively at 250 million compared to negative 85 million last year. Leverage was at 4.6 compared to 5.0 last year. And if we include the right issue proceeds, leverage was at 2.8, meaning in the range of our financial targets. But we'll come back to that later in the presentation. And obviously one of the highlights in the in the quarter was the rights issue that was carried out successfully and according to plan and generated 1 billion 710 million in net proceeds. I'm also pleased to see that our continued focus on cost has had effect which we will see later in the presentation. Now we move to slide four where Julia will give us some more details on the SMB result. Over to Julia.

Thank you Johan. Yes, looking at the SMB segment the sales landed at 1.7 billion SEK which was 10.4% below last year. The organic growth was minus 9.3%. The continued economic uncertainty affected demand in all markets. There's a lower demand for computer and mobile phones, as these categories are more affected by the economic uncertainty. However, the share of software and service sales increased just above 12%, with a healthy trend for contracted recurring services, combined with the weak sales of hardware. Geographically, the Benelux showed the best sales development. Gross margin developed negatively in the quarter. More price conscious market meant a shift to a weaker product mix with more basic variants of harder products and more campaign volumes. We have kept a strong price discipline, which had a positive impact on gross margin, but also impacted sales. And overall, the lower sales impacted the segment margins negatively due to fairly stable cost base. All in all, the segment margin ended up at 3.6% compared to 5.5% last year. And the segment result ended at 61 million compared to last year's 104 million SEK. If you go to page six, we look at the LCP segment. And the sales was 4.1 billion SEK down 13.6% year-on-year. The expiration of the Danish contract plus one major contract now recognized on the basis affected the growth negatively by 13%. But overall stable underlying demand in both the public sector and the large corporates. From a geographical perspective, sales performance was the strongest in Finland. First, margin developed positively, this driven by a large delivery with high margins and improved customer products with more advanced hardware and services. Not having the expired Danish contract also contributed positively to the margin as that contract had low margins. In addition, we had a sharp increase in take-back, which had a positive impact on margin. Johan will come back to this later in the presentation. So despite the high inflation with pressure on cost, the segment margin ended at 4.0% compared to 3.0% last year. The segment result was 163 million, or 14% above last year's 142 million. Overall, a strong performance by the LCP team in this quarter. On page six, we look at the cost development. And as showed last quarter, a focus on improved efficiency through integrations and cost cutting has led to significant reduction in fees. This work has continued in Q1, and we see an 11% reduction in NFTs compared to last year's Q1. This has had a positive impact on our total cost base, but it's partly offset by inflation and fluctuations in currency. Looking at the SG&A for Q1, we see a 5% decrease versus last year, adjusted for currency fluctuation. This is a continued important focus area for us to make sure that we adjust our cost structure to market conditions. Coming to page six. We look at the networking capital development. And networking capital has included close to 600 million SEK compared to the same quarter last year, and ended at minus 260 million SEK. This is mainly driven by inventory reduction. I will come back to this on the next slide. Also comes receivable and payables decreased, mainly related to lower business volumes. We also have some positive seasonal timing effects. And our long-term target for networking capital is to be around minus 100 million. If you look at page 8, you have an overview of the inventory development. Inventory decreased further in the first quarter compared to the previous quarter and is now 671 million SEK lower than the same period last year. The reduction is mainly driven by our lower customer-specific inventory, which is at the lowest level in nine quarters, as the supply situation is now fully recovered after COVID. This inventory level is made possible by active collaboration with customer and partners benefiting from our strong position in the market. We also continue to benefit from improvements done to our procurement processes, mainly in the Benelux region. And with this targeted work, inventory is now at a balanced and normalized level where we target to be for the coming quarters. Moving on to cash flow and capex on slide nine and summarizing what we covered in the previous slide. We see that the cash flow for the period was 129 million SEK compared to 218 million SEK last year. Looking at the details, we see that the cash flow from operating activities before change in the trading capital was 108 million SEK compared to last year's 150 million. The negative development is mainly due to the increased interest rates. Cash flow from the change in the trading capital was 142 million SEK compared to last year's negative 135 million. mainly affected by the lower inventory as previously shown. This gives a total cash flow from operating activities of 250 million second a quarter, so an overall strong cash flow. Cash flow from investing activities was 70 million compared to 51 million last year. More on this in just a few seconds. The cash flow from financing activities was negative 51 million compared to plus 353 million last year. However, last year's positive effect is mainly related to new loans raised at a total of 400 million SEK. If you move on to CapEx, the total investment in the quarter was 119 million SEK, of which I said 70 million SEK affected cash flow. And the majority of the 70 million was CapEx related to IT development, including the new IT platform, which will be key for our future operational efficiency. Investment in tangible and intangible assets was 40 million this year, which 30 million was affecting cash the non-cash items are mainly release contracts for opposition cars and investments in related to services was 24 million compared to 7 million last year this is mainly linked to harmonization of data centers and with that i would like to hand back the word to you what

Thanks a lot, Julia. And let's move on to slide 10. And it's really encouraging to see that we, in the quarter, both improved the working capital and successfully carried out the rights issue, which took us to a leverage of 2.8 times EBITDA, including the proceeds of the rights issue, which is then in the frame of our financial targets of two to three. In the quarter, the debt was reduced by 350 million by the improved net growing capital and positive effects from the stronger Swedish corona. At the same time, the rights issue brought net proceeds of 1,710,000,000. After the rights issue, that took net debt down to 2,734,000,000. This means that we can now put full focus on implementing our strategic plan and continue to realize synergies, improve our offerings, and continue the expansions in our markets. This also makes us prepared to use our position and grow as the market gradually will improve during 2024. In terms of leverage, we will continue to use our cash flow, reduce leverage to be prepared for further expansion. Moving on to slide 11. And as we mentioned on the previous slide, We are now done with the majority of work in reducing debt and can focus on other parts of the strategy, namely margin and growth. When it comes to margin, the cost focus will remain, as Julia mentioned, and the synergy extraction can bring further efficiency gains. Further to that, the addition of service to the hardware offering and sales is continuing to show good effects, and we can see that in the quarter by the strong development of take-back. This, in combination with using our position to maintain and improve margins on hardware, will bring possibilities on margin in the future. Moving to growth. Growth target is still in line, and the ambition of growth is still in line with our financial targets. That means 8% growth in SMB and 5% in LCP. This will come from continued improved offerings with hardware, software, and services. will also come from a broadening of the customer base, both in the Nordics, but also in the Benelux. Further to that, we will continue to invest in the future, Dustin, through the transformative steps taken with harmonization of brand, culture, ERP systems, and customer offerings. This will form the basis for successful growth and margin development as our journey continues. If we move to slide 12, we can there see One of the successes of the quarter, I would say, on the margin improvement activity we have in our long-term plan is an increase of take-back services. And as you can see in the graph, the volume from take-back improved by almost 100% in Q1. This was possible by a strong demand from our customers, but also due to improvements in internal processes in both our take-back centers in Sweden and the Netherlands. The potential here is great and our ambition is to sell refurbished products to our customers preferably online but also offer other circular offerings that could add value to our customers. In this area we see good help from our LCP segment that through customer requirements can help develop offerings also with the SMB market. This is clearly an area that we increase in importance in the coming years and that has the potential to make us more relevant towards our customers and improve margins. We then move to slide 13 and a short summary of the first quarter. So as we are summarizing Q1, we can see that the markets have continued to be challenging primarily on the SMB side. The expired Danish contract and the change in encountered treatment has further affected sales negatively in LCP and in total sales declined by 12.7%. Gross margin on the other hand was strong in the quarter and mainly through a strong product mix and some larger rollouts with good margin, strong price discipline and a reduction of low margin customer deals added to the positive gross margin. In total this result resulted in an adjusted EBITDA of 192 million and an EBITDA margin of 3.3% up from 3.0% last year. This was a result of the good gross margin, but also, as we heard before, a result of our cost focus. Through the reduction of working capital, we also saw good development of the quarterly cash flow. And you heard about the positive operating working cash flow. Further to that, the oversubscribed rice issue generated 1.7 billion of cash, which reduced the debt and moved leverage down to 2.8, which is in the range of our financial target. As the markets are still weak, the cost focus remains, and despite the inflation and weakening of the Swedish krona, cost remains at last year's levels. This puts us in a good position. when, as we forecast, the market will gradually improve during the first half of 2024. And with that, I think we conclude the formal part of the presentation and open up for questions. Operator.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Jesper Stujimo from Handelsbanken. Please go ahead. Jesper Stujimo, Handelsbanken, your line is now unmuted. Please go ahead.

Hello and thank you for taking my question. Can you hear me? Yes, perfect. Yes, thank you. Could you please comment on the progress from the one dusting program, the progress here and the priorities for this year and the improved margins that we saw? Was this mainly related to the synergy extractions here or more of a mix effect? And could you please explain and the different parts here if it was more related to the mix or to the improvements in the synergies. Thank you.

Yeah I think it's a combination in the quarter where we saw a few really good customer deals or rollouts with the high share of services included in them and that brings the margin up primarily in the LCP side and you can see that in the segment margin of LCP And we are, there is in the presentation a slide on where we look at headcount today and a year ago. And part of that reduction of the headcount is because we are putting organizations together and capture the synergies of primarily, I would say, the Benelux acquisitions. So it's a combination of the two.

Okay, thank you. And could you also comment some on the takebacks? The traction here looked very good. But how much from this was the margin improvements? How much was from the takebacks and what potential margin improvements do you see from this in the coming year?

I think take back is very encouraging because it's really a customer driven offering because customers like us to help them with the sustainability challenges that they have. Currently, we are on, I would say, relatively the beginning of this journey so that the numbers are not huge and they will improve gradually as time goes because the demand is there. The effect on the financial result is, I would say, is there, but is limited due to the fact that we're in the beginning of the sales of this product or service.

Okay, thank you. I'll jump back in line.

Okay. As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Conclude the quarter one result presentation from Dusty Group. Thanks a lot for joining and wish you all a great day. Thank you very much.