Dustin Group AB (publ)

Good morning, everyone, and a warm welcome to this Q2 presentation from Dustin Group. And as the speaker said, I am here today together with Julia Lagerqvist, our CFO, but also Fredrik Setterström, head of IR. Let's kick this off by looking at a bit of Dustin at a glance. Dustin, as you know, is an IT reseller with its base in IT hardware and software products. And as you can see in the graph, up to 82% Sales is IT hardware and 18% is software and services. Software and services is becoming a larger share of the total sales and increased its share of sales by 4 percentage points in the last financial year. Our assortment is primarily sold online and 60% of sales go through the online platform. That share in the Nordics is about 80%. 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 as in the Nordics when it comes to online sales. We're present in six markets in Europe, with our main markets being the Netherlands and Sweden. And as you can see, our key customers focus on B2B, representing 98% of the sales. With that said, let's move to slide three and the Q2 result. As in the last three quarters, sales was affected by a weak market with continued general cautiousness by the customers in many of our customer groups. Sales in the quarter was 5,246,000,000 or 16.3% below last year. In SMB, organic growth was negative 12.2 and in LCP negative 18.1. In addition to the challenging market, sales reported on a net basis affecting sales by approximately 5% for the total loss in group. Gross at 856 was down 58 million or 6% while gross margin improved from 14.6 last year to 16.3 this year. A strong product mix with more managed services and less large rollouts of mobile phones and computers affected margins positively. 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. Looking at adjusted EBITDA at 201, that's compared to last year's 212, but with an EBITDA margin up from last year's 3.4 to this year's 3.8%. Items affecting comparability was at 16 million, and it's mainly coming from the integrations of the previously acquired units. EBIT at 142 compared to last year's 157 million. Cash flow from operating activity ended negative 202 million, and this could be compared to last year's positive 250. Julia will come back and explain a bit more on that later on. Leverage was at 3.1. This could be compared to 4.4 last year. And the main effect is, of course, the repayment of that after the rights issue. Some of the highlights for the quarter were that our continued focus on synergies and integration, and that has a positive effect on efficiency and enhanced costs. Further to that, I'm really pleased to see that we continue to invest in the future growth areas, such as online sales in the Benelux. We also continue the investment in our common IT platform. These are key investments for the future growth of Dustin. Now we move to slide four, where Julia will give us some more details on the SMB result.

Thank you, Johan. Happy to be here again for my second quarterly report with Dustin. And as we said on SMB7, the sales landed at 1.6 billion SEK, which was 13.6% below last year. Organic growth was minus 12.2%. The continued economic uncertainty affected the demand in all markets. As in previous quarter, we saw low demand for computers and mobile phones, while the share of software and services increased to close to 14%, with a positive trend for contracted recurring services in the Nordics, combined with weak sales for hardware. This is positive to see that despite the declining sales, the gross margin improved in the quarter. The trend of growing share of services had a positive impact on product mix and hence margin. We have kept a strong price discipline, as Johan said, which also had a positive impact on gross margin. But unfortunately, it also impacted its sales negatively. Our cost saving programs have had a positive impact on overall costs, which I will come back to later in the presentation. But this could not completely offset the decline in sales given the largely fixed cost base. However, with the improved gross margin, the segment almost maintained despite large drop in sales. All in all, the segment margin ended at 4.2% compared to 4.4% last year. And the total segment result ended at 66 million compared to last year's 80 million. Going to page five, we look at the LCP segment. And the sales in LCP was 3.7 billion SEC in the quarter, down 17.5% year-on-year. And the organic growth was 18.1%. This compared to a strong quarter last year, especially in the public sector, where we have large volatility in order placements between the quarters. We also saw somewhat lower demand in existing contracts. Looking at the development in large corporates, it was more stable looking at the gross sales and not sales reported on its basis, according to IRF-SST. And from a geographical perspective, sales performance was the best in Sweden and Norway. Gross Modern, as we said before, developed positively, impacted by improved customer and product mix with a lower share of standard hardware sales. We also saw an increased share of sales reported on net basis according to IFS 16, which also had a positive impact on the Gross Modern in the quarter. In addition, we had a sharp increase in payback, which had a positive impact as well. Johan will come back to this later in the presentation. Cost control was good in the quarter, as noted before, but despite low volumes, the segment margin ended at 4.5% compared to 3.9% last year. And the segment result was 24 million SEK compared to 173 million SEK last year. Coming to page six, we look at our cost development. And our continuous focus on improving efficiency and extracting synergies from integration, together with the cost cutting has led to significant cost reduction versus last year's due to minus 9%. Important drivers, of course, reduction in FDs. We're happy to see that our efforts are taking effect and continue our optimization journey. For example, we're still to capture further synergies from ERP harmonization. But we also want to strike the balance between efficiency program and investing in our journey. Coming to page seven, we look at networking capital development. Lettering capital improved with close to 140 million SEK compared to the same quarter last year, and ended at 90 million SEK in Q2. This was driven mainly by inventory reduction, which was reduced by 320 million SEK compared to the same quarter last year, and is now below 900 million SEK, which is the lowest level in 10 quarters. Inventory is now at a balanced and normalized level, where we target the state for the coming quarters, still able to deliver on our service levels. Both accounts receivable and payable decreased versus last year. It's mainly related to lower business volumes. Looking sequentially compared to Q1, we do see a large increase in net earning capital. This is mainly driven by comparing to a seasonal low quarter, combined with slightly version customer mix related to payment terms. It takes within the quarter with high sales towards then. Our long-term target for net earning capital still remains to be around minus $100 million. Moving then to cash flow and capex on slide 8, I'll summarize what we have covered in the previous slide. The cash flow for the period was minus 245 million SIC compared to minus 19 million SIC last year. Looking at the details, you see that the cash flow from operating activities before the change in net working capital was 165 million SIC compared to last year, 122 million. Improvement is mainly driven by lower paid interest costs and taxes. Cash flow from change in net working capital was minus $367 million compared to last year's positive $120 million. Mainly affected then by the change in receivables in this quarter and timing effects. Last year we saw a lot of positive effect on inventory. Cash flow from investing activities was $58 million compared to $64 million last year. More on this in just a few seconds. Cash flow from financing activities was plus $14 million this quarter compared to minus $205 last year. But last year's negative effect is mainly related to a change in short-term financing. And the positive effect this year is driven by the net effect of the rights issue and the loan repayment. Moving to CapEx, you see that the investment in the quarter was 132 million, of which 58 affected cash flow. And the majority of the 58 million was CapEx related to IT development, mainly the new common IT platform for future operational efficiency. Investment in tangible and intangible assets was 53 million this year, of which only 8 million was affecting cash flow. The non-cash items are mainly lease contracts for opposition parts. The investment in services was 29 million compared to 12 million last year, mainly attributed to the harmonization of data. And with that, I would hand back the word to Johan.

And with that, let's move to slide nine. Thanks, Julia. And slide nine, we will take a look at the take-back, and it's really encouraging to see that our investment in circular offerings is paying off. We're currently on an annual run rate in take-back of approximately one million units, and this number is increasing rapidly. We currently have two take-back centers in the group, one in Växjö for the Nordics, and one in Vision for Benelux. We see an increasing advantage in larger tenders of having an efficient and qualitative take-back offering, with which we are able to win the new customers while at the same time improve margins. Next step on this journey is in circularity will be to start selling used products to our Nordic and Benelux customers. We're now establishing the right setup with our partners in order to get it working. And we believe the public customers and large corporates will lead this work. All in all, we see strong growth and good margins in our circular offerings at the moment. Moving to slide 10. As we talked about in the last quarter, we were taking a big step on our deleverage journey by the rights issue. The work with deleverage continues, but now on a more operational level. Focus during this quarter has been on inventory. And as you heard in the presentation by Julia, inventory levels have continued down. In regards to margin, we have seen a positive development during the quarter. Much of the effects come from a stronger gross margin development with a stronger product mix, but also from higher share of services. As we saw in the last slide, we're making good progress in our take-back service, but also managed services for our small and medium-sized customers are performing well. A strong price discipline, primarily in the SMB segments, further supported the strong growth margin. In addition to that, our efforts to integrate previously active positions and capture synergies continues to give results. All in all, a very strong margin performance in the quarter. In regards to growth, we continue to see a weak market affecting us in many aspects. Further to that, we also saw some fluctuations between the quarters in LCP affecting sales in Q2. However, we're taking a lot of actions in order to be ready when the market turns, and we still believe that we will see positive sign of that during the coming quarters. Then move to a summary of the quarter on slide 11. As we're summarizing the Q2, the markets in Q1 have continued to be challenging. Further to that, sales reported on a net basis has affected sales somewhat negative, and sales declined by 16.3%. Gross margin on the other hand was strong in the quarter, mainly through good product mix and strong price discipline And the reduction of low margin customer deals gross margin came up at a very strong level. In total, this resulted in an adjusted EBIT of 201 million and an EBIT A margin of 3.8% up from 3.4% last year. This was a result of good gross margin, but also as a result of continuing to realize synergies coming from acquisitions and hence reduced costs. Networking capital was slightly higher than our target coming from customer mix, and this hampered somewhat the cash flow generation in the quarter. As the market continues to be slow, the focus is still on realizing cost synergies and increased efficiency to reduce the cost base, while we at the same time continue to invest selectively in areas such as online platforming, BenLux, and the new common IT platform. In regards to future market, we continue to believe that we will see gradual improvements of the market as from the coming quarters. And with this, we conclude the formal presentation and we move to Q&A.

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 Mikael Leysin from Carnegie Investment Bank. Please go ahead.

Okay, good morning. Thank you for taking my question. I have a question on the product mix, and it improved now in Q2, thanks to lower demand for PC mobile phones. how should we think about the mix ahead? Is this a more normal balance than you've had the past couple of years? And do you think you can maintain the current gross margin also in Q3, Q4?

Yeah, thanks for the question, Mikael. I think we are obviously the market pushed down a bit on the sales on mobile phones and computers has kind of instantly a positive effect on margins in this quarter. But sales growth of services is higher than the sales growth of hardware in general terms, which means that the share of services will go up over time. If that is true quarter by quarter all the time, that is hard to estimate. But if you take maybe three, four quarters ahead, that's for sure the trend that we see.

Okay. So... And what about the balance that you have in the hardware side? Is this unusually favorable with lower PC mobile phones and higher, more advanced sales?

I think to be perfectly fair, I think we are on quite a strong mix this quarter that would be really hard to maintain at this level. But the effect it has is, of course, limited. But it is really on the high side at the moment, the gross margin, I would say.

Okay, got it. And a follow up on this mix situation. Can you talk about the managed services sales? How that is performing? And the outlook for that, that area and also the approximate cross margin you have in those revenue streams?

Yeah, I think I mean, we're doing two things at this very moment when it comes to managed services. We are standardizing and harmonizing the offering. So we are moving customers that previously bought, let's say, custom-made service, we move them to our standard service. That means that work is a bit of a risk because you lose some of the customers, which has a negative impact on your sales. At the same time, we have a very strong new sales of our standard products, which affects sales positively. So we're still growing double-digit in this area. For time, obviously, the movement of husband will be done, and then we will see the full effect of the sales increase in this area. Gross margin-wise, I would say we are at double the gross margin compared to hardware.

Okay. All right, thanks. Thank you.

The next question comes from Daniel Thorsen from ABG Sundal Collier. Please go ahead.

Yes, hi. Morning, Johan and Julia. I start off with a question on the netbooking series that had a 5% headwind growth effect on the group level. Just to remind us, was this the last quarter with the year-over-year effect, meaning that you won't have this 5% headwind in the next quarter?

It's hard to say because it depends how we sell stuff. This was just the way we sell affected net accounting or net sales reporting in a slightly higher way this quarter than a year before, but If it does that in the future, we don't know that yet. So it's a really tough question to answer. But I would assume that if you take a little bit longer stance than just one quarter, this will be on a give or take constant level.

Yeah, I would agree. I mean, this is just related to how what we sell, if we sell as an agent or if we sell software. And then it will be done, you know. Today, it depends. It's going forward.

I think if you take a year perspective or a four-quarter rolling, that number will not change that dramatically.

Okay, and then we will see the year-over-year headwind become closer to zero in a year or so. Okay, I see. And then on the SG&A bridge that Julia talked about in the slides here, is that something you can scale when volumes return, or are there any variable costs in there that will come up as well when growth takes off?

We can, of course, scale. I mean, we have, as I said, we have a fairly large fixed cost base in our current cost base. So when the business growth will return, we assume we will improve our margins through that.

And this, I would say, is particularly strong in SMB, where the online engine, as we would call it, is really highly scalable.

Yeah, I see. And then on networking capital, you said that sales in the end of the quarter was stronger and drove the increase in receivables. Is that normally the case in Q2 with more February sales than December, January? Or does it mean that the quarter actually ended on a better sales momentum? How should we think about that?

On some of the larger accounts, it ended on a better basis, let's say, compared to December. So that was the reason why it... I mean, it has... Fluctuations are quite common in this area, so I would not put it as a trend, more as a coincidence, let's say.

Okay, fair enough. And then just the final one, regarding the growth recovery that you talked about in the third bullet strategy slide, Joe, and I think I missed a word or two in there, but you said something around we're confident that growth will come back. Did you say during this year, and was that on the group level, or what did you say? I think we were missing a word.

No, I think our stance at the moment is that we will gradually improve, the margin will gradually improve quarter by quarter. And because there is such a strong underlying momentum in the market coming from AI and Windows 11, and the move from Windows 11. So these two parameters plus the fact that the fleet of IT equipment in the companies currently is over aged. Companies need to start exchanging. So I think these three underlying factors are driving the market expectations. What is holding it back is a bit on the macro side with interest rates and that kind of indicators.

Yeah, exactly. And I think that you said something. We expect to see growth in two quarters or in the end of this year or something. Can you just say that again? I think we were missing just a word there.

We have only said that we think it's gradually going to improve quarter by quarter.

I see.

Okay, fair enough.

Thank you very much.

That's all.

The next question comes from Jesper Stugimo from Handelsbanken. Please go ahead.

Hello and good morning. Questions for me, if I may. We saw the gearing has come down, but it was reversed up a little bit sequentially in this quarter from previous one. How comfortable are you in this current microenvironment that you were able to bring it down? I know that you're The target is between two and three times. Did you comment a little bit on that one? And if you aim to get closer to two times rather than.

Yeah, I think it's a very good question and valid question at the moment, because obviously the right issue brought it down to, you know. within or close to the target range, but still on the higher side of that range. The work to reduce it continues, but much more operational rather than a financial level at the moment within the company. Our target is clearly to reduce it towards the mid part of that range. Can someone mute that has a background noise? And the reason why we want to bring it down is of course that we want to continue our acquisition journey. And with too high leverage then we cannot do that. We need to continue to bring it down.

Thank you for that one. And then there have been some talks about end of life support in this town.

In October 2025, this could trigger a huge refreshment cycle of the PCs. Now Windows 11 with Copilot coming in, et cetera. Have you seen an increased interest from customers now when Microsoft also don't have the minimum requirements of the minimum of 300 licenses? Yeah.

I think these are all positive signs for us, and I think your conclusion is correct. There is a lot of discussions with customers at the moment on what this AI is going to require from a hardware perspective, and we have done discussions with many of our customers at the moment. doing so many purchases. There is a lot of startup discussions, and that gives us, of course, some positive feelings that the market will gradually improve.

How do you plan for this in the organization with the refreshment cycle and all the take-backs?

Well, in our case, it's to keep track of who has what software in order to address the customers at the right time with the right offering. And in terms of AI, it's very much driven by us discussing use cases with our customers, particularly the SMEs or SMBs where They don't have the right knowledge about AI. So we can help them there how to use AI in the future. And when they want to use it, they need to exchange their hardware, which is good for us. We're working on different angles.

Thank you. Thank you.

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.

Okay, thank you. Thank you very much for listening in to the Dofstein Q2 quarterly call. I wish you a really good day. Thank you very much.