Dustin Group AB (publ)

Good morning everyone and welcome to this Q1 presentation from Dustin Group. As you heard, my name is Johan Karlsson, I'm the CEO and with me in the room is also Julia Lagerqvist, CFO and also Fredrik Setterström, Head of IR. But let's kick it off and move to slide two and 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 in the last years become a larger share of total sales and hence increasing in importance. 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. However, as you know, we have recently launched our online sales model and the new IT platform in the Benelux. And the aim is that we move to similar share as in the Nordics in the coming years. We're present in six markets in Europe with our main markets being the Netherlands and Sweden. And as you can see, our key customer focus is business to business representing 98% of our sales. With that short introduction to Dustin, let's move to the quarter on slide three. As in the last quarter, sales was affected by a weak market with continued general cautiousness by the customers in many of our customer groups. Further to that, the implementation of a new IT platform in the Benelux affected sales in the quarter. Sales in the quarter was 4,782,000,000 or 17.5% below last year. In SMB, organic growth was negative 8.2, while LCP was down by 19.5%. LCP was mainly affected by restrictions in public sector budgets in some of our markets and by the implementation of the new IT platform in Benelux. Gross profit at 683 was down by 205 million or 24%, while gross margin ended at 14.3, down from last year's 15.3, but up from Q4's 12.9. A shift in the product mix in LCP and new public contracts in LCP had negative effects on gross margin while the gross margin in SMB remained stable. Adjusted EBITDA at 21 million compared to last year's 192 with an EBITDA margin down from last year's 3.3 to 0.4 mainly as a result of the lower volumes in both SMB and LCP. Items affecting comparability was at 10 million compared to last year's 17 million and was mainly related to the changes in the organization. EBIT was at negative 52 million compared to last year's 129. Cash flow from operating activities ended at negative 42 million compared to last year's 250, mainly coming from low business result and higher working capital. Leverage ended at 5.4 compared to last year's 4.0, with the main effect being the lower business result. Some of the highlights from the quarter were that we introduced changes in the organization to realign cost and create efficiency. And the work there has carried on in line with what we have planned for to give a saving of 150 to 200 million. And that the other item from the quarter would be the implementation of the shared IT platform in the bandlags that will generate efficiency gains going forward. Move to slide four and look at sales performance, broken down a little bit more in detail. So we can see that the continued cuts in public spending, primarily in Finland, and lower demand among our larger companies due to postponed investment decisions impacted sales within LCP by roughly 400 million. Challenges in the implementation of the new IT platform impacted sales with roughly the same amount or 400 million for the quarter. The negative effect of the new IT platform decreased throughout the quarter, as you can see in the graph, and sales picked up at the end when a large part of the backlog was shipped and invoiced. The challenges experienced have been addressed and no significant operational impact is expected in the second quarter. In SMB, we saw continued cautious market where investment decisions were impacted by cost-cutting measures and thus delaying investment decisions. Now we will have a look at the result effect coming from these sales in the quarter. Julia, we'll take you through that.

Thank you, Johan. Yes, building on the volume update we saw, we look at page 5, what is driving this weak adjusted EBITDA development in the quarter compared to last year. Last year, we had an adjusted EBITDA of 192 million SEK. As Johan said, SMB has still been affected by a cautious market with lower volumes, and this impacted the result by minus 28 million SEK compared to last year. But the biggest impact comes from the lower LCP volumes, minus 107 million SEK due to the large drop in sales versus last year, as Johan talked about. The challenges from the IT platform implementation accounted for roughly half of the drop, while market challenges with monetary cuts and postponed investments accounted for the other half. We also saw a negative gross margin development in LCP due to larger share of sales with new framework agreements with initially lower margin, as we saw in the previous quarter, and also an unfavorable product mix, which had a negative impact on industry data. This was somewhat offset by overall SG&A declining slightly, with cost savings more than compensated for cost inflation and temporary costs related to the IT platform implementation. All in all, this led to a total drop of 171 million SEC in adjusted EBITDA versus last year, down to 21 million SEC in Q1. The work with implementing the new organization and further efficiency measures is, as Johan said, going according to plan. It's expected to have some positive impact in Q2 and then further impact in Q3 in the coming quarters. Majority of the estimated cost associated with the reorganization is expected to be taken in Q2. We then move to the overview of the SMB segment on page six, where sales landed at 1.5 billion SEK, minus 1.2% versus last year. The organic growth was minus 8.2%. As already mentioned, the continued economic uncertainty is still affecting demand in all markets. As in previous quarters, we saw low demand for computer and mobile phones, while the share of software and services sales increased somewhat due to positive trend for contracted recurring services in the Nordics. Gross margin was stable in the quarter, supported by continued price discipline. However, the lower sales volume led to lower segment result, even though it was somewhat protected by slightly lower cost base, which also supported segment margin. All in all, the segment margin ended at 3.2% compared to 3.6% last year. The total segment result was at 50 million compared to last year's 61 million. This is still an improvement versus the previous quarter, both on result and margin. Going to page seven, we look at the LCP segment. The sales in LCP was 3.2 billion SEK in the quarter, down 20.9% year-on-year, and organic growth was minus 19.5%. As already shared, the sales was impacted by continued budgetary cuts affecting public customers. This impacted mainly Finland. Postponed investment decisions affecting demand and challenges with the implementation of the IT platform impacted mainly the Benelux. On the opposite, we saw positive sales performance in Sweden, Norway, and Denmark. And overall, we still see a large volatility in sales between quarters. The low volumes obviously had a large impact on gross profits. And in addition, gross margin dropped, driven by, as said, a high share of new framework agreements with initially lower margin and a negative product mix that had a very negative impact on the result. We also had some increased costs related to the implementation of the new IT platform, but overall total cost declined somewhat due to already implemented efficiency measures. We continue to see an increase in take-back, which had a positive impact on margin and EBITDA. Johan will come back to this later in the presentation. Overall, this led to a segment result of 11 million SEK versus 162 million SEK last year, and margin ended at 0.3% compared to 4.0% last year. Moving on to the cash flow in CapEx on slide eight, we see that the cash flow for the period was minus 104 million SEK. Looking at details, we see that the cash flow from operating activities before change in working capital was plus 20 million SEK compared to last year's 108 million SEK. The difference is mainly driven by the lower operational results. Cash flow from change in net working capital was minus 62 million SEK compared to last year's plus 142 million SEK. mainly affected by lower than expected sales and the timing of sales. We'll look more at networked capital on the next slide. In total, operating cash flow was minus 42 million for the quarter. Cash flow from investing activities was minus 45 million compared to minus 70 million last year. More on this in just a few seconds. And the cash flow from financing activities was minus 62 million compared to minus 51 million last year. Moving to CapEx, the total investment in the quarter was 73 million, of which 45 then affected cash flow. This was lower than the previous year. The majority of the 45 million in CapEx was related to IT development, mainly the new common platform. However, lower in this quarter than previous quarters as we've now gone live with the first part. Investment in tangible and intangible assets was 29 million this year, of which only 16 million affected cash flow. The non-cash items are mainly lease contracts. Investments related to services were 16 million compared to 24 million last year, mainly linked to harmonization of data centers, none of it affecting cash flow. If we go to page nine, we looked at the network and capital developments. Network and capital landed at 267 million SEK, which was higher than both last year at minus 261 million and also an increase versus the previous quarter, which was 170 million. This is far above our targeted level and mainly driven by two things. We had higher inventory levels due to lower sales than expected in the Benelux. We do expect inventory to come down to a more balanced and normalized level in the coming quarter, still able to deliver on our service levels. Account receivables increased mainly due to a high level of sales at the end of the quarter. Account payable was fairly flat, while other payables increased due to goods received but not invoiced yet from it. Overall, we had high net working capital, driven then to a large extent by the implementation of the new IT platform in Benelux. And we do expect it to come down in the coming quarter. I said before, we always have some timing effects in the new quarters, but our long-term target for net working capital remains to be around minus 100 million. If you look at our leverage, we landed at high 5.4 in the quarter, driven mainly by the poor EBITDA development, but also the high net working capital. Had we been at our target level for net running capital, leverage would have been at around 4.8. We have a continued ongoing good dialogue with our banks. And during the quarter, we adjusted the financial terms of the bank agreement to reflect the current market conditions. And with that, I hand back the word to you, Juan.

Yes, and then let's move to slide 10 and have a look at the circularity offering in take back. Our offering in circularity continues to deliver strong growth. and we're currently on approximately 1.2 million units of take-back on a yearly basis. Our two take-back centers in Sweden and Netherlands operate with better and better efficiency as the volumes are increasing. We see strong demand from customers and the offerings give us advantages primarily in public tenders. The high volumes have also resulted in better efficiency and positive operating margin in recent quarters. Next steps will be to sell refurbished products online and add more value-added offerings around circularity. In this development, we see LCP customers leading the way with their own sustainability agendas and therefore strong demands. And we believe that Dustin is well-equipped to take care of the larger customer's demand in this area. With that said, we're moving to slide 11 and the summary of the quarter. In summary, Q1 was a challenging quarter where declining sales coming from a continued cautious market and the implementation of a new IT platform affected the result. Gross margins were down from 15.3 to 14.3, mainly due to the product mix in LCP and high share of new frame agreements. In SMB, gross margins remained at last year's levels. EBITDA margin of 0.4 was down from last year's 3.3, mainly as a result of the low sales volumes in both SMB and LCP and the weaker gross margin in LCP. Some of the highlights from the quarter were the organization changes and efficiency measures are developing in line with plan and expected to reduce cost by 150 to 200 million annually and make Dustin stronger to meet future market recovery. The implementation of the shared IT platform in Benelux will lead us to improved efficiency and customer experience. After some initial challenges, no significant operational impact is expected in the second quarter. Despite the tough market currently, we, together with leading market institutes, believe that the market in 2025 will come back to growth, fueled by the underlying demand factors such as AIPCs, post-pandemic replacement cycles and the phasing out of Windows 10. And with that, we conclude the formal part of the presentation and open up for Q&A.