Dustin Group AB (publ)

Welcome to the Dustin Q4 presentation for 2024-2025. During the questions and answers session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to the CEO Johan Carlsen and CFO Julia Lagerquist. Please go ahead.

Thank you, operator, and warm welcome to this Q4 presentation from Dustin Group. And as you heard, Julia and myself, Johan Karlsson, is here to present that to you. If we start with the summary of the Q4 numbers on slide two, As in the last quarter, sales was affected by a weak but stabilizing market with continued general cautiousness by the customers, mainly in the smaller customer groups. In the quarter, we saw some positive development in LCP, where the market, primarily in the Nordics, is stabilizing. Sales in the quarter was 5,056,000,000, representing an organic growth of 3.6%. The organic growth in the SMB segment was negative 6.3. However, this number in SMB was affected by a retroactive change in accounting treatment, and without the correction, organic growth was negative 2.2. LCP showed strength and reported an organic growth of 7.0%, mainly driven by the Nordics, where the market has been stronger. In the Benelux region, market continues to be difficult, but due to some large new contracts in Belgium, we saw growth even there. Gross profit ended at 642 million compared to last year's 644. Gross margin was at 12.7% compared to last year's 12.9%. Gross margin in the quarter is seasonally low due to high share of public sales in Q4. As market continues to be slow in the Netherlands, the margins have continued to be under pressure also in Q4. Adjusted EBITDA came in at 83 million compared to 28 million last year, with an EBITDA margin of 1.6%, compared to last year's 0.6%. And cash flow from operating activities was negative 73, compared to last year's negative 355. Leverage at the end of the quarter was 4.3, which is in line with Q3, and compared to the end of last year, it was 4.0. If we look at operational highlights for the quarter, we can conclude that the previously announced efficiency measures are fully implemented and that the cost saving from that is around 200 million. We are currently implementing the strategic changes that we announced in Q3 with long-term profitability improvements. And we have updated our sustainability targets and aligned them with the science-based target conditions. If we look at the sales growth a little bit more in detail on slide three, as I said before, the market is stabilizing and we can see some signs of recovery. However, the pattern is not the same as in previous downturns in the market. As you can see in this slide, looking at the solid black and brown curve, the normal pattern is that SMB is coming back to growth earlier than LCP. This time, however, we see the larger customers moving stabilization and return of the market is fueled by the change of Windows 10 to 11 and not by change in economic or geopolitical center. The trend of exchange of Windows is so far mainly driven by the larger organizations. Further to that, we see that the larger customers are starting to replace old equipment at a faster rate than the smaller. All in all, this results in a stronger market for the larger customers than the smaller. With that said, let's move to slide four and look at the operational efficiency initiatives. Julia.

Thank you, Johan. Moving to page four, looking at the cost development in the quarter. We see, as in the previous quarter, that the reorganization and our cost efficiency measures have had a clear positive effect in the quarter compared to last year. Overall, SG&E expenses decreased by 6.3% in the quarter, This was positively impacted by Forex, and excluding this, the cost decreased 4.6%. The effect is slightly less than previous quarters, as we had some positive one-off effects last year, plus that we have in general less consultants and temp staff over summer, so the saving there becomes more. The cost efficiency program is now completed, with annual savings of close to 200 million SEK. The main driver is less personnel. Looking at the FDs, we see that we have reduced FDs 225 or 10% versus the same quarter last year. And if you go back two years, the total increase is 13%, the solid reduction in workforce. In addition, there has been a reduction in number of consultants and temporary staff, plus reduced number of offices contributes to the savings. Then we move to the OE of the SMB segment on page five, where sales landed at 1.2 billion sick or 7.9% below last year. However, as Johan said, the quarter was affected by a year-to-date retroactive change in accounting treatment regarding net revenue recognition related to software and this lowered net sales. Excluding this effect and the forex effect, the decline in sales was to 20%. As Johan mentioned, in this quarter we see some signs of stabilization, but overall the market remained tentative due to the ongoing economic uncertainty. From a geographic point of view, Sweden and specifically Norway performed well, while Denmark and Netherlands were the main drivers of the decline. Looking at product mix, we saw that the share of software and services sales decreased down to 10.4%, but this was mainly due to the mentioned retroactive change in accounting treatment. The increase in the gross margin improved versus both last year and the previous quarter. And the improved cost base from the cost saving program protected the segment result which increased to 34 million versus 9 million SEK last year, despite the lower volumes. And all in all, the segment more than ended at 2.9%, which was an improvement versus last year at 0.7%, obviously coming from a low base. Note that last year was negatively affected by a one-off posting related to coaxial managed services of 13 million SEK. Going to page six, we looked in at the LCP, the large corporate and public segments. And the sales in LCP was 3.9 billion SEK in the quarter, plus 4.6% versus last year. And the granite growth, 7%. So there was a continued large negative works impact on the strength of SEK. Sales were also improving versus previous quarter. The growth was mainly driven by the increased demand in Nordic, stemming from the demand of Avengers 11, as Johan was just talking about. The economic uncertainty still impacted the market development, mainly evident in the Netherlands, where we also saw heavy price competition. On the other hand, Belgium showed continued strong growth as in previous quarter due to some large new agreements, and Finland also continued to show solid growth after a tough year. As I said before, we do see large volatility in sales between quarters in S&P. Gross margin decreased versus previous year. The increased price pressure in the Netherlands on diminishing volume had a negative effect. We also saw continued effects from larger contracts with low margin. On the opposite, margin in the Nordics was slightly improving, helped by country leads. On a global level, there was a negative customer mix with a larger share of public customers versus last year, which then have a lower average margin. This had a negative impact on the margins. We continue to see increase in take-back, which had positive impact on both the margin and the beta. And we also saw positive development in our private label business. The improved cost structure, mainly thanks to the restructuring program, had a positive impact on bottom line. And overall, this led to a segment result of 80 million SIC, which is 53 million SIC last year. And margin ended at 2.1% versus 1.4% last year. We note that last year was also impacted by a non-recurring cost of 21 million. Moving then to look at the cash flow in CapEx on slide 7, we see that the cash flow for the period was minus 1.2 billion SIC. This mainly driven then by the repayment of loans after the rights issue, where the proceeds from the rights issue came in the end of Q3. Looking at details, we see that cash flow from operating activities before change in net working capital was 150 million plus, which was an improvement versus previous year, mainly driven by the improved operation result, but also the real tax position. Cash flow from change in net working capital was minus 180 million SEK, which was still better than last year. We normally have a negative seasonality effect in Q4, with purchases earlier in the quarter and large roll-up at the end of August. We'll look more at that during capital on the next slide. In total, the operating cash flow was minus 73 million in the quarter. And the cash flow from financing activities was, as I said, impacted by the repayment of loans. Looking at CapEx, we see that the total investment in the quarter was 52 million, of which 36 affected cash flow. This is mainly linked to IT development investments. Investments in tangible assets was 15 million this year, which only two was affecting cash flow. The non-cash items are mainly lease contracts. And investments related to services was 4 million compared to last year of 23 million, and none of it affecting cash flow. Coming then to page eight, we look at the networking capital development. Networking capital landed at 477 million SEC, higher than last year at 170 million, and also increases the previous quarter. Inventory levels increased versus previous years, now at 1,086 million SEK. This mainly linked to Benelux and customer-specific inventory, but somewhat lower sales than expected. This is slightly below previous quarter, but clearly above our target levels, and we have a clear target to reduce going forward. Accounts receivables increased versus last year, impacted by invoicing of larger contracts in Benelux at the end of the quarter. There is, as said, a normal negative seasonality to accounts receivables and payables in Q4, as you get goods in early in the quarter for configuration and then have large rulers at the end of the quarter. This was more visible this year with large sales volumes to specific customers. As said before, we always have some timing effects in the quarters, but our long-term target remains to be around minus 100 units. And with that, I hand back the word to Johan.

thank you julia and now we're moving to slide nine and our plan to sharpen our strategic focus in order to increase profitability there has been a high pace of change in order to strengthen the efficiency industry during the last year and there you can say we have implemented the new organization structure around the value chain with offering sales and delivery and support functions enabling higher pace of execution of the strategy We have reduced the organization with approximately 200 positions and some office locations, reducing costs by approximately 200 million. We have also continued to transform our business toward more business customer focus, and by that announced that we will close down the consumer business. At the same time, we're focused on our standard services on all of our markets. In order to gain scale, we are moving to European offering in all markets, driving a stronger relationship to partners and vendors. And last but not least, we're continuing to use emerging technologies to drive process efficiency and automation. With that said, we can move to slide 10, where we go through a little bit of the changes that we've done in the sustainability area. On this slide, we have made a summary of the updated sustainability targets. So the climate targets have been approved by science-based target initiatives. means that we have climate targets for 2030 and 2050. We have also circularity targets and social impact targets for 2030. For 2030, our targets for climate is to reduce the scope one and two emissions by 50%. And for scope three, the target is to reduce the CO2 intensity by 51.6%. For circularity, our target is to increase revenue per kilo of new raw material by 20% and for social impact, the target continues to be the implementation of 100 initiatives across the value chain. The climate target for 2050 is to reach net zero emissions. And with that said, let's move to slide eight and a summary of the quarter. So in summary, Q4 quarter, was a quarter where we saw continued market stabilization and where we achieved 3.6 organic growth. Nordics showed a stronger performance than the Mammalux in the quarter. Gross margin at 12.7 compared to last year's 12.9 was affected by higher share of public sales and by the price competition in the Netherlands. Adjusted EBITDA margin at 1.6 was up from last year, 0.6 driven by the finalization of the efficiency program delivering approximately 200 million of savings annually. During the quarter, we concluded the efficiency measures as mentioned before, saving approximately 200 million on a yearly basis. We also continued the Further to that, as we've just heard, we have updated our sustainability targets to align with the market development and customer requirements. And with that, the formal presentation is concluded and we can move to Q&As.

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 Stegemo from Handelsbanken. Please go ahead.

Yes, hello. Good morning, Johanna and Julia. Thank you for taking my questions. So I have a couple here. My first one is related to LCPS, the main driver in this quarter. Do you have any feeling from the SMB side where they are in the approach to renew their hardware they looking more to like extend security upgrades for an additional year rather than upgrading to new hardware or what is your feeling there?

My feeling is that we don't look at additional time from you know adding purchasing more time it's rather they are a bit slower out in the process let's say. So we don't see a lot of purchasing or prolongations.

All right. And with the LCP picking up here, do you see that you will have enough volumes from this refresh cycle to increase the refurbishing, to actually give some upside on the margin as well already in this new fiscal year?

I think we will see that effect during the year because as the renewal continues, starts to take in exactly like you say, also, let's say the take back will kick in because most of these customers are on that type of contracts. So it's our ambition to continue to increase the take back in line with the, let's say, new sales offices.

All right. And in Finland here, we saw some good sales momentum up year on year. What trends do you see in the market? This has been quite slow in the last year. Is this mainly related to that the negative trends have bottomed out or do you actually see a healthier market that customers are waking up and they're more active?

Yeah, I would say that we are seeing customers waking up or getting more money because in Finland we are... relatively high in the public sector sales. So it means that the public budgets are of great importance. And here you can see that primarily, let's say police and military have very good budgets at the moment. So they can actually boost purchasing of IT equipment.

So police military is the main driver here in Finland, I guess.

They are for sure an important part of that, but I would say in Finland in general, it seems like the public budgets are a bit more generous this year compared to last year, which affects us.

All right, all right. And just the last question here on the FD side, down at 10% year on year, but do you see... a need to recruit more people now when LCP looks to be turning a little bit better?

I don't think there is a direct need to recruit people because we also work with efficiency on the other side. So our ambition is to more or less remain while the volume is going up. Of course, there will be areas where we need to strengthen a bit, it's not a direct relationship between, let's say, volume increase and more people.

All right. Thank you, Johan and Julian. I'll jump back in line here.

Thank you. Thank you.

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

Yes, thank you very much. A question on LCP here in Q4. Did you see any larger deliveries in the quarter, especially related to the end-of-life support on Windows 10 that could cause a setback in Q1, or should we expect these levels to continue recovering in LCP ahead?

I don't think we saw kind of one-offs that immediately has a negative effect on Q1, but obviously we are depending on customer continuing to exchange going forward to maintain the volumes that we have. But nothing on, let's say, a one-off term in that case.

Yeah, I see. And then secondly, a more long-term question. On your financial target, you are targeting 6.5% margin in SMB, 4.5% in LCP. which is already next year, which obviously nobody believes in right now. But my question is rather if those levels are achievable longer term in your view, or has anything changed structurally in the market over the last two to two and a half years that make those levels harder to get closer longer term in your view?

In our view, it has not changed anything. Obviously, with a declining market, it's very hard to reach them. But over time, with a more positive market, I don't see any reason why we should not be able to get to these levels going forward.

Okay, I see. That's fine. And then finally, on cash flow, do you expect working capital to recover already in Q1 and be significantly better?

We do, and like I said, we have a clear target to improve on our inventory levels, and we also normally, if you look historically, normally have a better position when it comes to outcomes tables and receivables in Q1 versus Q4.

Yeah, okay, fair enough. Thank you very much. Thank you.

The next question comes from Michael Lassine from DNB Carnegie. Please go ahead.

Yeah, thanks. Good morning. I have a question about the Netherlands. That country remained challenging, and I was wondering if you could elaborate on the competitive landscape there, the price competition, and if you see any signs of improved productivity or pricing pressure.

Yeah, let's start with the competitive landscape. I would say that Netherlands is a country where many of the large European and US resellers exist. Let's say they are in that market. That goes for CDW, that goes for Computer Center, Bechtle and a few more. There is also a few local players but smaller. I would say like in many areas in the Netherlands it's a very fierce competition. that has an impact when the market is slow because then that competition really comes out in price competition. So that's what we have seen lately.

Okay, and when it comes to this market situation then triggering this fierce competition, Well, what leading indicators are you looking at and what trends are you seeing there and how should we think about becoming capital quarters?

I think if you look at the overall underlying market trends that will drive a more positive market, which we talk about, it is the Windows Exchange, it's the AI PCs and it's the age of the PC or IT equipment at our customer site. I think they are the same in the Netherlands as they are in the Nordics. So our expectations is that over time, the market also in the Benelux will come to a situation similar to the ones in the Nordics. And in normal cases, when that happens, the price competition goes down a bit because volumes are better. And that's our expectation this time as well.

Okay. So you're not seeing this Windows 11 exchange or in demand in the Netherlands?

We see it, but to a lesser extent and more mixed compared to others.

Okay. And so what can you do during this time when the market is a bit softer?

I think it's a very good question because that is exactly know the question to ask what can you do in the current situation and what we can do we can add we can add services namely take back and lifecycle services to the hardware sales which will improve the market so we can accept maybe a slightly lower margin on the hardware if we can also upsell with product near or lifecycle services around the hardware that that can help us we can also add our own private label products in the mix, in a tender, for example, which improves the market. So we need to go back and work on all the basic stuff to improve margins. In parallel, we try to win the tenders, which will be won on a slightly lower margin level than before.

Okay, great. And when it comes to this gross margin decline that we saw now in Q4, how much is attributed to Netherlands specifically and how much is a mix and other things?

It's a combination of you could say that a higher share of LCP sales than on an average quarter and a part coming from directly from the Netherlands competition. You could say that they are similar in size I would say.

Okay. And in general, can you say something about the difference in gross margin between LCP and SMB, broadly speaking?

The difference is, you could say that if the average is 15, then as an example, I would say SMB is a couple of percentage points better and LCP is a couple of percentage points lower. So it's that magnitude of difference.

Okay. Yeah, that's helpful. Great. I'm just wondering here what's happened with the SMB side. Seems like the Nordic region is stabilizing a bit. Not sure what you're seeing there and why you have that weakness of minus two underlying growth excluding reclassification.

It's a bit mixed bag there. I think Julia was into that in the presentation. You can see that Norway and Sweden is doing relatively okay. while Denmark and the Netherlands is poor. So there is a bit of deviation between the countries in the S&P that nets out to the minus two. So I'm not really sure what drives the Danish numbers, to be perfectly honest. We don't really have the market data for that clear.

I also see similar price pressure there, as we've seen in the Netherlands.

Okay, got it. Just also curious if we should think about this reclassification effect continuing in Q1 and Q2 as well, or if this is so behind us now.

The reclassification effect in this quarter was the full year-to-date effect, so it would be very minor in the coming quarters.

Okay, got it. Thanks. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, thank you very much for listening in and asking questions to the Q4 report presentation from Dustin. So thank you very much and have a nice day.