Dicker Data Limited (DDR) Earnings Call Transcript & Summary

Thank you, for standing by, and welcome to Dicker Data Limited Full-Year 2021 Results. [Operator Instructions] I would now like to hand the conference over to Mr. David Dicker, Chairman and CEO. Please go ahead.

Yes. Hi, everyone. As the guy just said, I'm David Dicker and I'm the CEO and Chairman of Dicker Data. Great pleasure to present our results from last financial year, another sensational result, really good result under the circumstances. It's all been very difficult, but our company has performed exceptionally well and everyone's really delivered. So very, very satisfying, roughly AUD 2.5 billion in sales, and all the other numbers are absolutely fabulous. So without further pitch up on it, I'll hand over to our CFO, Mary, and she will give you the full rundown. Thanks, Mary.

Thanks, David, and good morning, everyone, and thank you for joining us on this call. Firstly, I'd like to apologize for the late lodgment of the deck. I was expecting it to be a little bit sooner, but we're happy to go through it now and then take some questions after that. Like David has said, it was another exceptional year in terms of highlights and results, plus in addition to that, key, of course was our acquisition of the Exeed business in Australia and New Zealand, a transforming transaction for our New Zealand business, placing us as second largest distributor there. Added to that was access to the Australian Exeed business, providing us with a new segment that we previously didn't participate being the retail space, albeit in a selected format. We also recently announced that we have entered into the business sale agreement to acquire the Security and IT Division of Hills. And both these transactions highlight our growth aspirations and our intention of expanding our opportunities in these converging IT markets. Another milestone and one we're proud of, was the recognition of our diversity and inclusion within the company, and that was us winning the inaugural award with ARN for that category. In terms of the financial numbers, FY '21 results was another strong year with strong growth recorded across all areas of the business. Like David said, revenue finalized just under AUD 2.5 billion, which was an increase of 24.2%. Our recurring revenues in software have now increased to AUD 520 million, an increase of 19.7% and net profit after tax, finalizing at AUD 73.6 million, up 28.6%. If we take a more detailed look at the -- our results, the financial trends, in terms of revenue, continuously 17.4 CAGR, EBITDA 25.5% CAGR and you can see in terms of gross profit margins being maintained, albeit slightly lower than the previous year and net profit before tax margin continuously increasing. Looking at the 12 months result in a little bit more detail, like I said, gross profit margin has slightly abated to 9.3% compared to FY '21 -- FY '20, 9.6%, as the market normalized, following the opportunities that were created on the onset of the pandemic. Even though it's still a disrupted market, in FY '21, the margins have abated slightly because everyone's become used to dealing in that environment. In terms of our operating costs, they increased by 15.2%, but have actually declined as a proportion of our revenue down to 4.7% as the company continues to benefit from scale. And operating profit before tax, excluding one-off costs, finalized at AUD 106.1 million, that was an increase of 29.6%. Looking at our New Zealand business. With the acquisition of Exeed, we're definitely expecting significant growth there. Revenue growth of 127.6% was recorded with revenue finalizing at NZD345.3 million. Included in that number is five-month contribution of revenue from Exeed, which was NZD152.1 million. Excluding the Exeed contribution, New Zealand revenue still grew 27.3%, which indicates our intentions to keep growing that territory, even excluding outside of the Exeed acquisition. What we did see though was gross margins coming down on the previous year, predominantly, as there's a large proportion of contribution of retail business with the Exeed business. We will be looking to balance that out as we integrate the businesses in the coming year. And profit before tax increased to NZD6.6 million. That was a 221.6% increase. Looking at -- turning it to the balance sheet. Now what was -- something to point out in FY '21 was our increased investment in working capital, being in the disruptive market with supply chain disruptions and chip shortages. And Vlad will provide a bit more color around that in the business update. We've had to invest further in our working capital, particularly around inventory that significantly has increased on the prior year, almost doubling. It comes as a result of the business growing, but also taking a more strategic approach around inventory management and inventory availability in a market that had a number of constraints. Despite all that, we do see that, that is being a key differentiator for us in terms of the opportunities to keep growing. So, we definitely are looking at managing the working capital investment. But in light of the situation around supply issues, we feel this is the right strategy and the right place to put our investments. On the cash flow side, we closed with cash of AUD 7.4 million. The cash closed lower, particularly around cyclical investments in working capital. So cash from operations finalized at AUD 20.5 million. Cash was deployed in working capital predominantly and then, of course, the Exeed acquisition, which was funded via a debt facility being a cash advance facility, hence the increase in drawings and finance activities for the year. The company continues to pay quarterly dividends. And in the FY '21 year, dividends of AUD 0.42 per share represents an increase of 27.3%, up from the AUD 0.33 per share in FY '20. That included a final dividend, which we declared in February to be paid tomorrow, which was at AUD 0.15 per share. We will continue to maintain our dividend policy of 100% payout of net profit after tax, and we'll continue to pay in quarterly installments. So, we will be retaining the same dividend policy. In terms of investments and the discussion around the working capital increase, fortunately, we moved into our new location at 238 Captain Cook Drive at the start of the year. It was completed in February and officially opened in April. That has given us the increased space to actually allow us to cater for the additional inventory holdings that have become necessary as part of the disrupted environment and the timing was actually perfect to be able to give us the opportunity to continue to grow and manage the inventory in that space. We are also -- as a result of sort of these growth expectations, we are also in the process of planning for the expansion of the warehouse. We did say that there is vacant land out the back, which is already DA approved for a new warehouse. We expect to go to tender on that in April '22 and hopefully, looking to commence construction in June. Because with the Hills acquisition previously announced last week and the Exeed integration and the growth in our own business, we do feel that it is better to be planning ahead and have the work commenced in terms of the expansion of the warehouse. Speaking about Exeed, just an update of where we ended up in the second half of the year in terms of the integration. The acquisition was completed on the 6th of August. The revenue contribution from the Exeed business in total was AUD 183.1 million, that was five months contribution. The integration of our Exeed Australia business is near complete. All the inventory has been relocated from Melbourne into our Sydney warehouse. And we have exited the Melbourne warehouse in terms of the Australian integration piece, and there is a lot of work underway currently to integrate the Exeed New Zealand business into the Dicker Data entity. On the Hills acquisition, which we announced last week, the company has entered into a business sale agreement to acquire the Security and IT Division of Hills. This is a whole new segment, and Vlad will provide further updates in terms of the overall opportunity. But in line with what I previously said, it represents 50 new vendors, some of them key players within the physical security space, a whole heap of new customers and opportunities around customers that are particularly in the security space that's sits adjacent to our IT business and we're looking at how that would converge and the opportunity to cross sell into that new customer base. The way the physical security market works, there is some trade centers and branch offices and we'll be looking at how that is going to be leveraged. The purchase price is approximately AUD 20 million and it's a net asset purchase. Effectively, that's predominantly inventory, net of provisions and entitlements. And so the final price will be determined based on where inventory finishes once the transaction completes. It is subject to Hills' shareholder approval. So, we will be providing an update on that as it progresses closer to completion. So that's all from me. I'd like to hand it over to Vlad now to provide a business update and a bit of further color in terms of the numbers that we have finished on for FY '21 and the opportunities we're looking at for FY '22. Vlad?

Thank you, Mary. Thank you, David. Good morning, everyone. And once again, thank you very much for the opportunity to present. Like David and Mary said, we had a fantastic 2021 and we're all very, very proud of what we've achieved. Like I was saying, at the end of 2020, which was also a very successful year for us, it was the year of lots of good opportunities that the -- when people moved to home and started working from home, hybrid working, gave us a lot of opportunities in 2020. But 2021, it was a very different situation. It was the beginning of digital transformation acceleration. That's what moved a lot of growth in 2021. And like I said at the end of 2020, it's just the beginning. It's a very beginning of that acceleration. And we, as a business, trying to position ourselves very strongly to take its full advantage of this acceleration of digital transformation in many, many years ahead of us. Hence, obviously, you've seen us taking advantage of a fantastic opportunity of acquisition of Hills, which I'll touch base in a second. Continue focusing on our software and clouds business, continually focusing on our Audio Visual, the Unified Communication business, our data center infrastructure business, and obviously, all our digital device business, putting ourselves in an incredibly strong position to continue to take advantage in 2022 and beyond. But now let's go to the Slide #13 and look at what are the current market challenges before we look at the overall strategy and opportunity. COVID, of course, while it looks like it's getting to the -- to closer and closer to the end, it's still with us. We still have a lot of challenges that it brought, especially anything to do with supply chain constraints, chipset shortages. There's lots and lots of disruption happening in the market in terms of getting the right products and solutions, and giving it to the people who need it. So demand is very strong. Market activities is exceptional. That acceleration is happening on all fronts of our industry and of our economy. The challenge is stock and get everything to do with it in the right time, just in time, and to give it to the people who can use it and we can start transforming their businesses and digitize their businesses. So obviously, us being a local distributor, we use our key competitive advantages of being very adaptable to ever changing circumstances, to being very agile and very flexible and open thinking. And obviously, when we look at our continued investments in our inventory and capital, that's part of the strategy. We're seeing now the ETAs blowing up to three months to six months at some points, and we know that our competition is very much still sticking to certain KPIs and that's a base that is a global governed. And with all this being known in the market, we're holding slightly more stock for our customers. We took another step to ensure that we always have more inventory, right inventory, so we can support not only our larger projects, but also our mid-market and SMB customers. And that's proven to be very, very successful. It's the right strategy, and we always feel that we're one to two steps ahead of some of our competitors when it comes to it. I don't think this situation of supply chain is going to change anytime soon, but our logistics arm is very, very strong. Our partnerships with the key logistics and freight companies is very strong. Once again, we're very flexible and very agile and work with all our vendors and they are absolutely loving it in those circumstances and in those positions. So, we're gaining some even more trust from our partners and building even stronger relationships with our vendors. And we're showing the market how we can be very successful even in those challenging times. Now moving to Slide #14, and we are looking at IT market and our strategy. Once again, every year, we're taking 1% to 2% market share due to continue evolving our strategies and our tactics around what we do. This is the approximate share of IT distribution market, both Australia and New Zealand. So looking at our corporate and commercial markets, we're doing incredibly strong and continually growing. Now with Exeed and Hills Security Divisions coming on board, we will have over 8,000 active partners, which is absolutely fantastic, looking for a great opportunity to cross-sell, upsell and drive more solutions sales into lots of different segments. Now, of course, if you look at our New Zealand market, we're bringing Exeed New Zealand and Dicker Data together. Like Mary said, we're becoming a very strong #2 market player in New Zealand. And once again, it's giving us a fantastic leverage and cross sell when Exeed brings over 2,000 active partners in New Zealand. And we already, even though we haven't fully integrated in New Zealand, we already have started to see some great benefits of this strategy, not only on the customer side, but also talking and exploring a lot of great new vendor partnerships in New Zealand, exactly to the strategy and exactly how we thought it's going to happen. So, I'm very, very happy with the way it progresses right now. If you look at the next slide, this is our ANZ vendor portfolio. It's growing in the right way. It's growing in a quality way. Again, we don't have as many vendors as some of our competitors, but the vendors we do have play a very critical role in the digital transformation of our region and we wanted to make sure that we are known as a key fundamental part of this move. Obviously, we must have a great portfolio of vendors and I'm absolutely convinced we have the best vendor portfolio out of all distributors in Australia and New Zealand. This is just -- next slide, this is just some of the industry recognitions that happened last year. It was a very, very proud year. Like Mary said, one of the most proud moments when the industry recognized Dicker Data as a quality leader. We have been in the ones -- with the finalist like Microsoft and like other big Tier 1 global giants. And it was incredibly satisfying and emotional for us to get this recognition. It's just recognizing our internal culture, our diversity and our equality that we're driving through our organization. On the other side, we have been recognized again as the strongest Hardware Distributor of the Year and the many, many other recognitions by top of our vendors, putting us as a very strong leading value distribution partner in our region, in Australia and New Zealand. When we look at the next slide, the hunt for the new vendors never stops. This is part of our job. This is part of our role as a distributor in this region is to continue to understand what evolves, what new innovations happening, which new vendor partners bringing an innovative and breakthrough technology that we can partner with them and assist our customers to continue transforming their businesses. Some very, very strong acquisitions last year. VMware, NVIDIA, Jabra and so forth. Some really, really good names. Out of all of these, the most significant one, I would probably say will be VMware, as the global leader in the multi-cloud and hybrid cloud solutions. Cloud is one of our big focus areas, big investment areas, and VMware has become a glue in our strategy, which we've missed for many, many years. I've been incredibly happy with the progress of our partnership with VMware last year in 2021, which [completes in] six months. We're looking for an absolutely amazing year within this year. The partnership is growing and growing really, really well. Hunt for the new vendors never stops. Like I said, there is a number of new conversations, both in Australia and New Zealand on the table, so we continue evolving. If I look at the next slide, I've always presenting this slide, this is very critical and important slide. This is our long-term vendor relationships and diversification strategy. So once again, if we look at financial year '12, when our top vendor represented over 60% and while we have been very, very fortunate working with this particular vendor for over 28 years, it did represent a certain risk to the business. We have completely removed those risks. We now have over 51% of the vendors representing our Tier 2 and Tier 3 vendor sets. We still have our top five vendors represent, of course, the 50% of our business and that's exactly where we all want to be. And this is our long-term strategy and that's how we would like to retain it. So again, it's a really well-balanced business between a very good diversity of vendors and the very good diversity of partners that we're servicing, but also focus on specialization. We are a value added distributor. Any vendor we work with, especially our top 20, we need to have a similar skill level as the vendor itself. When partners work with us and customers call us, they need to make sure that they talk to a very skilled professional, who will provide them with an absolute level three, level four customer service, which is very, very important for us. So, this strategy has continued evolving and as you can see, it's been absolutely fantastic in the last 11 years. Next slide, we'll look at where the revenue is coming from and how our business look at and where the growth came from. So, you can see that we've had an equally fantastic year with hardware and software. The reason why software grew, about 20% growth year-on-year is phenomenal, but it's slightly lower than hardware is because in 2020, one of our major desktop virtualization vendor, Citrix, had an absolutely phenomenal year. When everybody obviously moved to home, they needed lots of virtual desktops installments. And this vendor had such a strong triple-digit growth this year that, of course, coming into 2021 and normalizing their sales, it had a very normalized year. So hence, we didn't have 30% or 40% plus growth in the software business overall. Otherwise, we would have, which is very, very good. But we are exceptionally happy with growth of both hardware and software. If we look at the hardware business, our devices continue to grow. Demand for devices has been very, very strong. Demand for devices is as strong coming into 2022. It's just the way we need to manage our inventory, the way we need to invest in our inventory and managing our cash flow. So this is -- but the opportunity is absolutely there. Networking business has rebounded. 2020 is when all large network refresh all around the countries have put on hold. We've seen in 2021, those projects came back to live, some of our key networking vendors like Cisco and Juniper and HP networking have done really, really well, producing a very good healthy 22% growth. We're seeing networking as the biggest opportunity and the biggest growth, again, driven by 5G rollout this year. So, this is a very exciting space to watch, and we have every single strong vendor under our roof, and our skill set and our presales and post-sales services within those vendors is very strong. We had a very good strong in our AV and UC market, 55% growth year-on-year, which is phenomenal. We continue growing in our print business, which is very small. Again, this is all to do with the capacity in our warehouse, as we know, print is very big, so we need to be very mindful of where we are focusing, especially when we're under such a big demand from other categories of the business. We need to be careful how much we -- I mean, we're focusing on how much space we're basically taking in our warehouse. Server and storage business was a little bit soft last year still, a couple of different reasons. One is the super big data center explosion project is still slow to come back. And another thing is a supply. Unfortunately, when it comes to server and storage and data center infrastructure, it could be up to five and more vendors part of the solution. Each vendor has multiple product sets in a solution. And if one single product set is missing, then we cannot complete the entire solution. So it's not as liquid and it's not as flexible as some of our other divisions in hardware. So with that in mind, that's a challenge on the supply chain, has a little bit bigger impact on our server and storage business. Although, we are seeing even stronger demand for those projects. So even with those challenges and supply shortages, I do believe we'll be able to turn it into a nice positive growth this year. Looking at our software business, like Mary said, recurring revenue is where our focus is. We're putting a lot of investments in our platform, where we will make it very, very easy for our customers to bring their renewables and recurring revenues, subscription business. So this is happening. We're winning more and more subscription type businesses from our vendors as well, customers loving our platforms. So -- and this is what's driving this growth. We are looking at another big growth here. Looking at opportunities, Slide #20. I think I've mentioned a lot already. I'll just very quickly go through the key points. Security is a big, big piece. We've always been very passionate about security, and we're building a very strong security practice. Hills acquisition giving us 50 strong security vendors that come on board in Dicker Data, so we're super excited. And security is not just about physical security, electronic security or analytics and software security. It's the combination of that. It's the solution, face recognition, AI. Innovation is coming into play. We do believe that security is going to play a major hand in Australia and New Zealand in the next five years. So, we're building our skills, expertise, vendor portfolio to be a main security practice in Australia and New Zealand when it comes to value-add distribution and support of our partners. Software continue to grow. This is a very big focus of big business. Devices, we've mentioned before, demand is very strong. It's just getting the right stock and keep growing. Hybrid cloud is very dominant. We now have the strongest channel-driven cloud vendor, Microsoft, and we are the leading distributor for Microsoft. VMware on board. We have a lot of great products that we are moving into that hybrid cloud world. Smart office is becoming big in 2022. People are coming back to the offices. When they do come back to the offices, they need a very big smart rooms, collaboration spaces, innovation centers and experience centers. This is what we're supporting. This is what we're building with our partners and that's, of course, built into their Pro AVs, Unified Communications. Data center infrastructure, still very big business of ours. And it's going to go from strength to strength this year. Networking, I told you, I feel if it comes to the numbers themselves and crunching the numbers, it's probably going to be the biggest opportunity this year. Retail market is new for us. We're evolving as we speak. We're looking and learning and analyzing. So far it's been a very, very good experience. It's perfectly fitting into the profit margin model around an organization. And we're going to continue to build up on that, but we will be very, very careful with this market. We wanted to make sure that we don't become a box mover or a purely transactional type of a distributor in this market. Otherwise, obviously, it will be very hard for us to compete, perhaps with some of our competitors. So as long as we can provide a lot of great value to both our retail partners and our vendor partners, we will continue to expand this market. Looking at the overall sheer opportunity of this market, that's probably going to be the biggest one that we -- yes, we've ever been exposed to. It's the multi-billion dollar opportunity. We just need to find our niche way to grow this market. Now, we're going to move a little bit more. I mean, I mentioned already couple of times, big push in the physical security, Hills represents our opportunity, not only that, we are getting 2,500 active partners, security system integrators, electric system integrators, our operational technology system integrators. All of these customers are new to us. We will be able to enable, train, and teach them of how to bring IT solutions into the place. I mean, all physical surveillance technology is all IP-based now. It's no longer analog. When it comes to IP, it means it's the IT area. And within IT, we have a great deal of expertise. So that market convergence trend is starting to appeal a lot more. All the industries is converging. And we do believe that this is a very, very big opportunity for us. I mentioned about retail market. Once again, it's a big business for us in New Zealand. It's getting bigger and bigger in Australia, so bigger opportunity for us. We just need to be mindful of how we're going to handle this, which we now have a very, very good idea and our strategy for the next couple of years. 5G rollout is going to drive a lot of innovation, data explosion. So storage business is going to grow, networking business opportunities, cloud, where all the data is going to store. Edge technology is going to drive, so lots and lots of great opportunities. And when we look at 5G and we'll look at all the key vendors that are driving the 5G revolution here in this region, we have all of them under our roof. Unified Communication and Audio Visual is a big area for us. You've seen a 55% growth last year. We can expect another very, very strong year. We've just opened up a couple of new partnerships in this area. So that -- it will continue to drive growth this year. And obviously, work from anywhere, we've looked at hybrid cloud device. We're also having a Windows 11 refresh cycle this year. So a lot of experts in the market. In global marketing, they're going to drive another big cycle of demand for PCs. But I think demand is very strong as it is. We just need to get -- we just need to get a bit of a better supply chain. And I think we'll be able to enjoy the full scale of growth that is available in front of us. All right. Well, this is my part of business update, where I see the challenges are, where I see the opportunities are. Now, I just open up to the questions.

[Operator Instructions] Your first question comes from Ed Woodgate from CCZ.

David, Mary, Vlad, congratulations on the result in a tough environment. Really pleasing to see. Maybe just checking, you can hear me all right quickly?

Yes. All good.

Great. Perhaps if we just follow on from what Vlad was saying there about devices. So in our outlook commentary, there was a discussion regarding to work from anywhere trend and Windows 11 driving continued strong growth. Just continued strong demand. I was just wondering if you could provide any indication whether you expect that to continue to -- whether you expect that segment to continue to show growth? Just bear in mind, the segment was growing very strongly this year and the year before?

Yes, I'll probably take this question. Yes, we've had a very good year and a great demand last year. We see no signs of slowing down demand for devices and PCs. In fact what we need, we need to get more stock that we can offer to our small SMB customers. The biggest challenge last year was all the stuff that's coming in was going to our mid-tier SMEs and the large enterprise deals. And if you'd looked in our website as well as in probably any other IT distributor website, we had very, very limited stock to offer for what we call is our run rate business. So having a little bit better stock now going in 2022 and having that available to all our small partners, we probably would see a slight -- a better balance within our business. And like I said, Windows 11 refresh is going to drive more demand for devices as well. So look, for us [ in PC ], we had a very good device sales in 2020, 2021. No reason to see it's not going to happen this year. All global chip manufacturers like Intel and AMD forecasting another good growth this year. So is it going to be exactly the same as the last year? It's very, very hard to say. So far, demand is very good.

Okay. So, I just want to make sure I understand. So I guess, continued strong demand doesn't necessarily translate to growth. But would it be fair to factor into our numbers this moderate-to-low single-digit growth? Or is there any sort of like qualitative commentary you can talk to there?

From the forecasting models and from what other vendors are saying, all our top vendors that we represent with Hewlett-Packard, Dell Technologies, Lenovo, Asus and others, everybody is forecasting somewhere around high single-digit growth. Now, we have a very good tendency to grow a lot above that. But like you have said, a strong demand not always results in gross sales because, obviously, we have challenges with some stock management and so forth. So it's a very fluid situation. It's a very quarter-on-quarter base. All I can tell you that I have not seen any significant sign of any decrease in demand. So if you look at last year, the way we've managed our inventory, the way we've looked at and worked with our vendors, we grew more than our vendors last year. We took some share from our competitors and we're obviously going to continue to looking at doing the same. So yes, that's all I can comment. I mean, we are in a good position to at least grow with vendors and hopefully, we'll do better like we always do.

Okay. Great. And yes, appreciate that the company is very [Technical Difficulty]. That's really useful color. And maybe just on the software, so again that was really helpful. So it would help if you could provide some color or data quantitatively or qualitatively if that's appropriate like whether the growth during the year was driven more by the renewable side or subscription side? Just noticed that you combined the segments in the presentation.

Yes. Just in terms of combining the segments, it's because categories within our vendors and the way they go to market with the products change. So in effect, we're seeing -- we grouped the recurring revenue as both renewable and subscription as that was more meaningful that way. I'll let Vlad answer [ the first ] question.

Yes. Yes, No, I can add to this as well. Renewables really grown. This was really good. Subscription growing faster. So both for us is reoccurring. Both for us is very much keep pushing and keep growing it. But the answer to this is, it depends on the vendor. Like for example, look, with some vendors, we're just growing subscription, new subscription business really, really well, because each vendor has its own strategy. So Microsoft, for example, they deliberately slowing down their perpetual, slowing down their SPLA, getting their host just to move into subscription and that's exactly what we're doing. So, our new subscription business have grown faster. Some other vendors, they're very happy to see that renewals and drive a lot of renewal strategy. So it all depends on the vendors. Some of the vendors don't have subscription model. And that's where our Dicker Data Financial Services comes very handy. This is where we can offer all our partners and our vendors monthly subscription based, not only on software but on hardware as well. Yes. So unfortunately, I didn't give you a specific answer, but both areas are growing really well for us.

Okay. That was very helpful. And then I might just ask one more question before I jump back in the queue. I'm sure there's lot of questions on the line and we're catching up in very shortly. So with -- just on, I guess, wages and staff costs, there's a lot of, I guess, concern when speaking to clients, particularly say that some of the other stocks we cover. That -- there's a lot of competition for these people. I was just wondering if you could speak to like what you saw from in regards to wage inflation, also maybe how variable wage up to this, if it has, [ might just repeat ] from wage inflation?

I'm sure I can probably take some of that call. Yes, it was difficult in terms of recruitment and new roles. Definitely was a year where it was a bit harder in terms of filling new roles. But the structure of our remuneration models, particularly around key business units and business managers is a performance-based model. And therefore, as the company continues to grow in segments, whether it's revenue or gross profit, the participation is there in the key business units remuneration structures. So it's sort of inbuilt in terms of how our staff are compensated. So, we haven't really experienced any major movement within our headcount structure other than possibly taking a bit longer to fill roles that previously we could have filled in a shorter timeframe.

Okay.

I don't know if Vlad has anything else to add to that. Sorry, Vlad, I cut you off before.

No, no, no. Mary, you covered it really well. No, you covered it really well. Yes, it's just our incentive and remuneration structures internally. It's very, very unique, very specialized. So, we didn't feel as much of these movements, especially when it comes to key decision-making roles, executive roles. So, we've pretty much sustained most of our management. And also one thing I'd like to mention as well, which is very, very important is our culture. We have a very, very distinct internal culture. And I think that sense of pride and loyalty is very, very strong within the organization. So it's also a very, very big factor. Yes.

And because of that structure is why we would never get full leverage of the cost base. The headcount, salary wages line grows as the business grows. But if managed that, we do get some leverage, but it's not going to be full value and the costs stay steady.

Okay. And once again, congratulations on the great result. And I'll jump back in the queue.

Your next question comes from Hayden Liu from Evans & Partners.

Just around the margins. Obviously, the chip shortages has provided margin growth opportunities for Dicker Data and we saw that especially in the uplift in margins in the third quarter update. Now from today's results, it seems fourth quarter margins saw a bit of a reduction. I'm just wondering how much of this step down in the fourth quarter is from the greater Exeed contribution, being in a lower margin retail segment and how much is from a normalization in -- market normalization as you called out, Mary?

Well, definitely the fourth quarter would have the contribution of the Exeed business for the full quarter and approximately 50% of the New Zealand piece in New Zealand coming from Exeed is retail trading at lower margins. So it would have been a contributing factor. And in terms of -- we were always expecting the margins to normalize or pull back from where we finished in FY '20 just because of the amount of sort of immediate disruption that happened in that year and having us placed in a position of being able to capitalize it as the market normalized and more people got used to working and operating within that environment. We expected margins to come back, but we are trading above our last full-year average. So it's still a solid result in terms of being able to maintain those margins above that 9.1%. I don't know, Vlad, if you've got any further color on the margins for the fourth quarter?

Yes. No, again, I think you've highlighted really well that large -- very large [ at home ] New Zealand business, of course is -- while it's still profitable, but it does drags it to a little bit down. I think, obviously, taking the strategy of investing a little bit more into holding slightly higher stock levels, while we're grabbing a lot more opportunities and winning a lot more business and driving some good top line growth, from time-to-time, we need to be quite mindful. And perhaps, we're taking a few opportunities to liquidate some stock and just getting into the cash flow cycle. So, I think it's a bit of balance of both, again, where it kind of dropped a little bit, but nothing significant. It's a very, very -- still very strong. As long as we're above 9%, that's our aim to be above 9%, double-digit growth quarter-on-quarter, year-on-year, that's our aim.

Okay. Great. No, indeed, still very strong margins. And so just to sort of reiterate, you still expect above 9%, even though the Exeed contribution kicks in more, that's the whole longer-term margin profile? Okay.

Yes. Yes, that's the aim. We're aiming somewhere between 9% and 9.5%. And like you've said, it's quarter-on-quarter, yes. I mean we have a lot of education deals, some education deals that we shipped out in December, slightly lower margin profile. Another thing is what I've said before. Unfortunately, it's just the nature of our industry, the large corporate partners, big enterprise, top customers, they're demanding the stock and they drive big volumes, but the margin profile for this customer base for us is slightly slower. We just basically didn't have enough stuff to give to our smaller partners. And I think as we will be able to get these SMB growing -- I mean they still delivered a fantastic result last year. But if we get this similar double-digit SMB growth this year and I think it's already have, I can already feel this is happening. We do have a much better stock profile right now as we speak, and we've had for last couple of months. I think that will kind of contra-balance those other big retail businesses so that -- it will continue to keep our margin above 9%.

Great. No, that's very helpful. And just one more from me. Vlad, you called out security as an opportunity, but not just physical. So with that Hills IT acquisition, I know there's some large international vendors as part of that coming through. Perhaps could you expand on the extent of revenue synergies we should be expecting? Or what would be possible? So in terms of introducing new vendors to existing customers and existing technologies from your portfolio to the new customers acquired, if that makes sense?

Yes, yes. Absolutely, absolutely. Yes, I'll make myself a little bit more clearer here. So the overall security portfolio in my strong conviction will converge. So, we will see a lot of security software vendors, and what we call an electronic security or physical security, which involves video surveillance, face recognition, AI built, sensors, IoT sensors, all these is going come together. It's already coming together, but very, very slowly. At the moment when you look at the business, it's still very, very silo. I'll give you a quick example. I think it would probably be easy to demonstrate when you build a big commercial building, you have your electrical system integrators doing all the electrical work and then you have your security system integrators do security work. Then you have IT guys come in and do the on-prem data centers as required, or they take all the workloads into the cloud or whatever they do and then the IT guys providing all that security levels to running this commercial building or anyone who is in the commercial building. I do believe that electronic security and a software security will be coming together, converging together and working together. So, I do believe that a lot of security specialists is going to be specialized in not only in the software layer, but also in the electronic security and physical security layers. And for that, we need to be ready. And for that, we need to skill up and provide those skills into the markets, which at the moment is pretty much non-existent. You either work on one side or on the other side. So, we will try to be in the heart, in the beginning of that transformation, which is super, super exciting. That's a long-term vision, right? So, immediate -- if you want to see the immediate impact on our business, of course, it's an existing business. Over AUD 100 million of existing electronic security cameras, sensors and all that sort of stuff. We will be able to cross-sell all those into our IT partners, which we have over 6,000 of, and all the security system integrators and electric system integrators that comes with Hills, we're, of course, going to offer them some of the IT products, which they currently buy from different distributors. So, that's an immediate uptick and opportunity, I guess.

Yes. Great.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Dicker for closing remarks.

Okay. Thanks very much, everyone. Thanks, Mary. Thanks, Vlad. Thanks for the questions, and thanks for everyone for listening. That's it. Have a good day.

Thank you.

Thank you.

Thank you.

This concludes your conference for today. Thanks for your participation. You may now disconnect.