Dicker Data Limited (DDR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Dicker Data's Full-Year FY '25 Results Webinar. My name is Sam Wells from NWR. And joining me from the company today is Executive Director and Chief Operating Officer, Vlad Mitnovetski; as well as Executive Director and Chief Financial Officer, Mary Stojcevski. Following a summary of their results released to the ASX this morning, we will have some time for Q&A with the management team. There will be a choice of 2 options. First, covering research analysts will be able to raise your hand throughout the presentation should you wish to ask a variable question of the management team, or we will also take written questions via the Q&A function at the bottom of your screen throughout the presentation. We'll endeavor to get to the majority of questions asked, in some cases, combining questions on the same or similar topic. And with that, I'll pass it over to you, Vlad and Mary.

Thank you, Sam, and good morning, and thank you, everyone, for joining us whilst we run through our FY '25 results presentation. Just an overview of what we're covering today, the highlights and the results, and then Vlad will take you through a market update and opportunity for questions as Sam has indicated. So, what we'll start with is a summary of the highlights for the FY '25 year. We are very pleased to be reporting the results for this year, which was a very strong outcome in respect of how the company traded. We did provide guidance towards the later part of the year with our half year results update, and we're very pleased to be reporting that we exceeded guidance in respect of both the revenue outcome and our operating profit outcome. As you can see, total gross revenue for the group finalized at $3.9 billion, just short of the $4 billion target, which we will be definitely aspiring to reach over and above in FY '26. The revenue number represented a very strong growth of 14.9% on the corresponding previous year. Of this number, over $1.2 billion is software sales. And of that software sales, $1.1 billion is the recurring revenue software. So, very strong quality revenue coming from our software business, representing 22.4% growth. EBITDA also grew. The lower growth rate, a reflection of slightly lower margins. However, net operating profit before tax, very strong outcome of 10.1% growth, driven by cost management and savings around interest costs and the incremental contribution of GP dollars, even though slightly lower margins. That represents earnings per share of $0.474, being 8.6% up. If we look at the historical performance, the company continues to deliver strong top line growth, and this year was no exception. Very strong result relative to the forecasted growth rates for the industry, particularly in the Australian market, which we'll cover in a little bit more detail with the country splits a little bit later on. GP dollars increased to $347 million at a margin of 9%, and that was in line with expectations and as we had indicated at the half year, representing a shift in customer mix, which we will provide a little bit more color around customer segments later on in the presentation. That resulted in a net profit before tax margin of 3.2%, again, within expectations, slightly lower than historical numbers, a lot of the historical earlier years being a reflection of some strong demand drivers around those COVID period and 3.2% is very much in line with expectations. At a group level, we're reflecting both our statutory and our gross revenue. Whilst a lot of our conversation and numbers are around our gross revenue and total billings for the business, we do have to report statutory revenue, which is net of software sales. But in terms of how we view the business, a lot of the description around market share and drivers is a reflection of our gross billings. Like I said, gross profit margins slightly lower than prior years, reflecting underlying demand and contribution from our enterprise customers. We had indicated that there was a slightly subdued SMB market, and we had pivoted the business to higher enterprise transactions. And even that was a reflection of a lot of the enterprise customers doing a lot of their PC refresh during the year, and we're yet to see that significant impact from SMB doing the same. From an operating cost perspective, excluding one-off costs, there's been an improvement in overall cost as a percentage of gross revenue. A lot of that is a reflection of the lower interest rate environment reducing over that period as well and reflected in the PBT growth that we were able to deliver. At a country level, Australian growth numbers significantly up at 17.2%. In the Australian numbers, this also represents over $45 million in incremental new revenue from AI-specific deals. So just to clarify, this is in respect of project-based AI deals. This does not include things like AI PCs. So, there are other elements of our -- and segments of our business that are part of the AI ecosystem. But what we're referring to here is in respect of new incremental revenue that wasn't in the prior corresponding period, and we're seeing a lot of activity around quoting. So, I just wanted to call out that this move to AI investments is reflected in some of these new revenue streams we're seeing. Gross margin in the Australian business, obviously compressed from the prior year, more a reflection of the type of customers we're dealing with rather than a systematic issue with margin overall. It was in line with expectations. We are seeing a lot of demand from enterprise customers. We're servicing that segment, and the new AI investments and deals are also coming from that category of customer. Operating profit before tax in Australia was up 8.2%, benefiting from the reduced interest rate costs, and that was also a reflection of being able to maintain overall debt balances with the interest rate reductions reflected now as a positive contribution to profitability. Australian profit margins, in line with expectations around the 3.5%. Pleasingly, for New Zealand, whilst revenue wasn't as strong in terms of top line growth, more a reflection of us rebalancing our consumer business and whilst growing our commercial business, we did see strong improvement in profitability. There was a lot of work done in respect of costs in New Zealand. All categories of costs were reduced overall from total cost, headcount costs and interest costs, all contributing to a very strong profit before tax increasing by 37.2%. Now whilst PBT margins are still not in line with the Australian business, that is the work we're continuing to do. And our aspiration is to get that number well above the 2%, but there was a significant improvement in FY '25. And year-on-year, if we were to look at this measure, you'll see that we're continuing to do the work in New Zealand to keep -- to lift margins -- PBT margins and get a little bit closer to the Australian business margins. Obviously, in New Zealand, we do have a material consumer business, which makes it a little bit more difficult to operate at the higher Australian gross profit margins. Hence, in New Zealand, gross margins were able to be maintained at the prior year percentage of 8.5%. From a strong balance sheet as at the end of the year, there was a reduction in our overall investment in working capital by $12.2 million. And whilst total debt increased slightly, net debt decreased by $12.8 million, again, reflecting managing debt balances while still strongly growing top line, was a really great outcome for the year and the business is well funded to be able to continue next period of growth. We've got sufficient facilities within our current borrowing structure that are available for us to continue the growth aspirations of the business. Net working capital days improved. Our debt to equity also reduced and net tangible assets increased as well. We finished the year with strong cash at balance date and strong cash generation for the year, reflected with the biggest contribution, obviously, from the earnings. In terms of our dividend policy and capital management, the company declared a final dividend today of $0.115 in respect of the FY '25 year. This is a slight departure from our previous policy of 100% payout ratio in respect of dividend payments. The company has reviewed its long-standing dividend policy and will transition to a revised payout framework between 80% to 100%, obviously, subject to our cash and capital requirements. And the intention is undistributed profits to work towards possibly reducing some debt or reinvesting back in the business. And the company will retain its quarterly dividend structure. However, we'll be making decisions around dividend payments in respect of requirements at that point in time. We've also this year introduced a slight discount on the DRP for shareholders that want to participate in the DRP, and hope to see sort of contribution from that if that's going to get taken up. In terms of segment performance, Vlad is going to delve in a bit deeper. But as you can see, there was strong growth in respect of all our key segments headed up by the software business and the diversified nature of all our segments really positions us well for FY '26. What I'll do now is hand it over to Vlad, and he's going to go into more detail in respect of each of the categories and provide a little bit more color around the growth and what were the drivers of growth within those segments.

Thanks, Mary, and good morning, everyone. It's great for all of you to join us. And yes, I'm just joining Mary to saying we are incredibly pleased with our 2025 results. We have performed very, very strongly, and we're absolutely feeling that momentum going in 2026 as well. And the company is carrying the momentum beautifully. So, expecting another very strong result in 2026. Now, let's go back to 2025 before we look at where the growth is going to come from 2026. Let's unpack a little bit where the growth came in last year. So, software did extremely well. Subscription revenue continued to grow. We're adding new vendors in the portfolio. AI is driving a lot of innovation within new software vendors coming on board and existing vendors doing really well. Every single software vendor showed growth and every single software vendor has continued growing this year as well. We're having a fantastic momentum around our partner base, really getting into stacking the software solutions one or the other, procuring it through our platform and driving that subscription base. Adobe was one of the big winners, Microsoft, VMware, Citrix, all the data management platforms like Commvault, Veeam and others. Cybersecurity vendors have been doing really well. CrowdStrike added. So, really, really pleased with the results. Endpoint solutions, we knew it's going to do well. We've done above expectation. We've done above what market have done. And despite that our traditional way of driving the growth always been mid-market and SMB, our driving growth for us last year was a little bit more tailed towards enterprise business. So, a lot of enterprise and a lot of mid-market customers have refreshed. The average refresh cycle percentage depends on which vendor reporting is somewhere between 60% and 70%. We do believe that there is another at least 30% refresh to come, and a lot of that refresh to come from the small business. So 2026 -- and you'll hear me a lot more referring to it, but 2026 is going to get into that SMB business to drive that refresh. Advanced solutions did really well. Mary mentioned about AI opportunities that we've delivered in 2025. We've been quoting and securing great AI deals. Some of it invoiced in 2025. Some of them will continue to invoicing in '26. We are very, very optimistic about this opportunity. I mean the AI factories and data center infrastructure on the AI platforms is going to be one of the biggest growth opportunities for us in 2026. The retail business was flattish. A lot of our focus in retail business was to really improve productivity and operational efficiency. So, we have deliberately needed to ensure that our New Zealand retail business, which is the biggest slice of our retail, very heavily Apple-driven is getting back into the really strong growth operating profits, which was achieved. Our Australian retail business, which already operated on a much higher profit margins continued to grow. We've delivered a really good balanced result within our business, but we've definitely improved our operating profits within this business. It's very, very pleasingly to see. Our audio visual business was stable. We would love to see slightly bigger growth in this market. But again, a lot of budget spend went into software, critical data center infrastructure and personal computing. So, not a lot of spend went into audio visual. We do believe that, that budget spend is going to recalibrate and probably would give us a little bit more tailwinds in the AV sector in 2026. So, we're forecasting a good growth in this segment. Access and surveillance continue growing well, 16% at a very good profit margins. We've added a couple of really good new vendors in the last couple of years. And this business not only growing well in top line, but continue to driving even stronger growth in our net profit operating of this business. So it's really good. Now the services. We're not a big service company and part of that services number, what we call our telco business. This is where we work very closely with our telco vendors to drive and being an agent to sell their complex data solution. So we have decided last year, we're going to go away from being an exclusive Telstra distributor, and we're going into the multi-vendor distribution sector. From that, we've lost a little bit of Telstra bookings, but we've signed very, very exciting vendors like Optus, Vocus and a few others, more coming in this year as well. We're going into our -- a very natural and very accepted multi-vendor servicing model. We do believe it's a great opportunity there. So, we continue to develop it. So all in all, very balanced, very good result. And if we look at the chart, you can see that our software business is now 30% of our overall mix. We still have a very strong hardware business, which is about 70% of our mix. We're very, very pleased with how balanced it actually is. I've mentioned a couple of new vendors. Again, every sector of what I've just went through started from software, advanced solutions or our DAS business. We're adding new very, very exciting vendors. So, I'm not going to go through all of them one by one, but you can read them through. So again, I've mentioned our software dominance and taking a lot of market share and driving that software stack with all our customers. Materialization of the Windows 10 refresh opportunity at scale. We've driven a lot of activities last year, and it paid off and incredible results for us. We have deployed our first sovereign AI factory. We've partnered very closely with Dell Technologies to deliver this deal, and we're partnering with them even further to deliver more and more at scale AI solutions. We are building our proof-of-concept solution with not only Dell, but Cisco, HPE and a majority of our data center infrastructure vendors building that stack together. A lot of great opportunities. We've added a vendor called Vast Data, which is the enterprise storage data platform, supporting the AI deals and supporting the AI platforms. We've locked that contract exclusively with Dicker Data. I do want to mention that most of our data center infrastructure vendors, including NVIDIA and Vast Data and all the others that I mentioned, recognizing the investments that Dicker Data put in, in driving the AI adoption and AI deals into the market. So, we put ourselves in an incredibly strong position to continue that momentum in 2026. Industry recognitions is our standard slide. I'm probably going to brush them through quickly, not because they're meaningless, they're incredibly meaningful. For us, for a local organization, Australia and New Zealand to get recognized by global giant vendors for what we do. It's not just the results. I feel it's the trust that those vendors putting with us. It's the trust every day that our customers putting with Dicker Data. A lot of our customers, thousands of our customers managing critical infrastructures and very, very important end-user clients on a daily basis and putting that trust with us and getting those recognitions means a lot to us. We know we're driving a great deal of value. We know this value resonates strongly with our vendors, with our partners and obviously, that's reflected in those recognitions. Okay. So, now we're moving a little bit more into 2026 and outlook. So very interesting times, very exciting times and a little bit of uncertainty with certain segments of the business, which I unlock a little bit further, which represents a huge deal of opportunity for us as an organization. In fact, all distributors all around the world will probably take it as a big opportunity in 2026. But let's start from the big view. The big view that data center systems, what we call our data center infrastructure or advanced solutions will be growing somewhere around 20% plus. I've mentioned that I see that as one of the biggest growth opportunities. Some of that is AI-driven, and some of that is just the data center modernization refresh cycle. We went through a big refresh cycle with PCs. We're moving into the refresh cycles with data centers. The budgets will be allocated to data centers this year. No mid-sized or large-sized organization will be left behind without modernizing their data centers. They need to take advantage of AI opportunities. They need to adopt and drive innovation, automation and a productivity level. If they don't do it, they'll leave behind because others is doing it and doing it really well advanced. We're seeing government investing a lot in their infrastructure refresh. We're seeing major segments of our economy is investing heavily in driving it. So, I absolutely agree with this assessment. I do believe that advanced leading solutions is going to drive. Now if I take it down the step, what does it mean for Dicker Data? Well, we have every single vendor under one roof. We position ourselves as the leading AI knowledge provider, trainer, enabler. All the vendors is putting their AI ports and train hours staff so that we can train our partners to drive adoption of AI. We're positioned incredibly well. We have every single vendor under this roof, starting from the server, then storage, networking, software layers and ability to service it all as well. Moving into devices. Very predictable after a very large year of refresh, especially with the enterprise and mid-market. We probably would see a slowdown in the PC sales in 2026. The Gartner thinking about 6%, I'm going to come back to this point a little bit later when I start touching point on price increases and some of the supply uncertainties that we currently have in the market because my view is slightly different to this, and I'll explain to you why in a second. Now if we look at the software, double-digit growth. I expect nothing less from Dicker Data point of view. We're going to continue to grow double-digit growth. I feel that this is a really good opportunity to innovate and bring new vendors on board. So, very, very exciting area for us. If I look at our internal expertise, if I look at the investments we're putting internally, the software definitely -- software capabilities definitely would be one of them to focus. When we look at the IT services and communication services, we don't do a lot of services. It's really probably -- I mean, we, as an economy, we are very service-driven economy, but a lot of our partners is actually driving that. A lot of our partners, this is their job. This is their responsibility to drive a lot of managed services and drive a lot of secure managed services into the market. We are there to support them with our technical abilities, solution architecture, deployment of stock and giving them the full enablement and training. Their responsibility is to get this and then drive the services. So, this is how we work with the channel. We're also expecting a very, very strong upside spend in New Zealand. We do believe that New Zealand will demonstrate a stronger growth this year even for us. Now, most important topic that I want to also talk to and then go back into the conversation on devices. So, we're currently experiencing a bit of uncertainty in terms of how the whole pricing works, shortages on RAM memory devices. So, what's happening in the market right now, a lot of RAM supply all around the world has been locked in and forecasted by the big technology companies, where probably limits some supply into some of the vendors that we work with, whether it's the PC vendor or server vendor, I think everybody is feeling that there's less supply of RAM chip coming in. For us, as Dicker Data as a distributor is an incredible opportunity. I feel all the companies in the world who has big warehouses and a great strong capital backing to hold on to inventory a little bit longer will be winning this year. We're already seeing it. The price increases we're seeing on devices have been close to between 30% and 35% so far. We're probably going to see devices grow in price by about 40%, 45%. And looking at the market and looking where demand is, the volumes and the units is not dropping much at all. We have already lived through January. We're living through February. I can kind of analyze and I can assure you that the volumes of devices that we're servicing and the price increase that we're currently experiencing is benefiting us. I'll put it in very simple terms. $200-plus million that's sitting in my warehouse today is going to be worth 20% to 30% more in the next couple of months. It's as simple as that. We're seeing new price lists coming in and distributors who is agile, flexible, close to the vendors, locking in a good supply and good contracts. We can actually take a really good advantage of this opportunity. I see it for us as a great deal of opportunities. We are here to navigate those uncertainties with servicing our mid-market, our SMB. Enterprise businesses, I don't think they'll experience any shortages in supply. Mid-market and SMB, this is our responsibility. But that's where the distributor really comes in place, offering the right alternative, offering the right solutions, offering the right pricing points. And I think we've put ourselves in an incredibly good position, recognizing this phenomenon earlier on, somewhere around October, November. And I think it will deliver a very, very good outcome for us. I don't want to compare it with COVID days, but I can't help myself to kind of see some degree of similarity of what's happening right now to the COVID days. Again, we've done really, really well in those days, really trying to service our customers and delivering the best. It's more of navigating their needs. The needs for data centers is always going to be there. They need to continue to refresh their Windows 10. It has to be there. They need to have devices that will give them better productivity, better automation and improve their efficiencies. So the need is there. The demand is there. Now, how do we navigate all this pricing situation? So, I'll be able to answer more questions. I'm sure there will be more questions when we come to the end, but I hope I gave you a good sort of base scenario, how we see this translating in 2026. Look, I spoke a lot about AI. We love this area. We love the innovation happening in this area. We have launched AI Accelerate practice within Dicker Data. We're traveling. We're doing the road shows in the middle of this year. We're partnering with core big partners all around Australia to drive that AI adoption. We have an incredibly strong relationship with a lot of neocloud providers as well. We're driving a lot of engagement with them. We're assisting them to navigate the complexity of those big AI deals and driving this AI sovereign, AI factories in Australia. A lot of vendors putting a lot of trust with us to drive this innovative approach. So, like Mary have said, we've delivered last year around $45 million of AI deals in 2025. That was invoiced. We have secured a lot more deals, which we'll be invoicing in 2026. I'm very, very confident we're going to beat this number. I'm incredibly confident we're going to double this number in 2026. So, AI is definitely going to drive a lot of growth and momentum for us in 2026. So this -- I want to define a clear 5 pillars of Dicker Data strategies and where the growth is going to come. I haven't -- I mean, I've touched on AI many times. It's real. It's here. We're invoicing deals. We're getting a good exposure to it. The opportunity in AI is big. It's really an exciting area for us to be in. However, outside of AI, the data center modernization refresh cycle is here. We've started to see it in Q4, and we're seeing it more in Q1 and it's going to continue happening. The price increases drive the urgency. So, we do see a great momentum, obviously. I wanted to point out, it's very, very important for me to say. The businesses has to refresh their data centers. They cannot run any AI innovative models or drive any efficiencies within their current data center infrastructures and environments if they sit on a 5-year-old data center and 5-year-old data center environments. It's just not possible. So yes, it could be a pressure on budgets. The budgets will be allocated to the critical infrastructure. They have to invest and they have to go. The prices are continually driving up. So the sense of urgency is there. We have never been busier as we are right now in our advanced solutions segment in the business. So it's a very, very exciting area for us. Software continue to grow. We have 2 or 3 great vendors who didn't even come close to their maturity cycle from getting them on board at Dicker Data last couple of years. We're going to drive that momentum. We're going to take more share in the software business, but also it's a very, very strong natural cycle as well. A lot of our software vendors bringing very, very exciting AI tools, AI bundles and our partners loving it. So, I think that's going to go really, really good. When we look at the customer segment, we've seen stronger growth in 2025 from mid-market and enterprise. We still -- we saw a single-digit growth from our SMB partner base, which is really good. And that single-digit growth predominantly came from Q3 and Q4 operations last year. We are seeing continued momentum in SMB spend in Q1 this year, which is also very, very pleasing to see. SMB is our bread and butter. SMB is in DNA of this company. We're going to drive a lot of tactical and strategic events this year to really drive SMB momentum. We have some real good tailwinds with continued Windows 10 refresh and other things as well to drive that SMB spend. So, we will be very, very focused there. And our DAS business, our retail business, smaller parts of our business have a huge opportunity in front of them. Again, continue balanced retail business and drive the profitability on there. DAS has been growing 16%. We're expecting very similar growth again this year, huge opportunity there. I have to as well mention -- so I've talked a lot about opportunities in Australia and New Zealand. As a Board, we always talk what's the next? How can we increase our total available market? A lot of our vendors asking, we would love to partner with you if you go to the ASEAN market or APAC market. We have now 2 established entities, one in Philippines, one in Singapore, predominantly those entities supporting the back-end operations of Australia and New Zealand business. But those conversations are accelerating. There is no doubt we'll have a number of organic growth strategies and conversations happening. So, I think it's just a matter of time when we're starting to operate in some on all of those markets, but this is where we're putting some of our mind and investment. We're very careful with going outside Australia and New Zealand because it's very different markets and different environments. So, a very, very measured approach is our approach. So, little steps, small steps, high margin, maybe driving the digital distribution where there is not a lot of cost involved, not a lot of investment alone, but the high-margin returns. So, this is where we're going to test the market. Big year for us. Every second year, Dicker Data runs an industry big event. It's called TechX. It's one of the biggest industry events. This is the year. So, we're very, very excited. It's actually fantastic because we have the AI explosion happening. We have SMB coming back into spend, where really we need to drive that very -- in a very focused approach. And those TechX events is really helping us out. So it's a Perth, Brisbane, Sydney and Auckland as well in New Zealand. Okay. So well, this is our presentation. This is our view on last year and a bit of an outlook on next year. And we're happy to take questions now.

Thank you very much, Mary and Vlad. [Operator Instructions] First question is going to come from Josh Kannourakis at Barrenjoey.

First question just on the topic du jour being AI. Obviously, you've talked about some confidence there moving forward. But can you talk a little bit more about potentially some of the sovereign AI factory opportunities as well as specifically on the neoclouds? And just help us understand, I guess, both the architecture and hardware opportunities there, but I guess also from a software perspective, how you can leverage hardware into some of the software respects?

Yes. Absolutely. So, neocloud providers is basically an alternative to hyperscaler providers. Both doing a similar thing, is offering the platforms to the companies to build their own AI models and drive those efficiencies, automation and productivity levels within their organization. I think the difference is that the neocloud providers, they hold their factories in Australia. So the data that all the companies will be putting in this environment is well protected, full secured. And there's a lot of policies. There's a lot of compliances, especially in the enterprise-grade businesses in the government-grade businesses. So the demand for those neocloud sovereign AI factories is quite strong. So, what it means? It means a very similar architecture as traditional data centers, but there's a couple of key differences. One is there is traditional architecture of a server storage and a networking with a software stack. The traditional way it's built, it's not strong enough. You need an NVIDIA GPU, AI grade in there. You need a lot more power driving those consumptions and you need a different grade level of software and different grade level of networking. When we talk AI factories, it's not the same as a data center modernization. It's a revolution. It's completely different. Basically, the data centers that we know right now, as we see right now, in the next 5 to 10 years is going to completely exit the market. In 5 to 10 years, we will be dealing with what we call now AI factories and those powerful super-compute, super processing power, data management platforms. So, we have a handful of neocloud providers in Australia, but also we have some global neocloud providers who is also coming into Australia. We work with a few of them. Some names, I can name some names. Firmus, you've probably seen them in the report, Sharon AI, you've seen them. ResetData, we're closely working with those guys. So, we're all working very, very closely with them. They're partnering very closely with a number of vendors that we represent. We then lock the deal in and those names that I've just mentioned, buying those equipment from us, we're deploying it, we're delivering it, we're project managing it. And those guys then -- so you know the whole AI game, right? And you see billions and billions of dollars in big 7 tech companies investing, trying to position themselves as leaders in this revolution. Same thing what we do. What we do? We're trying to lock in those deals. And yes, some of them are large in scale and slightly lower in margin. But what we're doing? We're putting ourselves as a leader in this platform. And guess what, those neocloud providers is going to continue to upgrade their AI factories. They're going to continue to bring higher-level GPU cards in there. They're going to continue to upgrade their network. And if we are partnering with them from the beginning and if we are earning their trust as a trusted partner, then we're going to lock in all their upcoming revenues in coming years. So, this is our strategy. That's the neocloud providers. The other big opportunity with AI is enterprise business. This is where we currently -- unfortunately, don't see a big adoption and uptake yet. So, this is where a lot of us and vendors in the industry trying to drive that. It's basically businesses like us, like Dicker Data and similar businesses, driving their AI automation and adoption internally. And this is a big, big opportunity as well for us. So hopefully, I answered that question.

That's good. Second question, just cognizant of time. Just obviously, the SaaS-apocalypse as people have sort of been calling has been a big focus in software markets. I think when we look at your vendor mix, you've really pivoted as well to a lot of businesses around data, a lot around security and leveraging that into some of the AI thematics. When we think about -- I know I guess you're in the early stage as well. When we think about that mix going forward, offsetting it, maybe you can give some commentary around some of the risks on the software side versus what you actually see more as the opportunities leveraging to those thematics we discussed.

Sorry, I missed the first part of the question.

The subscription revenue from a lot of software companies valuations have come up. We're partnering with key software vendors like Microsoft and the cybersecurity vendors. We see a lot of our software spend is non-discretionary in that. It is critical for enterprises and businesses to maintain and secure their environments and their operations. So, I think a lot of those single product specific subscription models might sort of be at risk from what I -- you probably have a better idea on that. But the vendors we're partnering on the software space, we feel largely is non-discretionary spend because it's critical for business, and that's a reflection of the software growth we've delivered. Microsoft is our largest vendor by far.

We're talking about software vendors who are so complex in their nature, delivering complex multiple lines of platforms and businesses that a lot of enterprise customers are completely entrenched. We're talking about some of the AI tools that potentially can replace some single functionality by some of the vendors. What I can tell you, when I ask a similar question or I talk to the software vendors, the amount of investments that they put into bringing their own AI innovation, their own AI tooling exceeds any of those other investments that I've seen that possibly. And the other good thing is there is disruption in the market a good thing because it actually drives those software vendors to continue to innovate and continue to drive this complexity. So look, I've seen the market. I've seen the valuations coming down. I feel it's a little bit of a DeepSeek moment we've had a year ago or so forth. Those vendors are very strong. They invested years and years and years in their innovation, driving their AI tools as well. All the software vendors I've met in the last couple of weeks forecasting a fantastic growth this year. So, I'm very, very confident.

Next question comes from Aryan Norozi at Jarden.

Just first one for me, please. Just on the comments, Vlad, you talked about having $200 million of inventory that will be worth 30% more in 3 months. Just how do we think about how that flows through to the P&L? Because if you -- the $200 million becomes worth $260 million, isn't that an extra $60 million of gross profit that just flows through your profit statement?

Well, what I'm trying to demonstrate is the appreciation of the inventory right now. The inventory globally is appreciating. And a lot of those inventory will go into a bid business. The bid business is going to discount it, of course, and we're going to drive normalized margins. The SMB pickup, the SMB sales, we're currently going through that sort of a transition period. I'll try to articulate it a little bit more. So, through October, November, a lot of partners and a lot of industries stocked up because they anticipated a price increase. I don't think there is a big shift in supply. I think supply is happening quite nicely, but the price is increasing. Now, a lot of those partners is now flushing that stock into the market. So when we look at the market, if you look at the pricing in the market, it's actually slightly elevated, but nothing to the extent of how the new price list that we're receiving from our vendors. So as they're getting into that, returning their cash into the businesses and moving this inventory out, I think we're getting into that sort of a transition period where customers will then start accepting the new price list and new pricing. And we're really starting to see that transition. Whether it's going to -- I mean, obviously, I've tried to articulate that our stock and inventory is appreciating. Whether it's going to appreciate from $200 million to $250 million or $260 million, obviously, I don't know. No one knows. I'm trying to demonstrate that the inventory we're currently holding is a good inventory. We have capability as the business at the back-end capital to hold on to that inventory just slightly longer, which will give us a fantastic opportunity then to service SMB market with slightly reduced price of the new increased price list. And that's going to give us a good flow of momentum, obviously, translate in great revenues and uplifted margins.

That's great. And just on the SMB side, which is great to see that the second half has sort of improved in terms of back into growth. Like from my perspective, that's about a $250-odd million annual revenue opportunity for you guys that you've lost and that there's an opportunity there. How do we think about how much the SMB revenue grows in 2026 versus 2025? And maybe in the fourth quarter, which is when the SMBs were improving, like what was the growth rate that you saw there? Was it 10%, 20%?

The SMB growth in Q4 was 8%. So, we grew our SMB by 8%. It was a very, very pleasing result. That was the Q4 '25 versus Q4 '24. It's very difficult to answer your question, but I'll try. So, SMB market is definitely having a bit of a tailwind. They are refreshing. They have to buy new PCs. But also don't forget that SMB market is probably is one that will feel those price rises eventually when it drives into the market the most. I've mentioned before as well, when the price increase is happening, then the IT budget needs to be carefully allocated. Are those IT budgets going to allocate it more into their data center infrastructure or into the end client PCs? Well, that's a bit unknown. So it's very hard to predict. I personally feel that number of units that we ship into SMB is going to be lower because of the -- because not all SMBs is going to get into refreshing or buying into the higher prices, but the price rise is so significant and our position is so strong where I do believe that revenues is going to continue growing very, very well. So, this is where I see. So, number of transacting partners, hard to say. I think it's going to be a single-digit growth. Volume of shipping units could be flat or slow decline, but the revenue should be very, very solid.

Next question comes from James Wilson at Macquarie.

Can you hear me now?

Yes.

Yes. Cool. The data center opportunity seems pretty exciting. Can you give us some color on the size of those opportunities you actually expect to close in 2026? And maybe also just give us some color on how those margins on data center work sit relative to your typical SMB work?

Yes. Look, we are -- I mean, you've -- I know you've seen that our gross margin have kind of came to around 9%. We're very, very happy with around 9% mark. And this is where I think in 2026, we'll see that balance. Larger AI opportunities will probably put a little bit of pressure on the gross margin, but still an incredible opportunity. I do believe that the second and third modernization of AI factories will drive much higher margins. It's just an initial platform base and securing those opportunities drive slightly lower margin. But that's a different sort of topic of conversation. On the other hand, the revenue growth in SMB, mid-market, higher prices, our advantage of holding a lot of stock at the lower prices will drive the margin up. So, I think that will nicely balance in 2026. We're still very much aiming at that sort of 9% mark. Which way it's going to swing? It's hard to say. We will definitely -- look, it's a very important measure, but more importantly for us, it's that fundamentally drive that leadership and putting ourselves in this very strong position as an authorized AI distributor for all our major vendors we represent. Now in terms of qualifying the opportunities, we've quoted well over $200 million in opportunities last year. We've landed around $50 million worth of opportunities, which we've invoiced in 2025. We actually landed a lot more. We're going to continue to invoicing in 2026. I can tell you my feel. My feel is we're going to double that. And obviously, I'm expecting to do more than double of that. We're putting a lot of effort. We're putting a lot of investments. It's a great space to be in.

That was very comprehensive. Just one more question from me, please. That 9% mark that you've effectively anchored yourselves to, I think that's based on a Gartner forecast that was set back in September of 2025. Just if we think about the first 2 months of this year and the interest rate outlook, how confident are you that sort of looking at the forward demand that you have that, that will hold over this half and the rest of the calendar year as well, please?

Look, it's very, very hard for me to conclusively say that it will definitely hold. Look, if tomorrow, I'm going to get a $200 million AI opportunity at 7%, I'm going to take it. So, is that going to put pressure on my half results? Of course, it will. But ultimately, it's a strategic direction of the company. We want to be in this space. GP dollars are still fantastic. So, I'd probably be in more confidence to make a comment around our PBT or EBITDA. Like that's probably where we're really, really focused as an organization. My view is that 9% is here or there like should be maintained, but it's all -- it's very, very hard to...

James, are we referring to margin or growth of 9%? Growth. Yes, so growth.

9% growth. Yes.

Growth, yes. So that's within -- yes, so that's going to be -- and our view is just because of size and scale and we're within -- the market is a good indicator of the growth opportunity.

Apologies. I thought you were referring to 9% growth.

No, it's the Gartner growth, yes.

It's a Gartner growth.

The Gartner growth forecast, yes.

Yes. But then the way to exceed that would be to take some of these very large opportunities, but at much lower margins and that would put pressure on margins. But it will be GP dollars accretive, and that's what Vlad is referring to. Our view is that we look at the profitability of the transaction, but that's indicative that the Gartner is indicative of IT spend. And the size we are now is quite -- we are impacted by the market growth.

Next question from Olivier Coulon at E&P.

Can you hear me now?

Yes.

Sorry. So, I guess when you were talking about the Gartner forecast for devices, you seem to be suggesting 6.6% might be a bit light. If prices are increasing 30-plus percent, only 9% as a market growth looks a bit light as an aggregate kind of number?

That's right. That's right. I believe 6% is light. I believe it's going to be more than 6% purely on the price increases. I just cannot see how it's going to be 6%. If we're growing 30% to 40% price increase on devices, I mean, maybe we're looking at maybe a couple of points decline in units. I mean, how is it going to grow 6%? I just don't see that.

[Technical Difficulty]

Sorry, the line is broken. We can't hear the question.

I was saying it's all great to talk about gross sales growth, et cetera. But obviously, you don't bank gross sales growth, you bank gross profit dollars. And I guess if you look at the last, what, 3, 4 years, you obviously had massive growth in FY '22 in gross profit dollars. In FY '23, you were kind of in the tail end of that where you were banking some of the backlog stuff. And then FY '24 was a tough year, 3% gross profit dollar growth. FY '25, what was that? 7.2%, right? Should we be expecting it to accelerate in FY '26? Because it sounds like you're going to get top line a fair bit better than 9% realistically. And then if SMB comes back, would you think that you should be able to do better than your 7-ish percent gross profit dollar growth in FY '26 versus '25?

Well, I mean, it will be subject to the customer mix. And whilst the margins were slightly lower, the contribution from the enterprise customers was all incremental in GP dollars. I mean it's likely, but it's hard to know how the volatility in supply and demand from SMB customers is going to come through. But we would be expecting growth overall because the way we would be looking at the individual transactions would be that they're GP accretive. So, margins could be slightly softer as a result of adding additional GP dollar growth. I don't know what that number will be, though, Olivier.

But you -- Olivier, but you're right. Look, conceptually, the way you think is correct. We see this market as opportunity. My team is seeing this market as opportunity. And it's really very favorable environment for distributors overall, not just for us. So, there is an opportunity to drive stronger margin GP dollars. So whether it's the GP dollars coming from big AI deals or GP dollars coming from a great margin.

On SMB.

On SMB, we are very, very focused on GP dollars, 100%. So...

Can it be more than the 7%? We don't know.

We're driving a lot of internal efficiency improvements as well. But we're sort of framing ourselves between 7% and 10%. We'll see where we'll land.

At GP dollar growth, you're saying?

Yes. Yes.

Yes. Okay. No, I appreciate it. Just a question on DAS. That saw a nice acceleration in the second half. Do you think you've got the model where it needs to be there?

We're getting there. We're getting there. More improvement, more improvement, more balancing, more exciting vendors to come, but the model works, model works. And yes, we -- again, we're in a fortunate position. We can hold a little bit more stock. The demand for stock is phenomenal. So, I think we'll have a great year in '26 with DAS, yes.

Okay. Do you mind sharing what sort of contribution margin or EBIT margin it's doing now and where it could go to?

No. I mean the profitability margin is in line with the business. So it's around that 3% to 4%. That's after its individual costs, so the branch costs that are part of it. So, gross margins are obviously much stronger. They've probably moderated a bit from where we were expecting in terms of the 25% plus. I think it's a little bit softer than that. But the PBT contribution is in line with the business margin contribution.

Yes. But it's fair to say that given the fixed cost nature of the business, if you continue to see the type of volume growth that you've seen, you could see quite a lot of operating leverage in that business, right?

That's correct, yes. And that's what -- that's the work that Vlad is referring to that continues to be worked on and how we manage the cost because, obviously, there's an additional cost base with running that business with all the branch networks and there were a lot of the learnings we did in the prior years. We got it to a good position last year. And I think we can continue to improve on that this year. And so yes, there will be an expectation of some cost leverage in that business.

Yes. And maybe just the Southeast Asian kind of expansion opportunity. I mean, would you consider kind of small scale or mid-scale M&A to kind of kickstart that or...

All avenues are considered. As long as it makes strategic sense, all avenues are considered and it is an area that's on our radar. We've had, like Vlad said, conversations with vendors who have indicated strong support. It's just finding a way to actually enter the market, whether it's organic or via a small M&A opportunity and we will continue to explore those.

Next question comes from Adam Dellaverde at Taylor Collison.

Can you hear me okay?

Yes. Great.

Vlad, if I remember the pandemic -- and Mary, if I remember the pandemic correctly and I think there's some contrasts to right now on the supply side. Right now, we're seeing significant price rises, PC, server, storage, networking, but supply is readily available. So, I just wanted to clarify. I guess, you've been able to get stock in that environment. Is your expectation that supply gets tight? Because if I remember the pandemic, as soon as supply got tight, basically all of the hardware went through you guys and everyone became a price taker and they were just focused on when they could get the stock rather than at what margin or what price they could get it.

Okay. So, this is how I'm going to answer this question. Theoretically speaking, when all vendors increasing their prices by 30%, 40%, they are expecting supply shortages. That's given. Now, I have not yet experienced supply shortages. Every single order getting supplied. Every single deal has been fulfilled at a much higher price. So when the customer comes in and they need to buy a pre-configured solution, which we cannot fulfill from the stock that we have and we need to place a new order on the vendor. It's getting fulfilled. All AI deals getting fulfilled. Pricing is a different conversation. Now how the vendors is moderating, like I spoke with some of our vendors and some of our vendors said, we have enough supply of components in order to deliver our number for the 12 months ahead. What it means? It means obviously fulfilling all the distribution requirements as well. So, I will be able to answer to your question in a bit more precise way, probably sometimes May, June. At the moment, I don't see supply as a major issue, but the price rise is definitely there. Please, you can buy stock. Stock is there, but it's like 40% more expensive. So to answer your second half of your question, are the customers are believing in the price increase and adjusting to the new price? Yes, they are, they are. There's still a lot of stock at old pricing, including us as well. So, we're probably going to go slowly through this transition. And then yes, the new pricing will kick in and then perhaps we'll have tighter supply chain we're yet to see.

Just the only other caveat on that is if you're drawing the distinction between COVID, the slight differentiator is there was specific demand in COVID that required people to buy irrespective of price. So therefore, price takers. Whilst all the investments are still critical and part of upgrading to solutions to be able to work in new environments, there is a little bit more discretion in that spend. So, that's the only area we can't sort of forecast. But like Vlad said, it's still a great opportunity. Whenever there's disruption, it's good news for us.

Great answer. And just to sort of expand on something you said in your -- before the Q&A, you were talking about volumes holding up and then you -- I mean, you sort of led that you think volumes will tail off. My understanding of what's happened is that the vendors at some point in Q4 said, this is the deadline for you to order at the old price, get your orders in now. And so when I think about your comments on Q1 and Q1 trading, January, February, a lot of stuff that's coming in now could be huge pull forward of people trying to lock in. And so I'm just wondering if you can contrast what are you seeing now in terms of the stuff that got pre-ordered and what are you seeing now in terms of order intake? Is there anything meaningful to call out?

Nothing significant. No, the sense of urgency of placing orders is there, 100%. Are they stocking up and buying more? I really don't see that because it is getting more expensive and the budgets are not quite getting bigger. I think it's the allocation of budgets, what I probably see a little bit more. And Mary is absolutely right. There will be some businesses who will be okay to sweating the existing assets and probably not going into buying at a much high increased prices. I don't think it will affect mid-market and a high-end market. I think these guys are just going to get into the new pricing and just going to drive the business. SMB is interesting. It's a very interesting area, but we have great stock to service SMB. So, this is where my confidence is coming. SMB don't need to rely too much. They can't buy right now. We have different tools to assisting them. We have Dicker Data Financial Services available for the SMBs. So for example, if SMB doesn't have money right now, but they want to get into the old pricing, we can give them finance option. So, we have different tooling in our disposal to get them. And the most important thing, we have stock. So, we'll see how it's going to keep unfolding. At the moment, what I see, increased sense of urgency, very good dynamic, good, busy environment and spend is quite consistent. So, yes.

Maybe a little sneaky one, if I can. Just want to hear you say that there's no competitive event, no competitive pressure that's driving down that 9% number in GP because I have heard some of your competitors have been quite aggressive.

No. No, no. Well, in different segments of the market, we have different competitors driving different strategies. We've been in this environment.

We're always competing. So, that's not unusual. There's no specific environment in the competitive landscape that's different than any other year. But we definitely have seen an increased share of enterprise business, part of it being our own strategic pivot to where the demand was, part of it being enterprise customers actually. The size of our enterprise customers is growing, and the deals we're doing are of the nature that are enterprise grade. So, even the software deals are of much larger sizes. So, it's more a reflection of customer mix. Our focus is still SMB. We still will be like to see that segment expand. They were faced by macroeconomic challenges last year. We thought that we would be going into a year where that was going to be improving, but then you've got a new dynamic coming in around pricing. And interest rate environment, whilst they all need to upgrade, we don't know what that demand looks like. So, having this contribution from enterprise and we've established ourselves with those partners in a more stronger working relationship, we feel will hold us well for '26.

Great. Thank you. I think that's all the time we have for questions today. If there are any follow-ups, please feel free to send them through and we'll try and come back via e-mail. And maybe with that, Vlad and Mary, I'll just pass it back to both of you if you have any closing comments.

Look, thank you. Thank you very much. We're incredibly pleased and happy with the results. Like I've started from the beginning, I think we feel a great deal of momentum within our business. We're carrying that momentum into 2026. And we're hoping to have another great year. We are having a lot of fun doing it. So it's a new era for us, AI era, SMB, lots of disruption and uncertainties. And we normally, as an organization, doing very, very well in those environments. So yes, looking forward to delivering another great result this year.

Thank you.

Thank you.

Thank you, everyone, for joining. That concludes today's call. Enjoy the rest of your day. Goodbye.

Bye.

Bye.