Dustin Group AB (publ) (DUST) Earnings Call Transcript & Summary

Welcome to the Dustin Q3 presentation for 2026. [Operator Instructions] Now I will hand the conference over to the CEO, Samuel Skott; and CFO, Julia Lagerqvist. Please begin your meeting.

Thank you, and good morning, everyone, and welcome to Dustin's presentation of our third quarter results. My name is Samuel, and I'm joined here today by our CFO, Julia Lagerqvist, and together, we will take you through the highlights of the quarter before we open up for questions. I'm pleased to report yet another quarter with organic growth, improved margins, strong cash flow and reduced leverage, while continuing to sharpen our commercial focus and the efficiency of our operations. Net sales development was positive in the quarter, with organic growth of 2.6%. Growth was driven by continued strong performance from the public sector and supported by orders brought forward to secure pricing and availability in the light of the component shortage. The gross margin increased to 14.4% compared with 13.4% last year, and is also a sequential improvement compared to the second quarter. The higher margin is mainly explained by higher market pricing and improvements within Large Corporate and Public. Adjusted EBITA improved to SEK 118 million compared to SEK 72 million a year ago, explained by the stronger gross margin and earlier implemented efficiency measures. The margin increased to 2.3% compared to 1.4% last year. Cash flow from operating activities increased to SEK 259 million compared to minus SEK 139 million last year. This is primarily driven by improved net working capital. Leverage, measured as net debt-to-EBITDA, dropped to 2.3x and is now well within our target range of 2 to 3x and significantly improved compared to 4.1x last year. Turning then to operational highlights for the quarter. During the quarter, we completed several important initiatives that strengthened both our commercial ability and financial performance. First, we completed the implementation of our new sales organization. Regional leadership is now fully in place across the Nordics and Benelux, including the appointment of Anne Nillesen as EVP Relations Sales Benelux and member of Dustin's group management team. The new organization and stronger local leadership bring us closer to our customers and partners and create better conditions to deliver customer value and profitable growth. Second, we have completed the efficiency measures announced last quarter. These measures are expected to deliver annual savings of approximately SEK 80 million with a full run rate effect expected from the fourth quarter. We also took an important strategic step by defining a clear exit plan for our nonstandardized services business. This supports our continued transformation towards our standardized service offering. And as a part of this, we recognized an SEK 800 million noncash impairment during the quarter. On the balance sheet, targeted efforts to improve systems and processes to reduce trade receivables in Benelux have paid off and the receivable levels have now returned to a normalized level, contributing to stronger cash flow and lower leverage. Finally, we're pleased to receive several important partner awards during the quarter from NVIDIA, Dell and HPE, and these recognitions reinforce our strong market position and demonstrate the value we create together with our partners. And by this, I hand over to our CFO, Julia, to give you some more details on our results and financials.

Thank you, Samuel. If we then move to Page 4, we will look more closely at the LCP segment, the Large Corporate and Public. And the sales in LCP was SEK 4.0 billion in the quarter or 8.1% higher than last year. The organic growth was also 8.1%, so basically, no ForEx effect this quarter. The growth was mainly driven by increased demand in the public sector, leading to larger rollouts, and also customer orders brought forward in the light of the memory component shortage and customers wanted to secure volumes. From a geographic perspective, we saw strong growth in Sweden and Belgium, driven then by the larger rollouts in the public sector. We also saw growing demand within our life cycle services offering. As I said before, we can see some large volatilities in sales between the quarters in LCP. Gross margin improved versus previous year and versus previous quarter, which is, of course, encouraging to see. The margin benefited from higher market prices, coupled with a slightly more selective approach to new businesses. In addition, margin was also supported by a more mature contract portfolio in Belgium, where we last year had low initial margins on new frame agreements. The improved profitability in takeback led -- also had a positive impact on margin and EBITA. The growing volumes and margins led to a segment result of SEK 170 million versus SEK 63 million last year, and the segment margin ended at 2.9% versus 1.7% last year. We then move to the overview of the SMB segment on Page 5, where sales landed at SEK 1.2 billion or 11.7% below last year. The organic growth was at minus 11.9%, so very little ForEx effect. Adjusted for the exit from B2C, the organic growth was minus 5.3%. As explained earlier, this is a strategic move to better focus on our core business, and we always expected some sales headwind coming from this. We see some signs of stabilization, but customers remain cautious due to the ongoing economic uncertainty. Looking at the business development, the hardware and software business in the Nordics developed positively and remains a key focus area going forward for us. The gross margin improved versus previous year, supported again by the higher market prices and a continued strong price discipline. This was partly offset by weak performance within nonstandard services, which has burdened the profitability, even though we see some improvement versus previous quarter. The improved cost base from efficiency measures partly protected the segment result, but could not fully offset the lower volumes and weak performance in nonstandard services. And the segment result landed at SEK 34 million versus SEK 37 million last year. This corresponded to a segment margin of 2.8% versus 2.7% last year. We have now established a clear exit plan for our nonstandard services, as Samuel explained, and we begin to execute. This clean-up plan has also led to an impairment of the SMB segment of SEK 800 million carried out in this quarter. The impairment has no cash impact. Moving then to look at the cash flow on Slide 6. We see that cash flow for the period was plus SEK 167 million versus a little bit over SEK 1 billion last year, where last year was then impacted by the completed new rights issue. Looking at the details, you can see that cash flow from operating activities was plus SEK 259 million, a clear improvement versus last year, and driven by both improved operational results as well as targeted work on tax management and also improvement in net working capital. I will talk more about net working capital on the next slide. Cash flow from investing activities was minus SEK 40 million and mainly related to development of our different IT platforms. And the cash flow from financing activities was at normal level and mainly linked to leasing, while last year was impacted again by the completed new rights issue. The combination of the improved operational results and improved cash flow led to further improved leverage, now at 2.3x and well within the target range of being between 2 to 3. Overall, we are, of course, very proud of the cash development year-to-date versus a poor development last year. Coming then to Page 7, looking at net working capital. You see that net working capital landed at SEK 182 million, an improvement versus last year where we were at plus SEK 261 million. And inventory increased this quarter, roughly SEK 44 million versus last year, and this was expected and part of managing the ongoing shortage in memory components, putting pressure on inventory levels to make sure we can deliver. Accounts receivable and opposite decreased, driven by, as Samuel has talked about, continued active efforts to settle receivables from previous periods. In addition, we had some positive timing effects of receivables at the end of the quarter, which all in all led to this positive development of net working capital. We note that Q4 is usually seasonally weaker in terms of net working capital levels due to timing of large rollout at the end of the quarter, driving higher receivables. And as I said before, we will always have some of these timing effects between quarters, but our long-term target for net working capital remains to be around minus SEK 100 million. And with that, I will hand back the word to Samuel.

Thank you, Julia. To summarize the quarter, we report continued organic growth, supported by strong development within the public sector. Gross margin increased, supported by higher market pricing and improvements within the Large Corporate and Public segment. The adjusted EBITA margin increased, benefiting from the gross margin improvement and earlier performed efficiency measures. Cash flow from operations was strong, and our leverage decreased to well within our target range. If we then turn to the market outlook, component shortages remain a key factor in the market. These have already resulted in higher pricing and limitations in supply, and we expect both higher prices and tighter product availability, particularly in the low and mid-range PC segments to continue well into 2027. At the same time, these supply constraints have made some customers to bring forward purchases. And while this has supported demand during the third quarter, it also creates some uncertainty around the timing of demand going forward. Then looking ahead, our priorities remain very clear. We have made progress and are beginning to see effects on the organizational and strategic initiatives we have initiated. The focus is now to continue our execution, improving profitability and delivering sustainable growth. First, we will continue to build on our position as the trusted IT partner for B2B customers. The new sales organization and regional leadership are now fully in place, and our priority is to leverage this to strengthen our local go-to-market execution and improve commercial performance. At the same time, we will continue to execute on our transformation of our services portfolio. We have defined a clear exit plan for our nonstandard services, and we'll accelerate the transition towards a standardized service offering, where we see strong customer demand and attractive margins. In parallel to this, we will develop the SMB business going forward through a more focused approach on the services and customer segments where we see the strongest potential. Besides improving our commercial execution, efficiency remains an important priority. Following the completed cost measures, we will finalize our review of indirect spend to further improve our cost base and operational efficiency going forward. Finally, while the market environment remains somewhat uncertain due to component shortages and pricing dynamics, we are well positioned to support our customers through our strong supplier relationships, high delivery capabilities and broad product availability. We believe we're on the right path. While there is still a lot more work ahead, our priorities are clear, and we remain fully focused on building a new stronger Dustin by executing our strategy, improving profitability and delivering sustainable long-term growth. And with that, we conclude the presentation and open up for Q&A.

[Operator Instructions] The next question comes from Jesper Stugemo from Handelsbanken.

Yes. Samuel and Julia, I hope you can hear me.

Yes.

Yes, we can.

Okay. Great. So I have a few questions here, if I may. So beginning with LCP, we saw 8% organic growth. How much was price relative to volume in this growth number?

I mean it's a bit hard to say exactly what is driving the different factors. But I would say, the larger part is still volume, volume related, as I said, coming from these larger rollouts, and a much smaller part is from the pricing increases in that sense. If you look at the big picture, of course, we have had some, as you all know, large price increases in the market in general, but that's the way that we have split it up.

Okay. So you think that you still have a benefit from price increases going forward in this segment?

You mean for the following quarters?

Yes. Although that you mentioned that -- you said it was uncertain, but I was thinking that you said the prebuying and volumes and less from pricing. So shouldn't that mean that you have some more benefit on pricing then?

I mean there is, of course, some benefit of pricing. But if we look at the results in the quarter, I mean, the majority of the growth and also the gross margin improvements come from volume is the majority. We had some really good rollouts and sales. And then from a margin perspective, of course, pricing is a part of it, but it's also that we have been a bit more prudent given the uncertainty in the market on pricing and on the deals we take, and we've also had an improvement in Belgium, where we had very new kind of customer contracts last year and now are at a more normalized level from a contract and margin perspective. So those are the main explanations.

Okay. And then if we look at hardware in the SMB, it fell 7% year-on-year. But then I guess it's mostly volume driven here as well then?

Yes. I mean, here, you maybe see a bit more pricing on the smaller customers, I would say. But it's also volume-driven.

Okay. And on the prebuying effect, do you have any estimates, how much it was in the quarter, like 3%, 4% of the growth or -- yes?

We -- I mean, we talked about this last quarter as well. And then we said we saw prebuying in the area of roughly SEK 200 million. I think in this quarter, we have seen prebuying of roughly, I would say, around SEK 300 million. It's, of course, very hard to say. I mean, as I talked about LCP before, volumes can move between the quarters. But these are the volumes that we have identified as clear prebuying linked to pricing.

Okay. And one last question from my side. When do you expect the nonstandardized services to be fully phased out? How much of that is -- how much is the percentage of sales related to nonstandard services? And what kind of margin do you have on these contracts versus the standardized?

Yes. So we're expecting a full phase out to take roughly, a maximum 2 years. And it's a minor part of the full managed services portfolio, and it's today, an area where we're not making money. So with this fully phased out, we definitely foresee an improvement in profitability going forward.

The next question comes from Thomas Nilsson from Nordea.

I wonder if you can talk a bit about the long-term target for margins in SMB. You still have a 6.5% long-term margin, and we saw a 2.8% margin in SMB this quarter. After exiting nonstandardized services, what are the key levers to rebuild margins? And what time frame do you view as realistic for margins in the SMB segment to get near to your long-term target?

In terms of long-term targets, it's still obviously the Board that aligns and approves on what the long-term target is for Dustin, and we, as the management, work towards those ones. Obviously, as you point out, at the moment, we are quite far away from our long-term target. And we have a journey to go there, specifically on the SMB side, I would say. Maybe, Samuel, do you want to add a bit more on the -- what you want to do?

Yes. So if we look into the different buckets of our SMB business, if we start with the services part, as we said, we've now taken a strategic decision to fully focus on our standardized portfolio, where we see good customer demand and where the margins are attractive and where we have good profitability already today in that business. But with that decision also comes the clear exit plan on the nonstandard services, which will take up to 2 years to get fully out of, and then we expect clear profitability improvements of that. So growth in the managed services in the standard portfolio, coupled with completely exiting the nonstandard is one lever. The other one is, look, if we look at the Nordic hardware and software business, there, we are starting to see underlying improvements, and this is something we will fuel and continue to work with because here, we have a very strong position and a very strong online engine and brand. So that is one aspect. And the third aspect is if we look into the Benelux and specifically Netherlands, where we will take a slightly different approach going forward and not focus at all at the smallest B2B customers, but rather go after the opportunity we see in mid-sized to slightly larger-sized companies, which also plays much better to the local strength and the local positioning we have as Dustin in that market. So those are the 3 main areas we will work with going forward.

Okay. And perhaps one final question for me. The gross margin in Q3 was 14.4%. Do you view this as a sustainable level? You saw some benefits from higher pricing and also maturing Belgium contract portfolio. What effects did you see in Q3 that were structural and which may be temporary that helped lift the gross margin?

I mean you point out, I mean, obviously, the price increases will not -- those benefits will not go on forever. So those, I say, are a little bit more temporary. The Belgium one, hopefully that will, at least during the contract period for these bigger framework contracts be a bit more stable now. But of course, that can always change. I mean we have contracts coming and going all the time. But if you -- for those specific areas, I would say that the contract maturity in Belgium is hopefully a bit more stable and the other one is a bit more temporary.

Okay. Okay. And with your balance sheet now much stronger, what do you think in terms of capital allocation, now that leverage is down to 2.3x EBITA, should we expect further deleveraging, perhaps resumed M&A or dividends once profitability stabilizes in Dustin?

I mean for us, I mean, of course, we always have M&A on our long-term agenda, but it's not something that we are looking at right now. I mean we're focusing, as Samuel said, on turning around the business that we have. We still have a long journey to go to be where we want to be. I would say that's the main focus for us as a company right now. In terms of the dividend, that's not something that the management decides, and that's also a Board and ultimately, an AGM decision, I would say. Hopefully, that answers your question.

The next question comes from Mikael Laséen from DNB Carnegie.

Yes. A few follow-ups here. Mainly it's -- first of all, on the LCP area. And if you can comment on how much of the prebuying that you saw was sort of concentrated to a few large public sector contracts or countries or if it's as broad based?

No, it was related to a few larger customers predominantly in the public space.

For those ones that we have defined, I mean, like I said, it's hard to see exactly what is prebuying and what is else, but the ones we have defined is related to LCP, yes.

I saw that Sweden was clearly stronger in this quarter than prior quarters, while the Netherlands was weaker. So is this sort of an effect of this prebuying situation?

No, I think it's more a variance between quarters. We had some really larger rollout with some customers in Sweden and slightly lower seasonality -- in seasonality terms in the Netherlands. So I think nothing to read into that in terms of prebuying.

Okay. And moving over to SMB. I was wondering if you can comment on what you're seeing in underlying SMB demand currently in the market?

As I said, I think in the Nordic hardware software business, we are starting to see slight improvement, but from very low levels, but still a lot of uncertainty. And I think cautious by customer is continuing to -- I mean, a lot of the SMB customers that I talk to and meet are still very cautious and they're still postponing purchase decisions. So I would say it's still a cautious market with some slight improving trends, but still fragile, I would say.

And just a general question on the pricing situation here when we see that hardware vendors are increasing prices by 20%, something like that, depends, of course. But what do you expect in your business? How will this impact you? I mean you have a demand side as well and then you have a pricing side as well. So just curious the net effect, how we should think about it?

But if we look at like what external analysis firms are saying, and I think we're seeing and saying the same, that we expect the volume, i.e., the number of units to come down, especially in the low-end segment, and we're seeing that happen already now. But of course, with prices going up, the value still stays flat or slightly positive. I think ADC is projecting like 2% growth or something like that. So all in all, it seems to be netting out quite much.

Okay. Yes, that makes sense. And going over to the nonstandardized services, just so we understand this situation here going forward as well. Can you explain, first of all, what the services consists of? And again, I mean, maybe comment on how much the revenue you have currently?

Yes. So if I start with the first part of it and then hand over to Julia. It's -- this is a legacy portfolio or a portfolio of older solutions and older customer contracts in the managed services space. So where we manage networks and services and workplaces. And it is, as I said, legacy -- so versus our standardized portfolio where we have -- and it's very hard to scale. So a lot of them are customer unique, built on legacy platforms, et cetera. So they have -- they don't have a very long future. And it's an area and a portfolio of customers and services, where we see very limited possibilities to build scale and profitability over time. And that's why we've taken the deliberate decision to instead exit this portfolio completely, and instead focus on the standardized portfolio, which is the majority of our managed services business, where we see a demand and where we see attractive margins going forward. And Julia, if you want to elaborate on the size?

Obviously, we don't share those specific sales numbers by department, but I can say it's a very small part of our business. What is remaining sort of the legacy or the nonstandard segment. But also if you look at the total sales of managed services, for example, it's not a huge part of the sales, but from a profitability point of view, the managed services, where we have standardized services, is a big contributor to the profitability. But again, on the nonstandard, where we have been declining over time, and we are stuck with some fixed costs there, we have very, very poor profitability, and like you said before, not making money basically.

So when this exit is completely done, to give you some view of it of the size of the price, so to say, we do expect a run rate improvement of profitability in tens of millions on the yearly run rate.

Okay. That's helpful. In annual terms, right?

In annual terms, exactly. So it's not huge, but it is impacting, and it's an important step for us to get more focused, more profitable and focused on the scalable parts of our business.

Okay. And with this SEK 80 million cost adjustment that you announced last quarter, will you have managed that -- I mean the overall cost structure in that nonstandardized part of your business? Or will you have, I mean, remaining cost effects? You mentioned 2-year reductions.

I think those...

The SEK 80 million is not linked to nonstandardized sort of cost efficiencies. It's the rest of the business. We have, of course, sized down a bit on personnel also on nonstandard, but it's 2 separate projects, I would say, in that sense. Did that answer your question?

Okay, yes. And another thing here related to this is the SEK 800 million impairment. Can you explain this? Why it is stemming -- what is it stemming from? You did SEK 2.5 billion impairment last year, goodwill impairment. I guess this is primarily goodwill?

It is primarily goodwill.

But what sort of triggered this right now?

Well, as I said, I think the trigger for this was the decision that we've now taken to clearly exit this part of our business. Already before, we had the focus on the standardized services, and we had a plan of transforming with the majority of our business into the standardized portfolio. But during this quarter, we took the decision to drive complete exit of the nonstandardized services and then, then led to the need of a write-down in goodwill primarily.

Maybe to add a little bit -- sorry, go ahead.

So this is the Benelux part because, I mean, the Nordic side seems to be developing well.

We have a bit of nonstandard. If you know about our history of acquisitions, we have acquired service companies also in Finland and historically in Denmark that are not performing according to plan. But if I add a little bit perspective on the accounting side, as written in our annual report, where we did the impairment last year, it obviously means that we have a quite low headroom versus the impairment. So when the businesses like our nonstandard underperforms, an impairment need can appear basically. And that is what we've seen happening here. So I would say it's quite linked to the accounting setup.

Okay. Can I just ask you one final on the cost savings that you announced last quarter? How much did you have in the P&L this quarter? Of this SEK 80 million, how much did you see? And how much do you expect in Q3 -- Q4, sorry.

I mean we have had a small part this year because we have -- I mean, obviously, the first part of it, but the full effect is going to come in Q4.

So the organization -- the new organization including this was implemented on the 1st of May, I think, so basically one month out of three maximum for this quarter.

The next question comes from Daniel Thorsson from ABG Sundal Collier.

Yes. First one on LCP. Do you expect to see a reverse of prebuying activity in LCP to the extent that it could turn negative organic growth already in Q4? Or is that more likely to happen in the next fiscal year?

I think with the uncertainty we're seeing in the market, it's impossible to project that in a perfect way. I think we just want to be transparent with what we're seeing in the quarter. And to provide clarity, and we are saying that, of course, prebuying from some customers now can, of course, affect Q4, Q1 demand, but it's very hard to predict given the market circumstances right now.

Okay. Fair enough. On the gross margin, that was particularly good here in the quarter. It sounds like it was driven by higher prices and maybe a lag effect on delivering on your inventory. Is there a risk that the gross margin contracts in the coming quarters due to higher market prices?

I mean just to build on what Samuel has said before, since we have this volatility in the market and also within the LCP segment, it can vary. Yes, as I said before, there are some cost effects this quarter from the pricing, which we are not seeing to the same -- expected to see it to the same level in Q4. But overall, we don't guide on the margins.

Okay. I see. You talked about the inventory management a bit as well, but what's your strategy at the moment? Are you a bit cautious to see how the market develops? Or are you building inventory faster than historically, for example?

I think we took some decisions in this quarter to build a bit of inventory. But going forward, we are not planning to do any sort of further increases by being a bit more cautious. Obviously, we don't want to start building inventory to new heights.

I see, I see. Final one on SMB then. Were there any regions standing out with positive organic growth in Q3? Or did you see declining markets across all the segments?

I would say, across all segments, but of course, in a varying degree. And as I said, we are starting to see some underlying positive developments in the Nordic business and predominantly in Sweden. But as I said, they're early. They're from a low level and fairly fragile in a cautious market. So we do not want to kind of overpromise on that, but it's definitely something we will closely monitor and focus on building going forward.

The next question comes from Martin Wahlstrom from SB1 Markets.

I hope you can hear me.

Yes.

Great. Just have one additional question, and that's related to what you've been speaking about, that units in the market can be down, but prices more than compensate. Like in terms of -- like do you feel that customers get the sufficient volume here? Or is there some form of pent-up demand building in terms of underlying units? Or are they happy with what they're able to buy?

I think in the low and mid-range segments, we are seeing a limited supply, so of course, there, there could be some pent-up demand. We know there is a pent-up demand in the SMB market, but customers are still very cautious there. But besides that, no major trends or anything that we've seen out of the ordinary. But of course, low and mid-end, there we see an impact, and we know there is a pent-up demand in SMB where customers are still very cautious.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Okay. Thank you very much. That concludes our third quarter results presentation and Q&A. Thank you very much for listening in. Thank you for all the questions. As said, it concludes this presentation. Thank you, and have a great day.