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

Welcome to the Dustin Q4 presentation for 2025, 2026. [Operator Instructions] Now I will hand the conference over to the CEO, Samuel Skott and CFO, Julia Lagerqvist. Please begin your meeting.

Good morning, everyone. Welcome to Dustin's presentation of our fourth quarter and full year results. As you heard, I'm joined today by our CFO, Julia Lagerqvist. And together, we will take you through the highlights of the quarter before opening up for questions. I'm pleased to report improved profitability in the fourth quarter where we saw the full effect of the efficiency measures implemented earlier in the year, while we continued to sharpen our commercial focus. Net sales declined in the quarter with organic growth of minus 5%. The development mainly reflects orders brought forward earlier in the year in the second and third quarters, particularly within the public sector. On the other hand, we, for the first time, in very many quarters saw growth in the SMB segment. In total, the organic growth adjusted for the discontinued consumer business was minus 3%. The gross margin increased to 13.2% compared to 12.7% last year. And this higher margin is mainly explained by higher price levels, continued efforts to improve profitability in our customer contract portfolio, and a more disciplined approach to new business. Adjusted EBITA increased to SEK 110 million compared to SEK 83 million a year ago. The improvement was mainly driven by the stronger gross margin and a lower cost base following the efficiency measures implemented. The adjusted EBITA margin increased to 2.3% compared with 1.6% last year. Cash flow from operating activities amounted to minus SEK 204 million compared to minus SEK 73 million last year. If we look at leverage, measured as net-debt-to-EBITA, it came in at 2.8x compared to 4.1x last year and continued to stay within our target range of 2 to 3x. Also, the Board proposes no dividend to be paid for the financial year of '25 '26. If we then go to the next slide, talking about the incident we had early in Q1, as we communicated already early in September, we then identified unauthorized access to certain internal IT systems. We acted immediately and proactively shut down systems to contain the incident, protect IT environment and minimize the impact on our customers. External cybersecurity experts were engaged and the relevant authorities were notified. We were able to restore the order flow within a few days, followed by our websites and customer portals for order handling just a few days after that. And since the 10th of September, our operations have been fully restored. The forensic investigation and data analysis are now largely completed. Some remaining work is still ongoing, but a significantly lower level of activity than during the initial phase of the incident. The findings from the incident will be taken into account in our ongoing work to even further strengthen our security and resilience. And by this, I hand over to Julia to give you some more details on our financials.

Thank you, Samuel. If we then move to Page 4, we will look more closely at the LCP segment, our large corporate and public customers. And sales in LCP was SEK 3.7 billion in the quarter or minus 4.5% versus last year. The organic growth was minus 4.7%, so basically no ForEx effect this quarter. The decline was, as Samuel said, mainly driven by lower sales in the public sector, where orders have been brought forward to Q2 and Q3, driven by the memory component shortage and customers wanting to secure volumes and prices. And we did not see that same effect in this quarter. As for our corporate customers, we saw more stability. We've also made some choices to prioritize margin over volume, especially when pricing has been so volatile. This has resulted in lower sales in, for example, Finland. On the opposite, we saw growth in Denmark and Belgium, driven by new rollouts. We also saw growing demand within our life cycle services offering. As I said before, we can see large volatility in sales between quarters and LCP due to the large order sizes. On the positive side, gross margin improved versus previous year, which helped offset the volume decline. The margin benefited from a more mature contract portfolio as well as higher market prices. A slightly more selective approach to new business also benefited the margin development. And this, together with the implemented efficiency measures helped improve the bottom line versus last year, leading to a segment result of SEK 87 million versus SEK 80 million last year. And the segment margin ended at 2.4% versus 2.1% last year. Then we move to the SMB segment on Page 5, where sales landed at SEK 1.1 billion or 5.7% below last year. And the organic growth was minus 6.1%, so very little ForEx effect here as well. Adjusted for the exit of the B2C, however, the organic growth was plus 3.4%. So encouraging to see growth in the B2B like of our SMB segment again. And we see some signs of stabilization in the market, mainly in the Nordics, where the hardware and software business continue to develop positively and remains a key focus area going forward. The growth is, of course, supported by the increased pricing. And the gross margin continued at a similar solid levels as in Q3, supported by the higher market prices and continued strong price discipline. And the ongoing phaseout of nonstandard services, which we discussed last quarter, which then burdened profitability is starting to deliver positive effects for the bottom line. We also saw continued improved cost base due to our efficiency measures. And all in all, this led to an improved segment result, which landed at SEK 47 million versus SEK 34 million last year. And this corresponded to a segment margin of 4.2% versus 2.9% last year, so a clear improvement. Moving then to cash flow on Slide 6. We see that the cash flow for the period was minus SEK 291 million versus minus SEK 1.2 billion last year. And then last year was impacted by the repayment of debt after the rights issue. The cash flow from operating activities before net working capital changes was plus SEK 168 million, a clear improvement versus last year and driven by the improved operational results. On the opposite, the effect from net working capital was clearly negative, minus SEK 374 million (sic) [ SEK 372 million ]. This was driven by 2 main effects. First, the normal seasonality that we see in Q4 and also that Q3 was unusually low. 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 different IT platforms and the cash from finance activities was at normal levels and mainly linked to leasing, while last year was then impacted by the repayment of debt of the rights issue. But even though the cash flow was negative for this quarter, it was positive for the full year, and this together with the improved results led to that leverage landed at 2.8x, a clear improvement versus last year. It was higher than Q3 due to the increased net working capital. This was expected and it's a normal trend for Dustin given seasonality in net working capital, but still in line with the target range of being between 2.0 to 3.0x for the third consecutive quarter. Coming then to Page 7, we look at net working capital. Net working capital landed at SEK 167 million (sic) [ SEK 162 million ], an improvement versus last year where we were at a high SEK 477 million. Inventories dropped to just above SEK 1 billion, which was lower than both last year in Q3 and now close to the target level of SEK 1 billion. The main improvement versus last year was then on accounts receivables, driven by continued effort to set the receivables from previous periods and also the fact that we came from high levels last year, mainly related to LCP and timing of invoicing. As stated before, Q4 is usually weaker in terms of working capital due to the timing of large rollouts at the end of the quarter, driving higher receivables. And we always have some timing effects between individual quarters, but our long-term target for net working capital remains to be around minus SEK 100 million. And with that, I hand back the word to Samuel.

Thank you, Julia. This is a year where we've taken several important steps to build a new and stronger Dustin. We're now fully focused on B2B customers with the phaseout of the consumer business. We implemented a new sales organization with clear local accountability, strengthening local market execution and customer engagement. We continue the transition towards a more standardized and scalable service offering with improved profitability through the phaseout of nonstandardized services. Our organization-wide efficiency measures have been completed and are now delivering annual savings of approximately SEK 80 million, contributing to a structurally lower cost base. Through these actions and through a lot of hard work by the team, we have been, during the year, able to deliver organic growth, improved profitability, stronger cash flow while also significantly strengthening our overall financial position. And if we then go into the next slide and talk a little bit about the future. So looking ahead, the market remains dynamic and to some extent, uncertain. Continued component shortages are expected to drive further price increases and impact product availability also in 2027. Higher prices are expected to weigh on workplace demand while the rapid development of AI is creating new opportunities and drives demand for updated IT infrastructure. Against this backdrop, our priorities are clear. We will continue to strengthen local market execution, being close to our customers and partners to be able to focus on the opportunities lying ahead. We will drive profitable growth in SMB, leveraging on our strong position in the Nordics and utilize our full service offering in that segment. We will complete the phaseout of nonstandardized services to improve profitability, maintain a strong pricing discipline and continue to drive efficiencies across the organization. At the same time, we will continue to work closely with our customers and suppliers to manage component availability and changing pricing dynamics. Finally, we plan to host a Capital Markets Day on the 25th of January, where we look forward to providing a more detailed update on our strategy and long-term ambitions. And with that, we'll open up for Q&A.

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

So a couple from me, and I start on this incident. And given that you didn't comment on any potential sales impact for fiscal Q1 here, I guess that you have seen limited loss on -- yes, from this incident. How should we view it?

Yes, that's the short question. I would say, I mean, we obviously, like Samuel said, we will have impact on the -- from the lost sales days in September when we basically were closed, but we don't view this as a material impact for the quarter.

Okay. So you don't have any estimate that you could share with us or anything like that?

No. I mean we are still assessing the full effect of it, and we will obviously come back to you when we close the Q1. But at this moment, we're not sharing any specific numbers as we're still in the middle of it.

Okay. I understand. That's fair. And on the volume side then, how do you look at demand for next fiscal year Q1? You highlighted some volume pressure given higher prices. That appears that both IDC and some other global vendors are also expecting some double-digit decline in volumes for 2027. So how much do you think price could compensate for top line versus volume loss? I think it will be challenging to drive growth for the next year?

So if I'll comment on that. Yes, I mean, if you look at what the market consensus is and if we look at the research houses and also the vendors, the expectation is that there will be pressure on demand on PCs next year. But on the other hand, prices will continue to go up. The exact balance of that outcome, I think, is too early to tell. But yes, we also expect some weigh on demand on the PC side. On the other hand, we are seeing a kind of recovery in the SMB segment. One quarter of underlying growth. It's too early to say everything is great and will continue to grow, but at least it's an encouraging sign. And then yes, we see a weigh on demand on PC. But on the other hand, AI is driving increasing demand when it comes to the infrastructure part all across the hardware, software and services. So I think it's several different things happening at the same time, which is both kind of a bit of a headwind in terms of PC demand, but also opportunities in SMB and infrastructure driven by AI.

Okay. And on LCP, given the somewhat lower sales from the public sector, could you just remind us how big enterprise is as a percentage of LCP?

I should say it's around 1/3.

1/3?

On the total LCP business, yes.

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

First question on LCP. What is the pipeline, the rollout schedule for the coming quarters here? And any comments on maturity degree for the contracts as well?

So in general, we don't guide about the pipeline and the future. So no comment on that. Of course, we can see, as we talked about that some contracts have -- is a bit more mature compared to a year ago, for instance, in Belgium, and that's why we see improvements there. But naturally, this is an area where there will be seasonality effect and swings between the quarters. But I think also commenting in general, coming back to the previous question on what do we expect, we do expect some pressure on demand on PCs. But as we saw in Q4, and something we will continue to prioritize is not only the volume, but the value side of things, where price increases are expected to continue and where we will continue and focus driving margins through a disciplined pricing and through being very, very clear on what type of deals we take and don't take in terms of pricing and risk. So it's not only about top line.

Yes, I see. Okay. Fair enough. And linked to that, are there any larger like tender frameworks or potential agreements out in the market in the coming quarters that are good to look at or that you are trying to chase?

There are continuously fairly large tenders out in the market. So I don't see a huge difference in that compared to any other quarter or situation.

Okay. Perfect. And then on the margin here, the higher gross margin, is that potentially a result of lower proportion of PC sales in the quarter due to lower volumes or in the other explanations you already mentioned here?

I would say it's mainly the other explanations. We don't see that big of a mix effect here in terms of the product base. So it's again coming back to having a more mature contract portfolio on the public side, not taking some of the deals with really, really low margins. And then on the SMB side, it's related to the pricing, as you talked.