Welcome to the Dustin Q2 presentation for 2025. During the Q&A session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the CEO Johan Karlsson and CFO Julia Lagerqvist. Please begin your meeting.
Good morning, everyone. A warm welcome to this Q2 presentation from Dustin Group. As you heard, Julia and I are here to present the result to you. I think we can have a look at slide two and what we will go through today. We will, of course, go through the Q2 result, but we will also talk a little bit about our strategic focus and the way forward, as well as the announced rights issue. If we then move on to slide three, to the Q2 result. As in last quarters, sales was affected by a weak market with continued general cautiousness by the customers in many of our customer groups. However, we saw some positive developments in both LCP and SMB. Sales in the quarter was SEK 5,408 million, or 4.5% above last year. In SMB, organic growth was -2.6%, while LCP was up by 6.4%.
In LCP, we were recovering some of the delayed volumes from Q1 as a result of the IT platform implementation, but we also won new contracts. In SMB, we saw some stabilization of the market, and the negative market development was slowing down. Gross profit ended at SEK 762 million compared to last year's SEK 856 million as a result of lower gross margins. Gross margin was 13.9% compared to last year's 16.3%.
We will talk a little bit more about that in the next slide. Adjusted EBITDA came in at SEK 110 million compared to last year's SEK 201 million. Items affecting comparability for the quarter was SEK 55 million and was totally referring to the efficiency program that we have implemented during the quarter. We have also made a non-cash impairment of primarily goodwill of SEK 2.5 billion, and we'll talk a little bit more about that later in the presentation.
EBIT ended at -SEK 2,503 million, mainly as a result of the impairment effect. Cash flow from operating activities was SEK 180 million positive compared to last year's -SEK 202 million. Leverage at the end of the quarter was 6x compared to 4x last year, leading up to the announced rights issue. This we will talk more about later. If we then have a look at the gross margin on slide four. As said before, gross margin this quarter was 13.9% compared to last year's 16.3%. The majority of the difference was explained by a very strong margin last year coming from some really high margin rollouts in the Netherlands. If we instead compare with the average margin for the last 10 quarters, that average would end up at 14.6%, and the difference to this quarter margin would be 0.7%.
The negative effect compared to the average is mainly explained by the high share of new contracts with lower margins and the general price pressure in the market coming from the slow volume development. Moving to slide five and the segments in some more detail where Julia will give us some more insights.
Yes, thank you, Johan. We then move to page five where we look at the SMB segment. Our sales landed at SEK 1.5 billion, which was 2.2% below last year. The organic growth was -2.6%. As Johan mentioned, in this quarter, we do see some signs of stabilization, and specifically, we see that the demand among small customers and for our B2C segment was slightly improving. The overall market remained cautious due to the ongoing economic uncertainty. Looking at product mix, we see that the share of software and services declined somewhat, mainly due to the stronger focus on standardized service portfolio and flat hardware sales. Gross margin declined slightly in the quarter, which together with the lower sales led to lower segment result, even though it was partly protected by a bit of lower cost base.
All in all, the segment margin ended at 3.0% compared to 4.2% last year. The total segment result was SEK 46 million compared to last year's SEK 66 million. If we then go on to page six, we look at the LCP segment. Sales in LCP was SEK 3.9 billion second quarter, + 7.3% growth versus last year. The organic growth was + 6.4%. Sequentially, we also saw strong growth versus the poor Q1 sales. The sales growth was mainly driven by the public sector through both recovered sales in the Benelux, this relating then to the delayed order from Q1 where we did our IT platform implementation, but also to the several new frame agreements that Johan mentioned. On the opposite, we still continued cautious development for a large corporate business.
From a geographic standpoint, all the Nordic countries except Finland delivered growth, where Finland was still challenged by budgetary constraints as in previous quarters. As said before, we do see a large volatility in sales between quarters in LCP. As we just reviewed, the gross margin dropped in the quarter compared to last year. Last year was a high comparison quarter driven then by high one-off high margin rollouts. The large share of new framework agreement with initially lower margins had a negative impact on the overall gross margin. In addition, we saw a negative mix effect of having a lower share than of large corporate customers, which have a higher average margin, and this also had a negative impact on the results. We do continue to see an increase in the take-back , which had a positive impact on both margin and EBITDA.
Overall, this led to a segment result of SEK 99 million versus SEK 164 million last year, and the margin ended at 2.5% compared to 4% last year. Still a large improvement versus the previous poor quarter. Moving on to the cash flow and CapEx on slide seven, we see that the cash flow for the period was SEK 89 million. Looking at the details, we see that the cash flow of operating activities before change in net working capital was SEK 94 million compared to last year's SEK 165 million. The difference is mainly driven by the lower operational result. Cash flow from change in net working capital was + SEK 86 million compared to last year's - SEK 367 million. This quarter was mainly affected by improved inventory after very high levels in Q1. We will look more at net working capital on the next slide.
In total, the operating cash flow was +SEK 180 million in the quarter. Cash flow from investing activities was -SEK 41 million compared to -SEK 58 million last year. More on this in just a few seconds. The cash flow from financing activities was -SEK 50 million versus +SEK 40 million last year, where last year had a positive effect from the proceeds of the rights issue carried out in December 2023. Moving to CapEx, the total investment in the quarter was SEK 127 million, of which only SEK 41 million affected cash flows we saw. The majority of the SEK 41 million was related to IT development. Investment in tangible and intangible assets was SEK 63 million this year, of which only SEK 2 million affected cash flow. The non-cash items are mainly related to lease contracts.
Investments related to services was SEK 25 million compared to SEK 29 million last year, none of it affecting cash flow. Coming then to page eight, we look at the net working capital development. Net working capital landed at SEK 60 million plus, which was lower than last year at SEK 90 million, and also a clear decrease versus the previous quarter. Inventory levels increased versus previous year, but as said, decreased versus the previous high quarter, as we expected. We're still a bit above our target levels and will work to further decrease this. Account payables and accounts receivables were both high in the quarter, mainly due to timing effects and also improved payment terms towards suppliers. Other payables also increased due to goods received but not invoiced. Overall, the quarter landed at more normalized levels than we've had in the last two quarters.
As said before, we always have some timing effects in individual quarters, but our long-term target for net working capital remains to be around SEK -100 million. With that, I hand back the word to Johan.
Yes, let's then move to slide nine and have a look. On this slide, we've tried to list the most important activities that we're working on in order to get back on track with the result. These ongoing activities are the move of managed services portfolio to standard in all markets and to all customers. We truly believe that the standardized services is the future. For us, it gives opportunities for scalability, and for our customers, it gives security and predictability. The implementing of the new organization structure focused on the key parts of the value chain, which means offering sales channels and delivery supported by enabling functions like people and culture and finance. This new structure gives focus to the development of service, software, and hardware offerings targeting our core customer groups. It also puts the customer in the center with various sales channels to use.
Moving to the efficiency program, where we have implemented most of the activities during the quarter according to plan, and we see the full effect of the SEK 150 million-SEK 200 million coming through by the end of this financial year. Further to that, we have now implemented the new IT platform in the Benelux, and we are targeting further automation and process improvements in these markets coming from the implementation of that new platform. As you have heard, in addition to that, we have, as a result of the more focused service strategy and the higher uncertainty of the future in the macro perspective, decided to make a non-cash impairment of primarily goodwill of SEK 2.5 billion in the quarter. If we then move to slide 10 and the rights issue.
As said in the information before, the rights issue of SEK 1,250 million is fully guaranteed and will be used to repay debt. The improved financial stability can be used to focus the organization on continuing delivering on the implementation of the strategic plan and hence improve the business result long term. As you can see to the right on the slide, the debt level goes down from approximately SEK 3.2 billion to SEK 2 billion as a result of the issue. With that, leverage is coming down from 6x to 3.7x based on Q2 numbers. With the current plans, we expect to come down in our financial target grid of 2x-3x in the coming quarters. Moving to slide 11, where you can see an overview of the key activities with the timing for the rights issue.
A general extra-general meeting will be held on the 5th of May to approve the issue. The Annex 9 will be published on May 6, and the subscription period will open on the 9th of May lasting to the 23rd. The outcome of the rights issue will be announced on the 27th of May. With that said, let's move to slide 12 and a summary of the quarter. In summary, Q2 was a quarter where we sequentially improved from poor Q4 and Q1, but was still challenging from a market perspective. Net sales was up by 4.5% with LCP leading the way. Gross margin at 13.9% affected by high competitiveness due to slow market and new framework agreements in LCP, resulting in an adjusted EBITDA at SEK 110 million, down from SEK 201 million, mainly as a result of the lower gross margins.
The Board of Directors have resolved on a fully guaranteed rights issue of approximately SEK 1,250 million to strengthen the financial position to ensure high pace of change to improve profitability. The efficiency measures announced in the last quarter are proceeding according to plan. We are also continuing to strengthen the strategic focus on standardized managed services. If we look forward, we can see that Gartner, IDC, and Canalys are expecting global PC market to grow in 2025, fueled by the ending support for Windows 10, the AI PCs, and the post-pandemic replacement cycle. This will be an opportunity for us as we are prepared to take on a more positive market sentiment. I think with that said, we conclude the presentation part of this meeting, and we open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jesper Stugemo from Handelsbanken. Please go ahead.
Yes, good morning, Johan and Julia. Thank you for taking my questions. I was wondering a bit around the outlook in the PC cycle here, reading into what Dell and HP have communicated. It looks like it could be more of a back-end loaded 2025. Do you have any indications and some more color here to share?
I think we share that view. If you take the parts of it and say that the underlying, let's say, volume drivers in the market, I think are the same and the strength of them are the same. What is hard at the moment is to predict, let's say, the macroeconomic instability and how big effect that will have on the demand going forward. Given the level of instability at the moment, it's of course a little bit worrying.
All right. On the price pressure here and margin dilutions, we have seen a similar pattern from one of your peers. When do you think this dilution effect from the initial contracts here will fade and start to normalize? Will it be as long as the market remains this weak, or how should we view the gross margin going forward?
Yeah, I think in a situation like this, primarily then if you look at the large corporate and public side, what happens is that the contracts that you have will generate a little bit less demand. You need, in order to keep up with sales, you need to win new contracts. You have a little bit higher share of new contracts in your mix when the market is slow. That is why we are seeing this in the last couple of quarters. As soon as demand is coming back, you will see less pressure on that.
All right. The effect we saw in LCP and public here, should we view it as a kind of a one-time effect as you had more rollouts this quarter, or is this actually an improving trend, so to say, in the LCP when you talk to the customers that you're having higher activity there?
I think we don't see any great change in activity level in that sense. I think the situation we have now is likely to remain for some time. As we talked about before, as soon as sentiment is better and demand is coming back, then that situation will change.
Okay, thank you.
Thank you.
The next question comes from Daniel Thorsson from ABG Sundal Collier. Please go ahead.
Yes, hi, thank you very much. I missed the first minute or two of the call, but if you did not answer it, how much of the organic growth in the quarter was a catch-up effect from the weak Q1 report versus actual improvement in either execution or market? Is there any risk that the 4% organic growth here could come down a little bit in the coming quarter due to this?
I think we said that part of this is coming from, let's say, the delay from the last quarter. It's really hard to quantify exactly how much that is. I would say that on a reasonable basis, it would be half of it coming from previous quarter and the other being generated in this quarter.
Okay, that's very clear. Thank you. On the goodwill write-down here, how much is related to central points? Also, what are the other assets being included here? It seems to be quite broad-based.
Yeah, we do not measure it on a country-by-country basis or on a, let's say, acquisition-by-acquisition basis. We measure it on the two segments, basically. The major share was in the LCP segment, but it was not directly related to, let's say, a specific acquisition.
Okay, okay. Yeah, I saw in the report 80/20.
Yeah, exactly.
That is why I asked. Okay, the final one on the cost side here. Of the SEK 150 million-SEK 200 million cost savings with effect three quarters out now, how much did we see this quarter roughly of that?
We saw some of it coming through this quarter, but as the activities are reducing staff and reducing, let's say, office space and facilities, you kind of have to carry out the activities during this quarter, and you will see gradual change of cost levels coming through in the next three quarters, let's say. It was a small part this quarter.
Yeah, okay, that's clear. Thank you very much.
Thank you.
The next question comes from Mikael Laséen from Carnegie Investment Bank. Please go ahead.
Yes, good morning. You mentioned that the strategic shift towards standardized services is a part of the impairment rationale. Can you clarify what this entails in more detail? What does it mean for your practice ahead for your product and services offering for this pivot?
Yeah, you could say that you know that we started, let's say, the service journey by doing smaller acquisitions. And with that, we got competence and we got, let's say, offerings in the services side. But some of these companies were delivering very customized offerings to their customers. They basically did everything the customer wanted. This is not the way we think that the service business should be done, and we don't believe that we are so good in delivering services in that way. We are converting customers into standard offerings rather than the customized offering. In doing that, you will have a few customers that are not willing to actually make that change. These customer contracts are then either closed or moved to or given to someone else, let's say, or taken over by someone else because we don't want to serve these customers.
For us, this gives us a much clearer focus on what we are selling when it comes to services. For us, we believe that that is really the future. We can scale on it. We have a much higher customer service on these contracts because we know exactly what we deliver. The customer gets predictability and security when they buy these offerings from us. Our strategy is clear here.
Okay. You have talked about this for a very long time. I'm just wondering what made you do this impairment right now? Of course, the market, but the market is a cyclical phenomenon, of course.
Yeah.
Where are you in this transition towards the standardized services?
We are far, and that's one of the reasons why it has been going on for a long time, because it takes a long time to convert the customers from a customized solution to a standard. We have done it now in four markets in the Nordics, and we are basically on standard with all customers now. There are a few exceptions, but very few. We are now doing this same thing in the Netherlands, which is the last market where we are doing the transition.
Okay. How is this impacting the margins in the Nordic region? Can you isolate that and see positive effects that you're scaling on it?
Yes, it makes us less volume sensitive when it comes to services because we are producing it in a more standardized and machine-wise way, and we can also outsource part of the production. It has been stabilizing the margins. I do not think when customized services are at scale, they are quite profitable as well. It is just not our way of doing it. This, I think, is more from a quality. We do this more from a quality perspective and from how we would like the, how we believe that the future service will be delivered rather than increasing the margin percentage as such. We have good margins on services in both of these, let's say, service categories.
Okay. Can you talk about the journey ahead in the Nordic region and when you do this fully implemented in the Benelux region? What is the vision and where are you transitioning towards? What will happen when you are there, when you have implemented these initiatives fully?
Yeah. I think that will mean that a high share of our customers in the, let's say, mid-market, and I would call mid-market somewhere around 100 - 2,000 employee companies, that they will buy standardized services from us in combination with hardware and software. We are able to supply basically the basic services that the company of 250 employees needs from a service perspective, and also, of course, the hardware and software associated with that. With that, we will have a higher share of wallet in these customers and also a higher value add to the customers. We will solve a bigger problem of their IT challenges. With that, we can improve our margins.
Okay. How long time does it take to take you there to that vision and where you want to be compared to where you are today?
To get there where we really would like to be, I think it will take many years, but there will be a gradual change of that as we are increasing the number of customers with managed services contracts. That change is already happening in the Nordic markets and will continue to happen also in the Netherlands and Belgium. It is a gradual change over the next five years, at least.
Okay. This change or these changes that you're doing, how can you think about the margins for the two segments going forward? Has this changed anything that you're maybe going more towards being a more distributor and that we don't really see the effects of this change yet?
No, I don't think so. I think we're going towards a higher share of, let's say, product life cycle services as added to the hardware products. By that, we will over time improve margins. That's clearly the ambition. If you look at, take the example of take-back or circularity offerings, that is a good example of how we can add value to a hardware deal. That development is fantastic. It's going really well. I think there is, in some of the larger contractors, of course, a thin line between reseller and distributor in many cases. I would say that we are still on the ability of delivering smaller orders to a much more specialized customer rather than the distributors can do. As you say, there is a thin line sometimes between the two.
Okay. Final one, if I may. I'm just wondering if you can comment on the gross margin here and how much control you feel you have over the gross margin performance versus what is dictated by the external factors, mix-related issues.
Yeah, I think we have good control over the gross margin in each of the contracts. The challenge is that to steer how much each customer buys and what kind of level of new contracts you need to kind of hunt to reach your volume targets that you have in the company. As we see now in a slow market and with some, let's say, budget challenges in some of the markets, public contracts yielding less volume, the ones you have, you need to hunt for new ones. That is why we get this high share of new contracts constantly over the last couple of quarters because you just need to hunt for more volumes at lower margins. In the beginning, they will be lower margins.
I think from a contract-by-contract perspective, gross margin is quite well controlled, but the mix of the different contracts is hard to predict.
Okay. Yeah, fair enough. Just a clarification. I think you mentioned and suggested that this mix will continue in the LCP segment also in the coming couple of quarters maybe because you have a high share of new contracts.
I think there is a likelihood that it will continue until the market and budgets in the large corporate and public side become better because that means we have to hunt for new contracts to reach our volume targets.
Okay. That's clear. Thanks.
Thank you.
The next question comes from Thomas Nielsen from Nordea. Please go ahead.
Okay. Thank you for taking my question. The cost savings measures are expected to yield SEK 150 million-SEK 200 million in impact by Q1 in the fiscal year 2025/2026. Can you provide an update on the timeline and key initiatives within these efficiency measures, and how confident are you in achieving the upper end of this range? Thank you.
Thank you. The timeline is, as we said, it's a gradual implementation over the period. In terms of how confident you are to reach a level at the top level, we are fairly confident in doing that. That's what the plan is indicating. Of course, when comparing to last year's numbers, for example, there will always be other factors impacting the numbers. Reaching the saving of SEK 200 million is still in our plan.
Okay. Thank you.
The next question comes for Fredrik Lithell from Handelsbanken. Please go ahead.
Thank you. Thank you for taking my questions as well. I have two ones. In terms of Benelux, you say you have completed your IT platform transformation. Can you sort of describe a little bit what sort of costs that momentarily will sort of disappear from that if you have consultants that are now leaving and are done with that work, and if you have old licenses that are closed, falling off like that? That would be one. The second one is you will, in combination with the rights issue, get to a gearing of 3.7x around that. You have the target of 2x-3x in gearing. If we get sort of a positive market direction the coming two or three years, what are the items that will take you to the 2x-3x in gearing?
What are the predominant items you're looking for that will help you there? Thank you.
Let's take the last question first. I think on the gearing side, I think that the components of our plan is obviously improved margins coming from the service side and the better market conditions. Cost price, we are continuing to reduce cost during this year. As we have also said, there are plenty of opportunities to further improve efficiency coming from the new platform in the Benelux that we can use in the coming quarters to further improve that. I think these are the main components of us taking us to a better business result that will take gearing down. If you look at the cost for the IT platform, the majority of that is CapEx. You will see it in lower CapEx going forward.
We will continue to roll out the platform, let's say upgrade the platform in other countries throughout this year, but that is of much less impact than this first rollout because what happens is that the effect is the biggest when you go from a legacy system to a standard system, which we have done now in the Benelux. In the Nordics, we will do more of a version upgrade where we are already on a standard platform. The impact there will be much less.
Okay. Perfect. Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much for listening in to the Dustin Q2 report, and we wish you all a nice day. Thank you.