Q3 20/21

Jun 30, 2021

Thank you. Thank you. Good morning, everyone, and most welcome to our 3rd quarter call presentation today. We hope you're all well and have a good morning so far. Here on our side of the call is myself, Thomas Heckmann and we have Johan Karlsson, CFO And Felix Setterstrom, Head of IR, also in the room here as well. So today, we present our Q3 results for our fiscal year 2021. And we are continuing to navigating ourselves on our different markets through the current conditions. And I also want to emphasize to you that I'm Very proud of our achievements and everyone at Astell for their strong contribution in helping and supporting our customers and continuously enable Our customers will stay in the forefront, especially now also when the hard work also shows up in the numbers. As previously announced, and as you know, we acquired Central Point in the quarter, in the Benelux during the quarter, and that is a transformative move for us and it will enable us to step up to the next level. We closed that transaction on June 3, while Central Bank numbers are not within our Q3 numbers, but we will, however, come back later on in the presentation today with an update. But first, though, let us go through the quarter and moving on then to Slide number 2 for financial highlights to see how we are improving and performing now during Q3. We have strengthened our position in the markets and reported organic sales growth of 5.1% for the Q3. Our productivity and strong position in the value chain benefited our performance in the market, which has been impacted by component shortages and supply chain disruptions due to the pandemic. This, in combination though with intense cost focus, resulted in our adjusted EBITDA increasing by nearly 50% and the EBITDA margin strengthening to 4.7%. And in addition, our online core business performed strongly in pace with a higher share of online retail and a greater need for mobility and cloud services and security driven from underlying strong trends. I mean, the different market trends that we have been that we build our strategy on, The online shift, the growth mobility, cloud services, demand for predictable IT costs, focus on security and integrity and last not least, of course, sustainability have continued to be strong and increasingly important during the quarter and that, of course, makes our long term position even stronger. Net sales were at nearly SEK3.4 billion, up SEK3.8 billion versus last year. The organic growth, as said, was 5.1 percent, of which SMB showed a very positive 14.5 percent growth, LTP at negative 2.6% and B2C at positive 6.5%. So overall, strong organic Growth for primarily SMB and a small decline as a consequence of the shortage for LCP with delayed deliveries, but with continued strong demand. Gross profit was SEK 557,000,000 compared to last year's SEK 493,000,000 giving us a gross margin of 16.4%, up from last year's SEK 15.1 million. And as said earlier, our adjusted EBITDA increased with nearly 50% and came in at SEK 158,000,000 versus last year's SEK 106 1,000,000 and that gave us the adjusted EBITDA margin at SEK4.7 for the quarter versus last year's SEK3.2. So strong performance and strong earnings. The margin improved by good performance and the structure changes we are doing combined with good cost control within all segments. Both SMB and S and P showed good progress in margin uptake. And consequently, EBIT was up to SEK 140,000,000 compared to last year's SEK52 1,000,000 and items affecting comparability was a negative SEK20.8 million. Then cash flow from operating activities It was SEK 93,000,000 compared to last year's SEK 468,000,000. We will come back later on in the presentation to describe the changes in working cash flow. And EPS earnings per share was SEK0.85 per share versus last year's SEK0.35. Our leverage at 2.1 versus 2.5 last year in the lower part of our leverage target, which is between 2.3 of EBITDA. And apart, of course, from the Q3 from an operational perspective, we have, as previously announced, acquired Central Point in the Menelux and more on that later on. Now Johan, you can take us through the financials in our different segments. Yes. Thank you so much. Moving to Slide 3 and the SMB segment in some more detail. So sales for the quarter ended at SEK 1,571,000,000, an increase of 13.3% over last year. And as Thomas said, representing organic growth of 14.5%. Sales growth continues to improve quarter over quarter despite Challenges in the Global Supply Chain. As in Q2, we saw good sales development in the hardware categories from all customer groups in the segment. However, Compared to last quarter, where the small customers were driving the growth, we also saw mid and large customer groups in SMB performing well. Recurring sales of services is continuing to recover after last year's negative effect from the pandemic and grew by 6.3% in the quarter to an annual sales rate of SEK 856,000,000. For project related services, the quarter started slow, but momentum has gradually improved during the quarter. Geographically, we saw good growth coming from all markets, but Norway, Sweden and Finland in particular. Segment margin for the quarter was 10.2% compared to last year's 7.8%. The main reasons for the good margins was higher volume growth with shortages in the market, strong sales of private label products and the effects from cost efficiency initiatives. This was, as in the last 4 quarters, somewhat offset by lower sales of high margin project related services. The share of software and services was 21.4%, down from 23.7 and 21.6 in Q2, mainly due to the strong hardware sales. In total, segment Result ended at SEK161,000,000 compared to last year's SEK 109,000,000, an increase of 48%. Segment margin of 10.2 percent was 2.4 percentage points higher than Q3 last year. All in all, a very strong quarter for SMB, both in regards to sales and margins. Moving on to Slide 4 and LTP. Sales in LTP was SEK 1,660,000,000 in the quarter, a decrease of 4%, of which 2.6% was organic. During the quarter, we saw continued positive signs in the corporate customer group where sales continues to recover, while the public customer group was affected both by component shortage and delivery issues. Our current view is that the long lead times will remain for some quarters, but that we have seen the worst of it and it will gradually improve back to normal. Geographically, we saw strong sales in Finland and Sweden, while larger contracts in Denmark and Norway were affected negatively. Segment margin ended at 6.6% compared to last year's 5.9%. The increase over last year is mainly explained by generally margins in some of the larger contracts, improved sales to larger corporates and effects from last year's cost efficiency activities. Segment results improved from last year's SEK 102,000,000 to SEK 110,000,000 or by 7.2%. This was especially positive as we had seen the issues with hardware availability. Moving to Slide 5 and the B2C segment. B2C had a very strong quarter from a profit perspective. Sales increased by 5.4 percent from SEK 155,000,000 last year to SEK 163,000,000 this year. Of the growth, 6.5% was organic. The main reason for the sales increase was strong underlying demand of Computer, Hardware and Accessories. The segment margin was up from 7.7% last year to a record high 9.1% this year. Good product mix and high prices due to the supply shortage contributed to the good margin. Moving on to Slide 6 and net working capital. Net working capital was negative SEK 293,000,000 compared to last year's negative SEK530,000,000. Last year was highly affected by the extreme situation in the beginning of the pandemic where we focused on securing in capital to mitigate potential risks in customer payments. This year, the customer situation is more stable, while the supply situation is more challenging. During the quarter, we have continued to use our strength in the value chain to get good terms with customers and suppliers. However, more focus on getting products delivered on time and in full than prolonging credit terms. Looking at the details, we see that inventory has increased in the quarter to NOK607,000,000 compared to last year's NOK537,000,000. The main reason for the increase was higher purchase volume to reduce the risk with shortages of components. Accounts receivables was up SEK 120,000,000 mainly as a result of higher business volumes. Moving on to accounts payables, which was SEK 281,000,000 lower than last year, mainly due to the actions taken last year as a result of the beginning of the pandemic. In total, we continue to see strong performance in the area of working capital, where we have now shifted focus from Shokshifted focus to support good margins by opportunistic sourcing rather than prolonging payment terms. Leverage at the end of Q3, as Thomas mentioned, was at 2.1%, where our target is to stay in the range of 2% to 3%. The main reason for the increase compared to Q2, where leverage was 2.0, but the increase in working capital compensated by the operating cash flow. Moving on to Slide 7 and cash flow and investments. Our cash flow for the quarter was negative SEK 100 and SEK 7,000,000 compared to SEK 334,000,000 last year. If we look at the different parts, we see that cash Flow from operating activities before change in net working capital was positive SEK 136,000,000 compared to last year's SEK 109,000,000, While change in net working capital this quarter was negative SEK228,000,000 compared to SEK 359,000,000 positive last year, the main difference being the decrease in accounts payable and increase in inventory this year. Cash flow from investing activities was negative SEK 20 1,000,000 compared to last year's negative SEK96,000,000 where last year was affected by acquisition. Cash flow from financing activities was negative SEK 50,000,000 compared to negative SEK 38,000,000 last year. This mainly consists of repayment of lease and rent liabilities. Moving on to investments. The total investments amounted to SEK 54,000,000 compared to last year's SEK 125,000,000. CapEx related to IT development amounted to SEK 11,000,000, which was in line with last year. Investments in tangible and intangible assets decreased to SEK 18,000,000 from SEK 94,000,000 last year and last year's numbers were affected by prolonged rental agreement. Investments in assets related to services, to service delivery, were SEK 26,000,000 compared to last year's 'twenty one. All in all, SEK44 million out of the SEK54 million in CapEx was affecting cash flow. The others were changes in lease or rent contracts. Moving back to Thomas. Good. Thank you, Jan. Then continuing over to Slide 8 and talk a little bit more about the acquisition at Central point that also marks a new chapter for Duston. And I think looking at this graph, you can say that Duston I think Duston is a Textbook example of how companies develop under different management and different ownerships. And if you look back here, we can say that we have had a founders phase from 1984 where we mail order sales of B2B hardware and development also of the online platform already in 1995 with the foreseen founders who understood the beauty of cost efficient sales models towards many small companies. Then on to 2nd chapter where we were in private equity ownership and expanding to new territories, new countries. We have built our warehouse. We've supported a lot of the development of the IT platform. Then listing at 2015, where we have clarify the strategy, continued growth moving further on into services, developing ourselves or professionalizing ourselves, you can say, and then now taking next step and starting to write our 4th chapter here within European expansion with the acquisition of CenterPoint, building out as a true multi regional player with a strong foothold in the Nordics as well as in the Benelux. And that is, of course, an exciting part going on here. And then continuing to Slide 9, With now when we pave the way to build our European IT powerhouse combining the dustbin and central point, We will be around 2,300 people in the company, a little bit more than SEK 20,000,000,000 in sales. If you take the last LTM numbers, also if you look at the EBITDA at around 800,000,000 which is also from the LTM from last year. And then around 500,000 customers and making us the 8th largest EMEA IT partner reseller in our region of the world. And of course, as you know, being large in our industry is a good in terms of purchasing power, in terms of influence of the whole value chain, driving both sustainability and of course profitability at scale. So this is exciting. And of course, now when we look into the combining the entities and combining the 2 companies, If we move on to Slide number 10, we have set out an attractive value creation agenda to speed up the ability to achieve our long term targets, where we will keep the strong momentum in the core LCP segment within Central Point. We realized Sales and efficiency synergies of SEK 150,000,000 annually on both local and group level, and we can also see that we can accelerate the growth of both in the Nordics and the Benelux to targeted capability transfers both in SMB and in LTP. And of course, we continue to the roll up expansion in Benelux based on our proven Nordic recipe. And the synergies here, they are expected in areas such such as procurement, increased private label penetration, IT and technical platform, knowledge sharing, of course, and the SMB online operations. And those expected as we see them now and as we have estimated them and we can sort of continuously confirm is that we expect annual sales and efficiency synergies of approximately 150,000,000 and they should be fully implemented by 2023 2024. And investments to extract those is around SEK 50,000,000 and those we are estimated to incur during next fiscal year 2021, 2022. We closed the deal, as said, on June 3. So now it's full speed ahead. And as a starting point of that, as you probably saw also last week, we announced a new organizational design On the leadership team level, with 2 strong regions running both operations and segments and efficient team of group functions with finance, HR and brand. And those 2 in those two regions with the Nordics and the Benelux, We will have the operations functions, including IT, customer operations, procurement, warehousing among others. And of course, we set those up to gain scale and leverage and also the country specific on maximizing synergies captured on this. So this looks good. And now we start off, of course, also with setting all the other synergies in this. And from Q4, Now this coming quarter, we will, of course, also include all numbers of the center points within our reporting. So exciting times ahead. And now before going into Q and A, let's summarize the Q3. Net sales up nearly 4%, up to SEK 3.94 million, where organic growth for the group was SEK 5.1 million, with SMB at a really strong growth of 14.5 LTP at the minus 2.6% and B2C at 6.5%. Gross margin, 16.4% versus 15.1 up due to a positive product mix and our pricing model together with higher volumes, of course, and strong sale of private labor products. Adjusted EBITDA came in at a solid SEK158 million giving us an EBITDA margin of SEK 4.7, an increase from last year's SEK 3.2 And the initiatives here and the actions we have taken on the cost side, both strategic and short term, has given effect as well as our strong performance during the quarter. EBIT at SEK140 1,000,000 and EPS at SEK0.89 per share. And on balance sheet, operating cash flow at minus 93 and leverage in the lower range of our target at 2.1 to EBITDA. So with a good organic growth and solid earnings in Q3, we see that we are correctly positioned with a strong uniquely digital relationship with hundreds of thousands of customers and now an even more optimized e commerce platform combined with strong relations sales towards our Stockton Public, which is now even more enhanced with acquisition of Central Point. With our service offerings now coming back in demand, We further increased our relevance to benefit our customers and that combined with our strong financial position means that we are well equipped to take the opportunities and challenges that will be presented to us by the business climate and, of course, from our customers. Good. And with that, I think we are happy to take any questions you might have. Operator? Thank you. Our first question is from Daniel Juppe from Handelsbanken. Please go ahead. Thank you very much and good morning. Good morning. Yes. My first question would be on LCP and especially the public was hit by the component shortage, As expected, I would say. But can you possibly give us any flavor of the order backlog in terms of book to bill or Increase in percentage wise or something in terms of how the order backlog and the outlook for especially, I guess, Q1 'twenty two, Lux. I think what we have seen lately is the order lead time standing. So it takes actually customers are placing orders further ahead of when they want to have deliveries. So order book is significantly bigger. It doesn't mean that all that is increased demand. It's mainly a longer order cycle time, let's put it that way. So we have orders for the full calendar year of 2021 now, which It's not the normal way of having the order book in our industry. But what we see is we have orders for longer periods, and we believe that we have now reached the peak of, let's say, order cycle time, and it will now stabilize and improve. And gradually, we will empty out the let's call it the order book that we have at the moment. If that will happen in Q4 or in next year's Q1 or Q2, very difficult to answer. But it will not happen in one go. It will gradually move back to normal. Perfect. And another question, if I may, On the central point, not consolidated, can you give any lesson learned early lesson learned, so to say, positive, negative surprise And then comments on the SEK 150,000,000 synergies, if it's if you Consider it reasonable still or it's a tad low or something? I think overall, it has been on the there's sort of No surprises in the acquisition and the closing process. And we still see that the SEK 150,000,000 It's reasonable and within the target. So that's good. And we have started to work on those, and we see that they can, for sure, materialize in the peers that we announced earlier, at 3 24. So it's good and also we have seen the same development in the Benelux region as we have had in the Nordic, Strong demand on SMB side, longer sales as you all went into on the impact on the LTV side with component shortage, but still strong performance and strong demand. So it's encouraging, it has been during the spring now. Perfect. Good to hear. And the question to you and the last one here on cash flow again. Inventory volume up on growth and active working purchase work. Still, I guess, I would expect that it's mainly LCP that gets inventory other than SMP and this division had a negative minus 2.6 percent organic growth. So Can you elaborate on the inventory and also accounts payable being as low as it was in the quarter? And what to think of cash flow or working capital in Q4? Yes. I think it's a good question, and I think it's Good to explain and discuss this subject a little bit because we see a situation in Q3 this year, as you would have seen in Q3 last year when we actually moved into a more drastic situation coming from the pandemic. And if you look at the graph on net working capital that we presented before, you see very clear that in Q3 'nineteen 'twenty, working capital went down dramatically compared to the quarters before. And we also said at that time that we were securing working capital in order to if the customers wouldn't be able to pay us. So we used all our leverage towards the suppliers to expand payment terms. That was a year ago. And now Having lived through the year with customers actually continuing to pay on time and in full, We have now shifted a little bit the focus on from payment terms to the suppliers to availability because we think that is better production and better production results. So we have moved payment terms back a little bit towards more normal situation and at the same time use the leverage to get products in a very difficult market situation. And that has paid off on the FOB side where we can capture, let's say, availability of products and push them to our customers because, as Thomas said before, on SMB, We sell what we have on stock, and the customers are willing to buy what we have on stock because they need a computer, while on the public side, they have already predefined product that they need to buy. So they cannot just change the SKU that they buy, and hence, they have a problem with delivery. And our next question is from Christopher Bjornsson from DNB. Please go ahead. Good morning, guys. Good morning. A couple of questions. So first of all, coming back again to the supply chain challenges You mentioned in the especially in the public sector. So could you maybe just help us out understand better why this is more probable for the public sector than the other segments? I guess They have more stringent requirements related to which models they can buy and stuff like that. But haven't you seen any kind of issues related That in the other segment at all or yes, just if you could elaborate a bit? Yes, yes, sure. No, it is true, the short what we said there. I mean, the public sector by customer specific orders like a laptop with a specific processor or a specific graphic card and so forth and they order those and they are stipulated in the contract. So it's sometimes longer time for public entities to shift out to move to other models. And that, of course, affects the sales towards or deliveries, I should say, towards the public entities. On the SMB side and on the large corporate side, which are more flexible in their contracts and especially SMB, of course, they are more open to buy Other types of models of laptops are in computers and peripherals. And hence, we have managed to and we also to put them on stock and also deliver to the SMB customers. So that has been and that's also why we can explain the strong growth in SMB because there we sell. We sort of push out the sales more than sort of pull out the sales. So there is a difference in model there. But we see also openings for the public sector. They given the fact that they need the equipment and then they also open up for being more flexible in their way of taking on hardware that they need. So That is the reason why. All right. Thanks a lot. And then on that headwind in LTV, What do you think the revenue growth would have been organically in the quarter? Is that not an issue? What was kind of the demand in the quarter looking like compared to the year over year? Really difficult to say, but a couple of percentages, for sure, it has affected somewhere in the range of, I would say, 5 ish. Yes. All right. That's great. And then one final question for me is on the you said that the gross margins We're helped by maturing contracts in payment agreement in the public sector. Could you just understand help me understand that dynamic? Because I was also I mean that has become more and more normal that there are more stable margins of these kind of agreements through the whole lifetime audit agreement. But still, if you're kind of seeing this maturing and maybe next year coming forward, then does that mean we should see kind of a gross margin So in some point to a new frame agreement in the beginning of 2023 or something like that? Or how should we think about that dynamic now going forward? I mean, as we have talked about before, there is this dynamic of improving margins within at least some of the public contracts and actually most of the public contracts, I would say. And therefore, the age The average age of the contracts in the portfolio will have an impact on the overall ability to deliver margin. One good thing with the acquisition of Center point is that the portfolio has increased significantly of these little bit larger contracts, and hence, there will be a more even spread of the contract. So we believe that the spike effect of this will be reduced as a consequence of the CenterPoint acquisition. But there will be, of course, changes in margin due to the fact that we win or lose large contracts. And our next Question is from Daniel Brossen from ABG. Please go ahead. Yes. Thank you very much. So a question on the component shortage As well, I mean, you mentioned the shortage of processors and graphic cards specifically, which we all know have been highly demanded in Coin Mining, for example, with that price coming down significantly in the last 2 to 3 months, have you seen any stabilization in the components market lately that could help you already in the current quarter, you think? Yes, we have. I mean, we also we have, of course, intense talks and meetings with all the major vendors. And I think on a global level, you can say that the semiconductor shortage It's more under control now. So the shortage is decreasing with that. What has been slightly more problematic now in the quarter has been the more low cost components like video codecs, Wi Fi connectors, analog video component, which is sort of seen from an IT perspective as non strategic components and They are having in shortage. So I think we have had a period of processors and graphic cards with the shortage of problematic supply chain. And now we have also seen on other types of components. But overall, I mean, we see light in this tunnel definitely and that The sort of shortage period is also coming to end and more of the world stabilizes itself as well. Okay. I see. And then secondly, on the private label, you mentioned that you see a strong development of private label. Do you see that more in B2C or SMB or LCP? I think in general overall, we see that. I mean, primarily, I mean SMB has been a key driver during this quarter. But we also see it, of course, when we get more and more into the larger deals with public sector and especially also large corporate. Given the fact that, as we said before, we are in low complex areas like cables and adapters and the brand sensitivity for those is not high. So it's possible for us to exchange to our type of product, our private label products. Share sales is very similar in the different segment of private segment. Okay. That's clear. And do you see the same opportunity in all of the 3 segments for private segment? Yes, we do. We do. Okay. Great. I also saw that you mentioned nonrecurring items related to VINCIRE in Netherlands. That was a couple of years ago. Is that still integration with DASIN Group? Or is That integration with Central Point? It is with, you could say, Daseen Group. It is to we are now melting the companies down there together and then slightly or moving on to the DAS in ERP platform. So that's what we haven't done before. That's what we have initiated now. Okay. Okay. I see. So that's with Dafgen. Okay. And then finally, we already got some questions on cash flow. But when you say coming back More to normal level, do you mean the minus 1 percent of sales that we have seen in the last 2, 3 years? Or do you see any other underlying changes in that Causing a new No, I would say exactly what you said. Yes. Okay. Excellent. Yes. Thank you very much. Good. Thank you. Our next question is from Rami Khouria from SEB. It's already been asked. Let me add some from my side. So first off, on Central Point, with the risk of This already being answered in previous calls. Could you tell us how much of Central Point is large core And public segment, respectively. Out of SEK 7,000,000,000 is basically LTP and SEK 1 is SMB. Okay. Okay. And could you elaborate a bit on how Central Point has been affected by the Component shortage since, well, you announced the deal basically. I mean, we see the same development in the Netherlands in the Benelux as we do in the Nordics for that, of course, also affected by the component shortage, but also the same Strong demand and it's the same sort of future we see there as well. I mean, on this scale, it was sort of on a Global question. So it's the same sort of pattern in the different regions. Right. And in terms of Sort of margin impact, etcetera, I mean, is it a tangible step down in profitability in Central Point? Or Have you accounted for it in the updated pro form a figures closed in this presentation material? Yes, yes, no, there's not affected in that. And yes, it's updated in the numbers here, yes. Okay, okay. And then on the OpEx side, there's a minor cost step up in the quarter. Should we and I mean, you've been quite Successful in taking out some costs in the last few quarters. Is it fair to assume that OpEx has sort of Has troughed now and from here on forward, it's a bit of pandemic savings coming back and You continuing to invest as you now enter sort of the next phase of the company trajectory from here. Yes, I think it's a fair comment. Last year was extreme, I would say, and we had a kind of shortsighted actions to kind of secure situation. Now we are back to more normal, but with the effects of some of the efficiency projects with the full impact of that in the cost numbers. So I think The current run rate is more or less a continuation that can continue, maybe with the exception that the traveling has been very low In this quarter, it might come back a little bit after summer, but these are relatively small numbers. Right. That's clear. Thank you, John. And a final one from my side, perhaps touching upon Daniel's last question as well As well about the gross margin side, I mean how sustainable is this level? Everything said so far, there seems to be a lot of moving parts here With the service revenues picking up towards the end of Q3, but still some The mix, etcetera, etcetera, what should we expect for the coming few quarters? Of course, not considering Central Point having structurally lower Gross margin, so just dusting group as is pre Central Point? Well, I think if you look at SMB, we have a very good margin due to the, let's say, supply situation on hardware. So that's a positive sign at the moment, I would say, compared to an average margin. So we're probably We're going to see over time at least the challenge to keep the margins that we have at the moment, while at the same time services have been hit quite hard from a pandemic So they are on the low side at the moment. So overall, I would say you can expect margins to not move a lot. And if we're successful with services, of course, our ambition is to improve margin. Right. It's very clear. Thank you, both. Thank you. Thank you. Thank you. Thank you. And just as a final reminder, if you do wish to ask And there seems to be no further questions. I will hand the word back to the speakers for any final comments. Very good. Thank you very much, everyone for tuning in today and listening and just stay tuned for us. And if you have any questions, just come back to call or e mail. Great. Have a good day. Thank you very much, everyone. Thank you.