Hello, and welcome to Dustin Group Q4 call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Just to remind you that this conference call is being recorded. Today, I am pleased to present CEO Thomas Ekman, and CFO Johan Karlsson. Please go ahead with your meeting.
Good. Thank you very much, and most welcome everyone, and good morning, both to our existing and potential new shareholders to our Q4 presentation and conference call, which also ends our fiscal year for 2020. I hope you all have had a good morning, despite the continued difficult time in our history. Here on our side of the call, is as said, myself, Thomas Ekman, and Johan Karlsson, and we will present our numbers for today.
So we present our Q4 and full year results. Our market, like the world at large, is, as we all know, in a situation which is still tough to navigate. Even though we are all much wiser now than a couple of months ago, the short-term outlook is, of course, still a bit uncertain.
We are still in a pandemic, that we should not forget. Our Q4, from June to August, has also been a full corona quarter, slightly calmer than our Q3, but also with the fear of a second wave, making countries open and close.
However, now we can see signs of recovery in businesses coming back, and as we have seen in previous crisis, the first positive signs, also this time, comes from the small and mid-sized companies within the SMB segment, where we see higher activity, which is very positive.
As said, we know more now than before, but it's very clear that the world has taken a leap in digitalization, and apart from the tragically current circumstances and the short-term turmoil, we are very much well-positioned long-term to gain both the market share and growth from this increased pace of change.
There are still the same underlying trends as we have said before. There is an accelerating online market. There is a high demand for mobility, even more, and it's the poor demand for managed services, security, and the cloud-based solutions. Our belief in our position has, for sure, increased during this quarter. If we go to slide number 2, Dustin at a Glance.
This slide, most of you have seen before, but it's now updated with fresh numbers on share of software and services, which is now 17% of our sales, and 83% from hardware, as well as the changing in the geographical split of sales, where Sweden now holds 40% of the sales, and Denmark has increased a lot this year, and now is at 21%, primarily driven by the strong public sales we have in, in Denmark.
But moving on to slide number 3, and then for financial highlights during the quarter. We continue to strengthen our total market position, despite the uncertainty in and the short-term decline in the market. We believe that the market has declined with approximately percent summer or during our quarter, June to August.
And the net sales was, for us, SEK 2.874 billion. It declined with 5% versus last year. The organic growth was down 2.3%, of which SMB -2.6%, and LCP more or less flat, but -1.5%, and B2C -8.5%. Overall, for the period June to August, it was very much a summer, you can say, in our market with low activity overall, affecting sales, of course, but still we continued to outperform. And we, as we currently see, that we have a market premium towards the overall decline in the market. Hence, we see that we have gained market shares during the summer.
Gross profit was 434 million SEK, compared to last year's 489 million SEK, giving us a gross margin of 15.5%, down from last year's 16.7%, but sequentially stable from Q3, which is encouraging. And the same for our adjusted EBITDA, where we came in at 101 million SEK, versus last year's 120 million SEK, giving us an adjusted EBITDA margin of 3.5% for the quarter, also then sequentially improved versus Q3, which is very encouraging to see.
The gross profit and consequently, the EBITDA, was affected by the corona turmoil, the product mix with a higher share of public sales and overall the lower activity that was in the market. And EBIT was SEK 85 million, compared to last year, SEK 102 million, where items affecting comparability was nearly SEK 9 million or 8.9, versus last year's 3.2.
Cash flow from operating activities was SEK 20 million, compared to last year's 71, and EPS, earnings per share, came in at 0.77 SEK per share. And our leverage is more or less in the middle of a target range at 2.6 versus 2.9 last year. And as you know, our leverage target is between 2 and 3 times EBITDA. But I will come back to more of the operational highlights later on in the presentation, but right on the numbers. Johan, will you take us further in the financials for our different segments? Yes, thanks, Thomas.
Moving to slide 4 on the SMB segment in some more detail. So sales for the quarter ended at SEK 1,265 million, a decrease of 6.5% over last year, representing an organic growth of -2.6. No acquisitions affected the quarterly sales numbers.
The organic growth of -2.6 was an improvement compared to the Q3's -5.7, and we saw small and mid-sized SMB customers coming back to purchase in line with the levels of last year during the same period. Recurring revenue from service offerings remained flat over last year, where further sales expansion was hampered by the difficulties to onboard new customers during the pandemic. Project-related sales and consultancy continued to be affected by the restrictions in respective markets.
In general, we saw good sales development in Norway and the Netherlands, primarily coming from hardware. Segment margin for the quarter was 8.3%, down from 10% last year, but up from 7.8% in Q3. Margins were affected negatively by weaker product mix with more hardware, less project-related revenues, and lower margins in services due to low utilization in the service production and delivery.
Segment results for the SMB segment ended at SEK 105 million, compared to SEK 135 million last year. Share of software and services declined to 27% of sales for Q4, compared to 29% last year, but was up from Q3, 24%. Moving on to slide 5 and the LCP segment.
Sales in the LCP was SEK 1.483 billion in the quarter, a decrease of 3.1%, of which 1.5% was organic. During the quarter, we saw stable sales in the public, in the public customer group, with Norway and Denmark performing well, while Finland and Sweden had tougher times. The larger corporates continues to be hesitant to invest in new projects, primarily in the advanced hardware area.
The segment results increased from last year's SEK 80 million to SEK 90 million, or by 14% in the segment. The results improvement came from both better gross margin, as some larger customer contracts are maturing, and from cost management during the quarter. Another important factor in the margin improvement journey, were the expansion of the private label sales within the LCP.
The Q4 margin at 6.1%, was up 0.9% over last year. All in all, yet another strong result from the LCP segment. Moving to slide 6, and B2C. B2C had a weak quarter from a sales perspective, with sales of SEK 126 million, compared to SEK 142 million last year, representing a decline of 11.4%, of which 8.5 was organic.
The main reason for the sales decline was weak demand for hardware and accessories for home office, following the peak in demand during spring. Our strategic intent continues to be focused on margin rather than volume, and segment results of SEK 7 million was in line with last year. The segment margin was up from 5% last year to 5.5% this year, as a result of strong pricing discipline and cost control.
Moving on to slide 7, on net working capital. Net working capital was -SEK 422 million, compared to last year's -SEK 68 million. Our strong position in the value chain continues to give us the opportunity to push working capital to low levels.
In these turbulent times, we have been able to work with our partners in distribution, and increase payment terms in order to be prepared, if necessary, to support our customers. The longer credit terms from Q3 have remained into Q4.
Further to that, we have utilized opportunities made available by the authorities in our markets, to delay tax payments up by approximately SEK 175 million. All in all, this has made it possible for us to maintain low levels of working capital in Q4.
If we look at the details, we see that inventory was up by SEK 17 million, mainly as a result of larger assortment in the private label products. Accounts receivable was down SEK 204 million, or 14%, while sales was down 5%. Customer mix with less corporate sales was positive, positive to the payment days. We continue to see payment discipline from all our customers, and maintain at the level before the pandemic.
Moving on to accounts payable, which was 10% lower than last year, mainly due to lower purchasing volumes in July and August, compared to last year. In total, a strong performance in the area of working capital. Leverage at the end of Q3 was 2.6, and as you, as you know, our target is to be between 2 and 3.
The main reason for the change since Q3, when we had 2.5, is the change in working capital. Moving on to slide 8 with cash flow and investments. Cash flow for the quarter was -SEK 38 million, compared to SEK 54 million last year.
If we look at the parts, we can see that cash flow from operating activities before changing net working capital was SEK 110 million, compared to SEK 93 million last year, mainly due to the changes in the accounting of IFRS 16. Change in net working capital was SEK -90 million, compared to SEK -22 million last year, the main difference being the change in accounts payable. Cash flow from investment activities was SEK -19 million, more or less in line with last year, when it was SEK -17 million.
Cash flow from financing activities was SEK -39 million, compared to SEK 0 last year, and the total difference came from the change in our IFRS 16 reporting. The investment in the IT platform continues in the quarter, and we invested SEK 6.1 million in IT development.
Outside that, the main investments were done to support the services strategy, with investments in hardware for data centers and development of the market information platform used for the brand repositioning. In total, this amounted to SEK 14.9 million.
Net investment in lease assets of SEK 9.1 million mainly relates to the automation of the warehouse and I T equipment related to production of managed services. Moving back to Thomas. Good. Thank you very much, Johan. Then, moving on to slide number 9, and let's go through some operational highlights during the quarter.
A vital part of our strategy, as you know, is acquisitions, and we made an acquisition of the Danish company, Exato, just beginning of September. We are, of course, very exciting of that. Exato is a specialized and standardized service company with the in security and infrastructure, and they're also strong in the work and sales with Microsoft Suite.
Roughly half of the income in Exato comes from subscription services and primarily from SMB. Exato complements our service portfolio, I would say, and strengthen our capacity in the managed services in Denmark, but of course, also with the possibility for us to expand it further out throughout our footprint. So a very welcome to Exato to our family.
As mentioned previously, we see that the speed of change has increased, and therefore we have also, as previously announced, also increased the pace of implementation, and that's where we closed 14 local offices around the Nordics and reduced our workforce with approximately 50 positions.
This was finalized now in the beginning of the quarter, in the end of June, and that will generate an annual saving of 40 million SEK, starting now with the full impact as of this quarter, as of Q1. We have also set a robot in operation in our central warehouse, as of June, and it now handles about 80% of the orders, which is very good.
And it has increased the customer experience with shorter handling times and later cut-off times, which means that our customers can place their orders later in the day and still have the same fast delivery as they are used to have. And this will, this robot will also give us an annual saving of SEK 10 million, also now with the full impact from Q1.
Another important project is the ongoing data center consolidation, which we have talked about before in our Nordic data centers, where 2 out of 4 are now operational and the migration of customers is ongoing. There have been delays in this due to corona, but we will deliver this and finalize this during the autumn. Here, we will also see an annual saving of SEK 10 million when that is finalized. Continuing over to slide number 10.
As we all have experienced the last 6-7 months during the pandemic, the world has taken a leap in digitalization, and we have for sure done that as well. We are still in the pandemic, and even though the future in the short run, at least, is uncertain and turmoil, some things for the short term are that we see a stable demand for hardware, primarily among small and medium-sized businesses, as I mentioned, and we see a stable revenue from subscription-based services.
A slightly more cautious market among larger SMBs and corporates, and there has been, as Johan mentioned, also weak development in product-related services due to the low activity and the closed offices, quite logically. However, from the public sector, we see continuous stable demand, which is encouraging.
Longer-term opportunities are, of course, the acceleration of the market trends towards the digitalized customer demand and behavior, an increased share of online sales, increased demand for mobility and cloud services, as well as an increased focus and demand in security and remote management suits us very well, given, of course, our extensive experience in this, in providing products and tools along, right, with managed IT services.
With that, we have the ability to help our customers to take the necessary steps and potential the right tools to become more digital in their approach to their customers. That suits us. Continuing then to slide 11. We have now ended our fiscal year 2019-20, and that also comes to closing our 2020 sustainability targets that we set out five years ago in 2015.
Little did we know then on how to solve all the issues, but we put in a lot of hard work, and we are now very proud of the results, and we have now, so let me just briefly go through them. We set out five target areas, five years ago then, on responsible manufacturing, which means we wanted to get better control of our vendors and manufacturing.
We set out policies and rules for accessible production, covering everything from work environment, user materials, such as conflict minerals, for example, at several zero-tolerance areas, such as child labor and forced labor. Here we have done more than 80 audits and worked very closely with our factories to drive progress for social equality. On reduced climate impact, we have halved our emissions in relation to revenue, which is very good.
It comes as a result of changing energy sources, our ways of transportation, and also our data consolidation contributes to this. We also launched Takeb ack as a Service, where we offer our customers to return used IT products, which we refurbish and resell or scrap safely. After a slow start in this, we have now taken back more than 200,000 products, way above our target of 140,000.
And this has also driven sort of a new movement among our customers, that is they are now starting to get used to return products, which is really good for the environment and the climate impact. Business ethics and corruption is, of course, at 100%, where we have emphasized our work with the code of conduct, both internally, of course, but also towards our vendors and manufacturers.
And finally, our work with diversity and equality, where we have reached and passed our targets on the board level, on the leadership team level, and nearly on the management level. Here, I must say, hard work, as usual, pays off. With all this knowledge and experience, we have now set up new targets and commitments for 2030. Over to slide number 12.
We aim to have zero carbon emissions throughout our value chain, where we will have a fully circular offering, and we have 100 initiatives and actions to improve social equality. These commitments are a new level, and they are designed to redefine the impact of our business and how we behave and how we act. It will naturally involve innovations and solutions with those around us and throughout our whole value chain.
But again, hard work in this area will pay off, and these commitments really keep, not only us, but also our whole sector, moving, which is good and strong. So over to slide 13, and let me summarize our fiscal year for 2019-2020 before we go into Q&A.
Net sales grew on the year with 5.3% to nearly 13.2 billion SEK, where organic growth for the group was 2.3%. SMB somewhat down at minus one point four, whereas LCP grew at 6.5% and B2C down 3.9%. Gross margin at 15.5% versus last year's or the year before, 16.7%, it was weaker due to product mix than the overall corona and of course, decline in product-related income.
The adjusted EBITDA came in at SEK 517 million, giving us an EBITDA margin of 3.9% for the year. The margin is affected by lower gross margin naturally and investment, but the shortfall from the effects of the pandemic was also mitigated by improved margins in major framework agreements, as well as slight improvement in the SMB hardware.
To that, the initiatives and actions we have taken on the cost side, both the strategic ones and the short term, has also proven to or have given us effect. EBIT at SEK 387 million, and EPS at 3.13 SEK per share. Strong balance sheet, operating cash flow for the year was SEK 868 million, and the leverage at 2.6, right in the middle of our target, 2.6 EBITDA.
And we have increased our pace of implementation of our strategy. Our robot in the central warehouse is operational. We are soon done with the consolidation of our data centers, and we have launched a new brand position and made strong improvements in the executive team.
So as I summarize the year and the quarter, the corona pandemic and its effects naturally a challenge both in our markets and in society as a whole. However, we have also demonstrated, I think, great strength with the speed at which all employees within Dustin have adjusted to meet the needs and of our customers in the short term, and to the long-term behavioral change brought to the increasing pace of digitalization.
The pandemic has really made us, just like everyone else, also to increase the pace of changes we have planned, despite the fact that the market in the short term is difficult, but as we see, as I said before, tendencies towards stabilization and gradual improvements now moving forward.
We are very well correctly positioned with a strong and unique digital relationship with hundreds of thousands of customers and even more optimized e-commerce platform, as well as the ongoing build-up of our standardized service offerings to further increase the relevance and the benefit for our customers. And combined with our strong financial position, this means that we are well equipped to face the opportunities and challenges that we see and that is sort of presented to us by the business climate and, of course, our customers.
So with that, Johan, I think we can conclude our presentation, and we are very happy to take any questions you might have. Operator?
Thank you. If you do wish to ask a question, please press zero-one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero-two to cancel. You can ask how many questions as you wish, but please ask one at a time. So that is zero-one to register for a question. Our first question comes from the line of Ramil Koria from SEB. Please go ahead. Your line is open.
Thank you, operator. Morning, guys. Thank you for the presentation. Wasn't too prepared on the one question per time, but let me start off with one of mine, and I'll go back in line. So on the cost initiatives that you've announced here or in the last few quarters, how much did they help now in Q4 and perhaps for just the entire fiscal year? And I'm asking this for modeling purposes.
Yeah, I mean, there—if you take the three initiatives that we have discussed, being the closing of small offices and reducing headcount by approximately 50, that should give you about SEK 40 million a year. Then you have data centers, that should give you about SEK 10 million, and you have the robot in the warehouse, about SEK 10 million.
Of these initiatives, you could say we were launching all of them in Q4, and the effect only came from the reduction of FTEs in the closing of the offices. So you out of potentially SEK 15 million a quarter, you probably saw a saving from the strategic savings of somewhere around SEK 6-8 million.
Added to that, for the quarter, we were doing short-term savings that will actually come back as we are, again, addressing normal business. We estimate them to be somewhere in the range of SEK 15-SEK 25. Quite difficult to estimate because some costs are actually lower, not because we did something, just because, yeah, the whole pace of the business is lower. So but somewhere in the range of SEK 15-SEK 25 was temporarily cost cuts, let's say.
Understood. I'll come back on that. Thank you.
Thanks.
Our next question comes from the line of Daniel Thorsson from ABT. Please go ahead. Your line is open.
Yes. Hi, guys. Thank you very much. I have a question on the market, first of all. So you state that the market is declining 10% in the quarter. I guess it was much more the last quarter. When I look at other figures, I see better than that, both from you and from Atea, for example, have reported both around 0% organic growth year to date. So my question is, where is the market actually declining way more than 10%, just to get a feeling on what you see happening out there?
I think for us, it has been a... I mean, if you look at the different geographies, you can say that Sweden has been the weakest of the markets. Norway has been good, and Denmark has been fairly good for us. But where we see that in especially the services side for us, the market has been in decline. Hardware has been okay, also in decline in the summer, but I should also say that this is during the quarter, during August, which has been very low activity. So now we see that numbers are coming back, so we see how the market develops during the quarter.
... but we still believe that those are the figures we see.
I think also all markets that are related to any kind of on-site delivery, being consultancy, being onboarding, that's where we see the market being the weakest at the moment.
Mm-hmm. Do you see that affecting smaller businesses more than you, larger players?
I think it's the same. It's just the fact that we have less of that compared to many of the value-added resellers, where maybe the service side is 60, 70%.
Yeah.
And we are also helped by the increased consolidation of hardware in these times, where we have the muscles to continue to push for hardware, and then the small guys, they just don't have that.
Okay, thanks. I'll come back with more questions.
Yeah.
I remind you that if you want to ask a question, please press zero-one on your telephone keypad. Our next question comes from the line of Mikael laséen from Carnegie. Please go ahead. Your line is open.
Hello? Yeah, hi. I have a question regarding the project-related services and how much that was down in Q4 and the margin impact that you had from that.
It was, yeah, good question. Project-related services, which—I mean, primarily, you would look at that as where we sell a combination of consultancy and hardware. So that is typically visible in offerings like the AV business and in the, let's say, data center side, where we do these things. In these areas, we are down, I would say, double-digit percentage points, affecting the margin. Really hard to say, but... Yeah, I don't have a really good number, but it, it's visible, let's say, the effect on the margin.
Okay. So what, what would a normal margin be without, what a normal margin for project-related activities? Is it 10% or 15%, or?
Yeah, it's above 10, I would say.
It would be the margin, or loss-making?
Exactly. Exactly. And you can see the—I mean, you could look at the effect on SMB, where our, I would say, margin, normal margin would be between 10 and 11, and we are now down 1.5-2% on that. And then the significant part of that would come from project-related sales, also from other areas, but project-related sales in the SMB area is quite important.
Okay. Thanks. Good. Thank you.
Our next question comes from the line of Theodor Nilsen from Nordea. Please go ahead. Your line is open.
Hey, guys. Happy to join you covering Dustin. My question is on these cost savings. They amount to SEK 60 million in annual run rates. And for the fiscal year now 2019-20, you did SEK 517 million in EBITDA. So, I mean, those cost savings amount to almost 12% of full year results. And it seems your margin guidance of, you know, 5%-6% is quite cautious given that. So should we expect these short-term savings to kind of come back, as you mentioned before, or is there anything else that will kind of drive down margins?
Overall, we believe. I mean, the 5-6 target we set out because we I mean and the sort of we set out that for 2021, 2022, and that's also the sort of difference between 5 and 6 is of course what that is due to how the product mix looks and how also how the acquisitions comes in. But we, of course, have increased the speed of or acceleration of our strategic move. And we have done a lot more than we maybe planned to do this year, so we'll see. But we still see. We still keep our targets between 5 and 6, and continue to work hard on those strategic savings we have done.
All right.
So, yeah.
All right. And for the-
I think you can see that. Sorry. I think you can see that, I mean, having reported on the margin and how the development of margin is, it's been—we have been, let's say, a little bit behind on the linear development to-
Yeah
to reach 5-6. Part of it, of course, related to the latest half year of pandemic, but also, related to the implementation of the services offering in the organization. And I think you can see these savings primarily on the SEK 40 million and the data centers, which is then adding to SEK 50 million. They are almost synergy savings from the integrations, but we didn't do the synergy projects right when we did the integration. So they are coming now when we have the ability to take a few of the integrated companies and combine them, and by that, giving us a synergy saving one or two years after the actual integration.
All right.
So they have been part of our plan all the time. It's just they are phased in time in a different way than the actual integration. Yeah.
Okay, that makes sense. And with regards to your service offering, I think you mentioned almost twice the data margin in like a mature state, where you have proper utilization of your overhead. Do you have like segments of your business or subsidiaries where you have proven this margin, that you've actually reached it? For some of the few acquired companies, so that they managed to do this kind of margin. Or do you have, how should I say, proof that you can reach such high margins in the services offering?
I think we have, yeah, I think we have a lot of proof that we can reach these margins. And if you take the acquired companies, they would range from a margin of EBITDA margin of somewhere in the range of, let's say, 6, and around 6%-20%. And it all depends how much hardware they sell in combination with the service that they are selling. So, so for sure, these margin levels are reachable. Yes, they are.
All right. Good to hear. That was all for me.
Thank you.
As a final reminder, if you want to ask a question, please press zero-one on your telephone keypad now. Our next question is a follow-up question from Ramil Koria, from SEB. Please go ahead. Your line is open.
Thank you. Just circling back to my first question. So, 15-20 was it in temporary savings, how much should we expect of those trickling into Q1 and Q2? I guess travel expenses won't come back, presumably.
No, presumably, and of course, these costs will of course come if we start to travel again, then that will come with business. So that will also generate something, not only the cost side of it, of course. But I think you—I mean, out of the 15, 20, maybe five of them will remain saving for Q1. Again, it's a little bit difficult to say because we are, let's say, depending on the business volume. But I would say give or take five, that remains. And then you get more of the 15, which are more structured coming into Q1.
Not, maybe not all the 15, because the data centers are not fully operational with customers yet, but the other side are there, so that should be between 10 and 15. Yeah.
But the change bonus structure, the voluntary sort of reduction in working hours, reduced marketing, those should come back, I take it, given your answer?
Yeah, I think that's what we want, yeah.
Yeah, we want them. Exactly. That's, that's true, right? We want them to come back, but they will, as I said, they will also come with business, and they will come out of, as an effect of a higher activity in the market, which of course, is a positive thing then.
Right. Right. And then, looking at the services capacity, you say that utilization naturally is quite low right now. What has to happen, theoretically speaking, for you to start cutting in the capacity as such? Or will that never happen?
Yeah, I think the project that we've done during summer has done that a little bit, to some extent. I mean, there we have taken away some people that were overlapping because of integration, but obviously, we have taken the chance to reduce down the capacity a little bit due to the lower demand for volume. But then we will add on volume. These are production volumes that we could add back when volumes are coming back.
Right. Right. That's clear. And looking at the perhaps more brighter side on the revenue side, just first off, on the government schemes, we're seeing, I mean, we're seeing massive stimuluses. Are you seeing any signs of increased public investments? And perhaps if you can say anything on the margin of the front book, public contracts.
I mean, we as said earlier, the public sales, the public side is, as previous crisis, it's good for public sales, because public is very stable during this. And as you say, there have been massive inputs to the market. And we see, of course, the, I mean, public continues. I mean, it's very stable, and it continues to buy some of the public contracts we have, like, Swedish Defense has been a bit lower during the quarter. But other public sectors have been continued to be strong and stable.
For the margin side, you can see that the more we can work with the contract, as we've previously talked about, the more they mature, sort of, the more we can work on the margin. So that's also why we see a good performance from the public side on the LCP segment. And that has proven to work also during this corona pandemic.
That's clear. But you're not seeing a massive inflow of new tenderings to bid for, is that the way I should read it?
Yes, yes, that I can say, yeah. No, it's not a massive inflow in that sense. It's a continuation of the flow, and it's a continuation also, the public sector, of course, see the need for new digital tools and new services, as more and more, I mean, they are acting in the same as larger corporate in that sense. They want to have more remote management, more services, better hardware. So it's not an increase in tenders, but it's an increase in demand for services and updated digital tools.
Here, of course, we are better positioned today, having more offerings in these areas.
Yeah.
So we are better.
...equipped to do digitalization of schools, for example, with AV and offerings like that, which we couldn't do a couple of years ago. So we can capture more of the market, so to say, even though the tenders are not bigger or more now. So as I said before, I mean, when we acquire companies, we also increase our addressable market, and that is so we can gain more of the existing market, which is good. So I mean, that for us, of course, the more doors are opening, but the doors are still the same, but we can get more of them.
That's clear. And then, a high level one, if I may, on, on growth rates. You have a target of 8% organic growth over a cycle. which I guess gives you some leeway, as we're probably currently seeing the trough of the markets. But for you to come back to those levels, do you reckon it's a question of the market returning, and you'll be there just by the nature of it?
Or do you reckon that you have to do, you know, something internally? You referred to an expansion of the addressable market on the public side, for instance. Could there be more, you know, puts and takes to it than I've mentioned?
I think we have a... No, I think you have all the rights there. I mean, the market, of course, when the market starts to move, then we move with the market because of the fact we are a large part of the market. So that, of course, comes naturally. But of course, we have to work hard on that to be even more relevant, to capture all the new doors that we can open with acquisitions and with the integrations we have done. So it goes hand in hand, nothing comes for free.
So, but of course, the activity is very visible because as we said before, when the smaller and medium-sized companies, we see that when they come back quite naturally because their customers in turn come back to them, and then they need their new computer or printer or what tool they can be, or a new network or so.
So, I think that, but we will also see a new possibility, new opportunities in demand from customers, where it's much more of security, much more of capacity questions, much more network questions that you have to build out in order for people to continue to work like this, like in the format we have right now, where we're getting used to sort of work flexible at home, someday at work, and so forth.
And therefore, you need the tools, equip your employees with tools. And there we have to be on our toes to be relevant, to keep the best offerings for that. I think if you, I mean, you remember how we built up the 8%, being that we are in, basically, the market is growing some 2%-3%, but also this, the different trends in the market that we are well-positioned in, in these, trends, and that gives us a total possibility of growing 8%. I would say that the last six months, trends in the market have increased our support, let's say, to do the 8%. Because they are, they are really in our direction, the trends of the market, I must say. Yeah.
That's clear. Two final questions, if I may, guys, sorry about this.
Yeah, sure.
But the first one... Thank you. Just first one, a brief one on SMB revenues. How much, how much are recurring there? You've mentioned recurring revenues several times. Any flavor on that would be very helpful.
Well, if you start by saying that there are about 25% that is services and software, that's where you need to start. And part of that is about, I would say, half of that, or in the range of that, would be services, slightly more. And of the services, you would maybe say that 50%-60% is recurring revenue. I would say 60%.
yes.
That's about the size of it.
That's very clear. Even I can calculate that. And then the final one on the back of the acquisition of Exato here, I mean, squaring in, you know, leverage levels or very good cash generation, and you being back on the M&A side, should we expect more? Do you have anything in the pipe? And, you know, how are you reasoning about that now that you've taken the integration on the backbook, targets that you've acquired?
I mean, still, still, acquisitions is still a, an important part of our strategy. So we and we continue to look for, for, possible acquisitions. And, I think you will... The Exato is a good example of acquisitions, which is much more targeted. It would have been hard a couple of years for us to buy Exato, because it wouldn't fit, and we wouldn't know how to deal with it.
But now we have integrated many companies, as you know, and we have a, sort of a critical mass of integrated companies which we can really work with. And that's also the reason why we can do the changes that we did during the fall, or during the spring, with offices and so.
And now we can look for more targeted acquisitions, like Exato, which complements our managed services portfolio very well in Denmark, but that we can also further expand our footprint. So we will continue to look for those kind of acquisitions. They might be bigger than Exato, but in the range of Exato. And we still keep, I mean, having around three acquisitions per year. So, yeah, we think it's still an important part of the strategy to do this.
It's very clear. Thank you so much.
Thank you, Roy. Thank you.
Our next question comes from the line of Mikael Laséen from Carnegie. Please go ahead, your line is open.
Okay, thanks. I was wondering, how much of the S&B revenue is generated by smaller customers, companies below 10 employees?
It's about one-third. Yeah.
Okay, great. And can you also say something about the gross margin difference between basic hardware, more advanced hardware, and your own brands? Because there's quite a lot of mix changes, and it's sort of hard to keep track of those changes, to be honest.
Yeah. I think, I think we've said before that to take the gross margin of give or take 16% on the hardware, the basic hardware is a couple of percentage points lower than the average, and the advanced is a couple of percentage points higher. And then, what we've said about the Private Label is that they are adding 10% on top of our margins when we sell them. So that's about the differences that we have in the mix.
Okay. This is also the same for public and SMB, or?
It's the same-
I assume that it's different also there.
Yeah, it's the same difference. We have, of course, more basic hardware to public customers than we have, on average, in the mix, but it's the differences in the margin are the same.
Okay. And what about services in general, in this context?
There, you would say services is more or less in the level of Private Label margin.
Mm.
Kind of, maybe a little bit less than private label, but better than normal hardware.
Okay. A couple of more questions, if I may ask. You have worked quite a long time now on your standardized services and packaging them in a more efficient way so they can scale better. Can you talk about demand from underlying demand for that type of product offering, compared with the market trends and what competitors are doing?
Yeah. If the market for standardized service, I mean, I agree. We have talked about them. We probably have talked about this for some time. And now we have started to really work and set the, as I said before, the critical mass for doing these standardized services.
And the reason for us doing this is, of course, first of a demand question from that we see that the customers will move into a behavior of buying these kind of services in a much more digital way, and on where we can utilize our online platform. And those trends are very clear to us, and they have been even clearer now during the pandemic. But we will have a couple of offerings that are clear and standardized and possible for us to sell through our online engine with the digital interface.
But we will, of course, offer other third-party services as well. And we will do our own services for the fact that we see that there we can, when we deliver and produce our own service, we can get better margin on that than we can, would get from buying from a third party. But so with that said, we will also have a couple of service offerings that we will offer to our customers that are most natural for SMBs to buy. So those trends, I should say, are still very much valid and even more valid now during the pandemic.
Because it's so often we also see that the smaller medium-sized customers have a demand or have a willingness to do things more remotely and more digital, the more we develop. So that's it as well. But then, it's of course, you need the... In order to utilize this move in the market, you need an online engine to be able to provide those services. And that is, of course, the opportunity we see in this. And we also see a good increase in open. So that it starts to work.
Okay. Final question is regarding the dividend proposal. Why is it delayed until the convening of the AGM?
I mean, it's a responsible thinking from the board, I should say, because we will announce or the board will announce the proposal for the AGM, and when we send out the call out for the AGM in a month. The more information you can have in times like this, the better. And then you can propose an even more wiser suggestion to the AGM. And then, as we saw during the spring, when companies went out and said they would do dividend, and then they had to go back that, and back and forth.
So the board just wanted to use the time and to see the more information we can have before we put the proposal at the table for the AGM to take a decision on, the better. So I should say it's a responsible thinking from the board.
Okay. Got it. Thanks.
Good. Thank you.
There are no further questions registered, so I hand back to the speakers for any closing remarks.
Okay, very good. Thank you very much for participating and tuning in to our call, our Q4, and continue to follow us, and hope you continue to have a good day. Thank you, and goodbye.