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Welcome to the Dustin Q2 presentation for 2023 and 2024. [Operator Instructions] Now I will hand the conference over to the CEO, Johan Karlsson; and CFO, Julia Lagerqvist. Please begin your meeting.
Good morning, everyone, and a warm welcome to this Q2 presentation from Dustin Group. And as the speaker said, I'm here today together with Julia Lagerqvist, our CFO; but also Fredrik Satterstrom, Head of IR. Let's get this off by looking at a bit of Dustin at a glance. Dustin, as you know, is an IT reseller with its space in IT hardware and software products. And as you can see in the graph, up to 82% of sales is IT hardware and 18% is software and services. Software and Services is becoming a larger share of the total sales and increased its share of sales by 4 percentage points in the last financial year. . Our assortment is primarily sold online and 60% of sales go through the online platform. That share in the Nordics is about 80%. In the Benelux, the share is lower. And as you know, we have recently launched our online sales model in the Benelux, and the aim is that we move to a similar share as in the Nordics when it comes to online sales.
We're present in 6 markets in Europe with our main markets being the Netherlands and Sweden. And as you can see, our key customers focus on B2B representing 98% of the space.
With that said, let's move to Slide 3 and the Q2 results. As in the last 3 quarters, sales was affected by a weak market with continued general cautiousness by the customers in many of our customer groups. Sales in the quarter was SEK 5.246 billion or 16.3% below last year. In SMB, organic growth was negative 12.2% and in LCP negative 18.1%. In addition to the challenging market, sales was affected by sales reported on a net basis, affecting sales by approximately 5% of the total Dustin Group.
Gross at SEK 856 million was down SEK 58 million or 6%, while gross margin improved from 14.6% last year to 16.3% this year, a strong product mix with more managed services and less large rollouts of mobile phones and computers affected margins positively. Again, we saw the strength of our position as we were able to maintain margins in core categories through price leadership in these challenging times.
Looking at adjusted EBITA at SEK 201 million, that's compared to last year's SEK 212 million, but with an EBITA margin, up from last year's 3.4% to this year 3.8%. Items affecting comparability was at SEK 16 million and is mainly coming from the integration of the previously acquired units. EBIT at SEK 142 million compared to last year's SEK 157 million.
Cash flow from operating activities ended negative SEK 202 million, and this could be compared to last year's positive SEK 250 million. Julia will come back and explain a bit more on that later on. Leverage was at 3.1x. This could be compared to 4.4x last year. And the main effect is, of course, the repayment of debt after the rights issue.
Some of the highlights for the quarter were that our continued focus on synergies and integration, that has a positive effect on efficiency and hence cost. Further to that, and really pleased to see that we continue to invest in the future growth areas, such as online sales in the Benelux. We also continued investment in our common IT platform. These are key investments for the future growth of Dustin. Now we move to Slide 4, where Julia will give us some more details on the SMB results.
Thank you, Johan. Happy to be here again for my second quarterly report. And as we said on the SMB segment, the sales landed at SEK 1.6 billion, which was 13.6% below last year. Organic growth was minus 12.2%. The continued economic uncertainty affected the demand in all markets. As in previous quarter, we saw low demand for computers and mobile phones, while the share of software and services increased to close to 14% with a positive trend for contracted recurring services in the Nordics combined with weak sales for hardware.
It is positive to see that despite the decline in sales, the gross margin improved in the quarter. The trend of growing share of services had a positive impact on product mix and hence margin. We have kept a strong price discipline, as Johan said, also had a positive impact on gross margin. But unfortunately, it impacted sales negatively. Our cost saving programs have had a positive impact on overall costs, which I will come back to later in the presentation. But this could not completely offset the decline in sales given the largely fixed cost base.
However, with the improved gross margin, the same was almost maintained despite lower software sales. All in all, the segment margin ended at 4.2% compared to 4.4% last year, and the total segment result ended at SEK 66 million compared to last year's SEK 80 million.
Going to Page 5, we look at the LCP segment. And the sales in LCP was SEK 3.7 billion in the quarter, down 17.5% year-on-year, and the organic growth was 18.1%. This compared to a strong quarter last year, especially in the public sector, where we have large volatility in order placements between the quarters. We also saw somewhat lower demand in existing contracts. Looking at the development in large corporate, it was more stable looking at the gross sales and not sales to report on net basis according to IFRS 16. And from a geographical perspective, this performance was best in Sweden and Norway.
Gross margin, as we said before, developed positively impacted by improved customer and product mix with a lower share of standard harbor sales. We also saw an increased share of sales reported on a net basis according to IFRS 16, which also had a positive impact on the gross model in the quarter. In addition, we had a sharp increase in take-back, which had a positive impact as well. Johan will come back to this later in the presentation.
Cost control was good in the quarter, as noted before. So despite low volumes, the segment margin ended at 4.5% compared to 3.9% last year. And the segment result was SEK 164 million compared to SEK 173 million last year.
Coming to Page 6, we'll look at our cost development. And our continuous focus on improving efficiency and extracting synergies from integration, together with the cost cutting has led to a significant cost reduction versus last year's Q2, minus 9%. Important drivers, of course, reduction in FTEs. We're happy to see that our efforts are taking effect and continue our optimization journey. For example, we are still to capture further synergies from ERP harmonization. But we also want to strike the balance between the efficiency program and investing in our journey.
Coming to Page 7, we look at net working capital development. Net working capital improved to close to SEK 140 million compared to the same quarter last year and SEK 190 million in quarter 2. This was driven mainly by inventory reduction, which was reduced by SEK 320 million compared to the same quarter last year, and it's now below SEK 900 million, which is the lowest level in 10 quarters. Inventory is now at a balanced and normalized level, where we target to stay for the coming quarters, able to deliver on our service levels.
Both accounts receivable and payables decreased versus last year is mainly related to lower business volumes. Looking sequentially comparing to Q1, we do see a large increase in net working capital. This is mainly driven by comparing to a seasonally low quarter, combined with slightly worse customer mix related to payment terms affected in the quarter with higher sales towards the end.
Our long-term target for net working capital still remains to be around minus SEK 100 million.
Moving then to cash flow and CapEx on Slide 8 and summarize what we have covered in the previous slide. The cash flow for the period was minus SEK 245 million compared to minus SEK 19 million last year. Looking at the details, you see that cash flow from operating activities before the change in net working capital was SEK 165 million compared to last year SEK 122 million. The improvement is mainly driven by lower paid interest cost and taxes. Cash flow from change in net working capital was minus SEK 367 million compared to last year's positive SEK 128 million, mainly affected then by the change in receivables in this quarter and timing effects.
Last year, we saw a large positive effect on inventory. Cash flow from investing activities was SEK 58 million compared to SEK 64 million last year, more or less [indiscernible]. Cash flow from financing activities was plus SEK 14 million this quarter compared to minus SEK 205 million last year, where last year's negative effect is mainly related to a change in short-term financing, and the positive effect this year is driven by the net effect of the rights issue and the loan repayment.
Moving to CapEx. You see that the investment in the quarter was SEK 132 million, of which SEK 58 million affected cash flow. And the majority of SEK 58 million was CapEx related to IT development, mainly the new common IT platform for our future operational efficiency. Investments in tangible and intangible assets was SEK 53 million this year, of which only SEK 8 million was affecting cash flow. The noncash items are mainly lease contracts for [indiscernible]. Investment in services was SEK 29 million compared to SEK 12 million last year, mainly attributed to the harmonization of dataset. And with that, I will hand back over to Johan.
And with that, let's move to Slide 9. Thanks, Julia. On Slide 9, we will take a look at the take back, and it's really encouraging to see that our investment in circular of things is paying off. We're currently on an annual run rate in take back of approximately 1 million units, and this number is increasing rapidly. We currently have 2 take-back centers in the group, 1 in [indiscernible] for the Nordics and 1 in [indiscernible] for Benelux. We see an increasing advantage in larger tenders of having an efficient and qualitative take-back offering with which we are able to win the new customers, while at the same time improve margins. . Next step on this journey is in circularity. It will be to start selling used products to our Nordic and Benelux customers. We are now establishing the right setup with our partners in order to get it working, and we believe the public customers and large corporates will lead this work. All in all, we see strong growth and good margins in our circular offerings at the moment.
Moving to Slide 10. As we talked about in the last quarter, we were taking a big step on our deleverage journey by the rights issue. The work with deleverage continues, but now on a more operational level. Focus during this quarter has been on inventory. And as you heard in the presentation, Nigerian inventory levels have continued down.
In regards to margin, we have seen a positive development during the quarter. Much of the effects come from a stronger gross margin development with a stronger product mix, but also from higher share of services. As we saw in the last slide, we are making good progress in our take-back service, but also managed services for our small and medium-sized customers are performing well.
A strong price discipline, primarily in the SMB segment further supported the strong gross margin. In addition to that, our efforts to integrate previous acquisitions and capture synergies continues to give results. All in all, a very strong margin performance in the quarter.
In regards to growth, we continue to see a weak market affecting us in many aspects. Further to that, we also saw some fluctuations between the quarters in LCP affecting sales in Q2. However, we're taking a lot of actions in order to be ready when the market turns and we still believe that we will see positive line of that during the coming quarters.
We'll then move to a summary of the quarter on Slide 11. As we're summarizing the Q2, we can the markets in Q1 has continued to be challenging. Further to that, sales reported on a net basis has affected sales somewhat negative and sales declined by 16.3%. Gross margin, on the other hand, was strong in the quarter and mainly through good product mix and strong price discipline and the reduction of low-margin customer deals. Gross margin came up at a very strong level. In total, this resulted in an adjusted EBITA of SEK 201 million and an EBITA margin of 3.8%, up from 3.4% last year. This was a result of good gross margin, but also as a result of continuing to realize synergies coming from acquisitions and hence reduced costs.
Net working capital was slightly higher than our target coming from customer mix, and this hampered somewhat the cash flow generation in the quarter. As the market continues to be slow, the focus is still on realizing cost synergies and increase efficiency to reduce the cost base. While we, at the same time, continue to invest selectively in areas such as online platform in Benelux and the new common IT platform.
In regards to future market, we continue to believe that we will see gradual improvements of the market as from the coming quarters. And with this, we conclude the formal presentation and we'll move to Q&A.
[Operator Instructions] The next question comes from Mikael Laséen from Carnegie Investment Bank.
I have a question on the product mix, and it improved now in Q2 thanks to lower demand for mobile phones. How should we think about the mix ahead? Is this a more normal balance than you've had in the past couple of years? And do you think you can maintain the current gross margin also in Q3, Q4?
Yes. Thanks for the question, Mikael. I think we are -- obviously, the market pushed down a bit on the sales on mobile phones and computers as kind of instantly a positive effect on margins in this quarter, but sales growth of services is higher than the sales growth of hardware in general terms, which means that the share of services will go up over time. If that is true quarter-by-quarter all the time, that is hard to estimate. But if you take maybe 3, 4 quarters ahead, that's for sure, the trend that we see.
Okay. And what was the balance that you have in the hardware side? Is this unusually favorable with lower PC mobile phones and higher, more advanced sales?
I think to be perfectly fair, I think we are on a quite a strong mix this quarter that will be really hard to maintain at this level. But the effect it has is, of course, not is limited, but it is really on the high side at the moment, the gross margin, I would say.
Okay. Got it. And a follow-up on this mix situation. Can you talk about the managed services sales, how that is performing? And the outlook for that area and also the approximate gross margin you have in those revenue streams? .
Yes. I think we are doing 2 things at this very moment when it comes to managed services. We are standardizing and harmonizing the offering. So we are moving customers that previously both, let's say, custom-made service, we move them to our standard service. That means that work is a bit of a risk because you lose some of the customers, which has a negative impact on your sales. At the same time, we have a very strong new sales of our standard products, which affects sales positively.
So we're still growing double digit in this area. For time, obviously, the movement will be done, and then we will see the full effect of the sales increase in this area. Gross margin-wise, I would say we are at double the gross margin compared to hardware.
The next question comes from Daniel Thorsson from ABG Sundal Collier. Please go ahead.
I start off with a question on the net bookings here. You said that, that had a 5% headwind growth effect on the group level. Just to remind us, was this the last quarter with a year-over-year effect, meaning that you won't have this 5% headwind in the next quarter?
It's hard to say because it depends how we sell stuff. So this was just the way we sell affected net accounting or net-net sales reporting in a slightly higher way this quarter than a year before. But if it does that in the future, it's -- we don't know that yet. So it's a really tough question to answer. But I would assume that if you take a little bit longer stands than just 1 quarter, this will be of a give or take constant level. .
Yes, I mean, this is just really to have what we sell, if we sell as an agent with you sell software. [indiscernible] .
I think if you take a year perspective or a fourth quarter rolling, that number will not change that dramatically. .
Okay. And then we will see the year-over-year headwind become closer to 0 in a year or so. Okay. Okay. I see. And then on the SG&A bridge that Julia talked about in the slides here, is that something you can scale when volumes return? Or are there any variable costs in there that will come up as well when growth takes off?
We can, of course, scale. I mean, as I said, we have a fairly large fixed cost base in our current cost base. So when the business growth will return, we assume we will improve our margins to that.
And this, I would say, is particularly strong in SMB, where the online engine, as we would call it, is really highly scalable.
Yes, I see. And then on net working capital, you said that sales in the end of the quarter was stronger and drove the increase in receivables. Is that normally the case in Q2 with more February sales than December, January? Or does it mean that the quarter actually ended on a better sales momentum? How should we think about that?
On some of the larger accounts, it ended on a better basis, let's say, compared to December. So that was the reason why it -- I mean it has fluctuations are quite common in this area. So I would not put it as a trend, more as a coincidence, let's say.
Okay. Fair enough. And then just a final 1 regarding the growth recovery that you talked about in third bullet strategy slide, Johan, I think I missed the word or 2 in there, but you said something around we're confident that growth will come back. Did you say during this year? And was that on the group level? Or what did you say? I think we were missing a word.
No. I think our stance at the moment is that we will gradually improve -- the margin will gradually improve quarter-by-quarter. And because there is such a strong underlying momentum in the market coming from AI and Windows 11 and the move from Windows 11. So these 2 parameters, plus the fact that the fleet of IT equipment in the companies currently is overaged, so companies need to start exchanging. So I think these 3 underlying factors are driving the market expectations. What is holding it back is a bit on the macro side with interest rates. And yes, that kind of indicator.
Yes, exactly. And I think that you said something we expect to see growth in 2 quarters or in the end of this year, or something. Can you just say that again, I think we were missing a word there I think it was aligned .
Yes. I think we have only said that we think it's gradually going to improve quarter-by-quarter. .
The next question comes from Jesper Stugemo from Handelsbanken. Please go ahead.
We saw that gearing has come down, but it was very top a little bit sequentially in this quarter from previous one. How comfortable are you in this current macro environment that you are able to bring it down. I know that your target is 2x and 3x, but can you comment a little bit on that one? And if you aim to be closer to 2x rather than 3x?
Yes. I think it's a very good question and valid question at the moment. Because obviously, the rights issue brought it down to within or close to the target range, but still on the higher side of that range. [indiscernible] continues but much more operation rather than a financial level at the moment within the company. Our target is clearly to reduce it towards the [Technical Difficulty] can someone mute the background noise. And the reason why we run is, of course, that we want to continue our acquisition journey and with too high leverage, we cannot continue to bring it down. .
And then there has been some talks about end-of-life support of Windows 10. And in October 2025, it's going to trigger the refreshment cycle of the TCs. Now Windows 11 with co-filer coming in, et cetera. Have you seen any increased interest from customers now when Microsoft also don't have the minimum requirements of the minimum of 300 licenses?
I think these are all positive signs for us. And I think your conclusion is correct. There is a lot of discussions with customers at the moment on what this AI is going to require from a hardware perspective. And we have done discussions with many of our customers at the moment. I think they are not so many purchases, but there is a lot of start-up discussions, and that gives us, of course, some positive feelings that it will gradually improve.
How do you plan for this in the organization in the refreshment cycle and other take-back?
Well, in our case, it's to keep track of who has what software in order to address the customers at the right time with the right offering. And in terms of AI, it's very much driven by us discussing use cases with our customers, particularly the SMEs where -- or SMBs, where and they don't have the right knowledge about AI. So we can help them there how to use AI in the future. And when they want to use it, they need to exchange their hardware, which is good for us. We're working on different angles.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Okay. Thank you very much for listening into the Dustin Q2 quarterly call. I wish you a really good day. Thank you very much. Bye-bye.