Dustin Group AB

STO:DUST

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to Dustin Group Q1. [Operator Instructions] And just to remind you, this conference call is being recorded.Today, I'm pleased to present CEO, Thomas Ekman. Please go ahead with your meeting.

[Thomas Ekman, President & CEO]

Thank you very much, operator, and good morning, everyone, and most welcome both to our existing and new and potential new shareholders to our first quarter presentation and conference call. Hope you're all well and have a good morning despite the continued difficult time in our history. Here on our side of the call is myself, Thomas Ekman, and Johan Karlsson and Fredrik Sätterström in the room as well. So today, we present our first quarter results for our fiscal year 2021. We are, as you know, and all of us are doing, we are navigating ourselves through our different markets through the current fairly turmoil conditions, but I'm very proud of our achievements and everyone adopting for the strong contribution in helping and supporting our customers and continuously enable them to stay in the forefront, especially, of course, when also that hard work shows up in the numbers. The 5 market trends and that we are, for the last couple of years, have built our strategy on are the online shift, the growth mobility and cloud services, demand for predictable IT costs, focus on security and integrity and last, but not least, of course, sustainability. Those trends have all skyrocketed during the pandemic, and that makes, of course, our long-term position even stronger. But with that said, let's go into today's presentation and over to Slide 2, Dustin at a glance. This you have seen before, this picture. So just as a refresher and after the holidays here now, we are, by far, the biggest e-tailer in the Nordics and with the largest assortment within IT, and we provide fast deliveries, great customer support and competitive pricing. Sweden is our biggest market with 40% of sales and with the other Nordic countries between 15% and 20%. And the Netherlands, which we entered 2 years ago, now on 7% of our sales. We are, of course, developing ourselves in offering our range of service offerings. And currently, the split between hardware and software and services is 83% versus 17%. And last year's revenues, full year revenues were SEK 13.2 billion, delivered by around 1,800 colleagues around -- in our footprint. But then moving on to Slide 3 and for the financial highlights to see how we are improving and performing now during Q1. We continue to strengthen our total market position despite the current uncertainty. Net sales for us was nearly SEK 3.7 billion, up with 5.3% versus last year. The organic growth was up 8%, which -- of which SMB showed a positive 7.1%; LCP, 8.2%; and B2C, 16%. So overall, strong organic growth in all segments with an increased activity level among all our customers. Gross profit was SEK 577 million compared to last year's SEK 560 million. And that gives us a gross margin of 15.6%, slightly down from last year's 16%, but sequentially up from Q4. Our adjusted EBITA came in at SEK 171 million versus last year's SEK 156 million, which is a good uptake also on EBITA. And that gave us an adjusted EBITA margin at 4.6% for the quarter versus last year at 4.5%, and that's also sequentially improved since Q4. The margin has improved by, of course, good performance overall and the structural changes we are doing, combined with good cost control within all segments. Both SMB and LCP showed good progress in margin update.We have also done changes in our marketing mix during the quarter and where we will close our business center in Stockholm. We'll take out some marketing functions and we'll also shift our marketing mix more towards building our brand in line with our updated position. And with these changes comes items affecting comparability at SEK 13.9 million. And that gives us an EBIT of SEK 132 million compared to last year's SEK 118 million. Cash flow from operating activities was SEK 265 million, up compared to last year's SEK 225 million. And EPS, earnings per share, also up to SEK 1.02 per share versus last year's SEK 0.97. And our leverage is at 2.2 versus 2.6 than last year, i.e., in the lower part of our leverage target, which is between 2 and 3.And apart from an intense quarter overall, from an operational perspective, we have, as we have previously announced, acquired the Danish company, Exato, during the quarter. And to remind you on that, Exato is specialized in standardized services such as security and infrastructure, primarily within the Microsoft suite. Roughly half of the income comes from subscription services. And Exato will complement our portfolio, first of all, of course, in Denmark, but it will also strengthen our capacity and our -- and to complement portfolio further on of managed services in our other markets as well. So that is very exciting, of course. But Johan, can you take us through the financials for the different segments?

[Johan Karlsson, CFO & Executive VP of Business Support]

I will. And then please move to Slide 4 and the SMB segment in some more detail. So sales for the quarter in SMB ended at SEK 1.622 billion, an increase of 4.3% over last year, representing an organic growth of 7.1%. The acquisition of the Dustin -- the Danish service company, Exato, affected the quarterly sales numbers with 0.7%, so SEK 10 million.Sales improved significantly from Q4's negative organic growth of 2.6% as our customers were coming back to purchase. In the quarter, the hardware sales was strong in all markets, and particularly the small and midsized customers showed increased purchase need. Geographically, we saw good growth in all markets. But especially, in Norway, growth was strong. The services sales still affected by the pandemic as sales cycles are longer and the willingness to change supplier is lower during the pandemic. Further to that, our many customers still restricting access to their offices.Segment margin for the quarter was 10.0% compared to last year's 10.1%. If you then compare to Q4, sequentially, we saw a fine increase from 8.3% and further improved from 7.8% in Q3 last year. The main reason for the good margin was effect from cost reductions made during last year. It was also a very good development in the private label sales and scale effects as volumes were increasing. Sales mix with more basic hardware and less project-related sales had a slight offsetting effect on the margins in the quarter. Services and software sales as part of the total sales was at 21.2% during the quarter compared to 23.6% last year. In total, segment results ended at SEK 162 million compared to SEK 157 million last year or an increase of 3.3%. All in all, a strong sales performance in SMB where we, in previous quarters, have seen more effects from the pandemic. So then move to Slide 5 and the LCP segment. So our sales to large, corporate and public was SEK 1.907 billion in the quarter, an increase of 5.6%, of which 8.2% was organic. During the quarter, we saw continued good sales to the public customers and encouraging increasing trend towards the larger corporates. However, still, sales to the corporate customers are lower in activity level compared to the same quarter last year. And so far, they're more focused on basic hardware, such as PCs and mobile phones. Geographically, we saw good sales in the markets with higher public share, such as Denmark, Finland and Norway. Segment margin ended at 6.7% compared to last year's 5.5% and following Q4's 6.1%. The increase over last year is mainly explained by generally improved margins in some of our larger contracts, scale effects from higher volumes and some of the effects from last year's cost efficiency activities. Segment result improved by 27% from SEK 100 million last year to SEK 127 million this year, continuing the strong performance we have seen in the LCP segment during the last 4 quarters. We then move to Slide 6 and B2C. As Thomas said, we had a very strong B2C quarter. From a sales perspective, we -- total sales was SEK 168 million compared to SEK 148 million last year, which was an increase of 13.4%, and that resulted in an organic growth of 16%. Main reason for the sales increase was the Black Friday calendar effect with more sales base in Q1 and the overall trend towards more online sales during the pandemic. Segment margin was up from 6.2% last year to 6.3% this year as a result of strong pricing discipline and cost control. Especially successful was the margin work during Black Friday campaigns where a good product mix affected margins positively. Moving on to Slide 7 and net working capital. Net working capital was negative SEK 535 million -- SEK 531 million compared to last year, negative SEK 157 million. Again, our strong position in the value chain continues to give us the opportunity to push working capital to lower levels. We have continued the work with our partners in distribution and maintained payment terms from previous quarter.Further to that, we have utilized opportunities made available by the authorities in all our -- in many of our markets to delay tax payments by SEK 135 million. Further to that, our customers continue to maintain the high payment discipline we have been used to over the years. All in all, this has made it possible for us to maintain the low level of working capital during Q1. If we then look at the details, we can see that inventory was down by SEK 52 million compared to last year, mainly as a result of good demand during the quarter and some delays in deliveries that could explain the difference from last year.Accounts receivable was down SEK 75 million, mainly as a result of better payment discipline from customers, but also coming from a customer mix with less corporate sales, and that is possible -- positive to the payment days. Looking at accounts payables, which was SEK 172 million lower than last year, which is mainly an effect of a different supplier mix. In total, we continue to see strong performance in the area of working capital. Then moving on to net debt and leverage. As Thomas said, leverage ended Q1 at 2.2, where our target is to stay between 2 and 3. The main reason for the decrease from Q4, which is 2.6, was the increased result and the good cash flow mainly coming from the working capital development. So then move on to Slide 8 and cash flow and investments. We can see that cash flow for the quarter was SEK 176 million compared to SEK 109 million last year. If we look at the parts, you can see that cash flow from operating activities before change in net working capital was SEK 169 million, the same level as last year. Change in net working capital was positive SEK 96 million compared to SEK 55 million last year with the main difference coming from change in inventory and current liabilities. Cash flow from investment activities was negative SEK 52 million compared to negative SEK 78 million last year, where the acquisition in Denmark affected the numbers by approximately SEK 39 million this year. And cash flow from financing activities was negative SEK 37 million, which was in line with last year. Total investments amounted to SEK 53 million compared to last year's SEK 62 million. CapEx related to IT development amounted to SEK 8 million compared to SEK 12 million last year. And investment in assets related to service delivery increased from SEK 6.5 million to SEK 11.7 million this year as the centralization of the data centers is continuing. All in all, SEK 13 million out of the SEK 53 million in investments was affecting cash flow. The others were changes in lease or rent contracts. And that concludes, and we'll go back to Thomas.

[Thomas Ekman, President & CEO]

Very good. Thank you very much, Johan.And then over to Slide #9. As you have seen previously, we have and are, of course, continuously doing both structural changes and changes in our way of working and in the delivery of our offerings. And just to update you on the progress of 3 important ones of those. As you know, previously, we grabbed the opportunity during the spring to increase the pace of implementation of our strategy within services and solutions, and we closed 14 local offices and reduced our workforce. This is expected to generate an annual saving of SEK 40 million, and it had the full effect during the quarter now. Further, we have, since June, our new robot solution in place in our central warehouse, and we are really getting to know each other and getting along well, the robot and ourselves then. We had a target that the robot should handle 75% of all the order lines. But during the quarter, we have optimized that even further, so now it handles well above 80%. And this is, of course, very good and will further improve the customer experience. And from the robot, we expect around SEK 10 million in annual savings, and we also have a full effect on that in the quarter now. And then to our consolidation of our data centers where the consolidation as such now is completed in all 4 locations, and we are now migrating our customers over to the new technical design and a new environment. And this we expect to be ready by -- in Q3. And here, we, as well, expect to generate an annual savings then of SEK 10 million with full effect from Q3. Continuing then over to Slide 10 and our updated sustainability targets and commitments. By 2030, we aim to have 0 carbon emissions throughout our value chain. We will have a fully circular offering. And we have, by that time, then done 100 initiatives and actions to improve social equality. And these commitments are -- I mean we have designed them to redefine the impact of our business and how we behave and how we act. It will, of course, naturally involve a lot of innovations and solutions that we so far do not know of, but we will over time, and with those around us throughout our value chain. But again, hard work will pay off. And we see that these commitments really keeps us, or not only us, but also our whole sector moving forward. Our initial focus on these 3 areas are, if you start with climate, it is to expand our partnerships with our strategic suppliers, distributors and freight carriers. We are continuously integrating our commitments into our business and our strategic planning. Target for the year, this year, is to complete the transition to electricity from renewable sources in all our premises and that also 28% of our sold products must carry an eco-label. Through that, we are also detailing the plan to reduce total emissions in our full value chain. On circularity, we will focus on broaden our partnerships in all markets to promote increased collection of end-of-life returns for reuse and recycling. And that, of course, builds on our success with our Takeback-as-a-Service, which we implemented a couple of years ago and that we, of course, will continue to offer. If we then move forward to on social equality, we continue to conduct regular factory audits among our manufacturers. Target is to do 20 audits during this year. But we -- and we will, of course, continue that new suppliers also adopt to our Supplier Code of Conduct and where we are right now at 99.8% of that, aiming for 100%, of course. In this work, we -- when we do that, we also do a risk assessment to evaluate our supplier's ability to long term also comply with our code. But all in all, these are strong commitments that will require, I said, it will require hard work, but that's what's needed. So over to Slide 11, and let me sum up our first quarter and our fiscal year of 2021 before we go into questions. Net sales grew with 5.3% to nearly SEK 3.7 billion where organic growth for the group was 8% with SMB at 7.1%, LCP at 8.2% and B2C at 16%, so good strong organics all over. Gross margin at 15.6% versus 16% last year, down slightly due to mix effects with higher share of basic hardware and lower share of project-related income, as Johan went into as well. Adjusted EBITA came in at SEK 171 million, giving us an EBITA margin at 4.6%, an increase from last year's 4.5% and sequentially also up from Q4. The initiatives and actions we have taken on the cost side, both strategic ones, structural changes and the short term has, of course, given an effect that is good to see. EBIT came in at SEK 132 million and EPS at SEK 1.02 per share. And on balance sheet, operating cash flow, SEK 265 million and leverage at 2.2, just in the lower range of our target.From the operational side, we acquired Exato in Denmark. And as I said also, we implemented changes in our marketing mix. And as a consequence of that, we closed our business center in Stockholm. And with that, also that business center has served us very well during the years, but the increased pace of digitalization has changed our customers' behaviors, and therefore, we are changing as well, of course. So to summarize the quarter. I mean the corona pandemic and its effects, of course, naturally dominate. It is a challenge both in our markets and society, and it continues to be short-term disturbances in the supply chain, which we work heavily on. However, we have also demonstrated great things, I would say, with the speed at which more colleagues have adjusted to meet the needs of our customers, both in the short term, but of course, also to adjust to the long-term behavior change brought to -- brought us on by the increased pace of digitalization.So with the good organic growth and the earnings trend in Q1, we see that we are correctly positioned based also on the trends, underlying trends that builds up our strategy. We have a strong and unique digital relationship with hundreds of thousands of customers and even more now optimized e-commerce platform as well as the ongoing buildup of our standardized services and the offering to further increase our relevance and benefits for our customers. And that, combined with our strong financial position, means that we are well equipped to face the opportunities and, of course, the challenges that is presented by the business, by the overall environment, of course, and our customers. So with that, Johan, we are very happy to take any questions you might have. Please, operator.

[Operator]

[Operator Instructions] Our first question comes from the line of Ramil Koria from SEB.

[Ramil Koria, Analyst]

I guess I only have one question allowed, so I'll ask one about the large corporate sales. You're writing in the report that you're seeing a sort of a significant improvement quarter-over-quarter, but activity remains low. How should we read that sort of that development? And what's the difference between activity and sales, if you will?

[Thomas Ekman, President & CEO]

On the large corporate side?

[Ramil Koria, Analyst]

Yes, exactly, the large corporate.

[Thomas Ekman, President & CEO]

Yes. Yes, exactly. Yes. I mean to what we said before, as you've heard also before really, that, of course, as we see the movements and the changes in customer behaviors usually comes first in SMB, and then the larger corps is slower in braking, but they're also slower in starting up. So -- and that is what we see. We can see that the underlying tendencies are coming on the large corporates, but they have been a bit slower than the SMB side.

[Johan Karlsson, CFO & Executive VP of Business Support]

And the sales cycles are longer. So activity means that they have started to consider purchasing, and some of them have actually done it, but others are in the process of doing it.

[Ramil Koria, Analyst]

Can I just ask a follow-up on that? I mean could there be any pent-up demand from -- well, you're mentioning Denmark, Norway and Finland, in particular, being strong. Could it be -- and I mean those 3 countries were more impacted by lockdowns than Sweden was. So could there be any pent-up demand component in this equation?

[Johan Karlsson, CFO & Executive VP of Business Support]

I think on the public side, not so likely because they have continued in a very good speed during this year -- or during last year and the beginning of this year. Probably at the corporate side and on the SME side, you would see tendencies of that. And I think part of that we've seen in the SMB side.

[Thomas Ekman, President & CEO]

Yes. But of course, that might -- I mean to follow that, it, of course, depends on how the large corporates, how we -- how you will behave, how much will you provide your employees with the home office equipment now when we come back to sort of a normal or a new environment. And that, of course, is a good opportunity for us to provide that. So we'll see how that development goes on.

[Operator]

And the next question comes from the line of Daniel Thorsson from ABG.

[Daniel Thorsson, Research Analyst]

Daniel here. So I start out with one on the supply chain. We see some negative comments about the supply chain during December, and freight rates are shooting up. And you also show that your inventory was down already in the end of November. Is this something that you have seen accelerated in December for certain products? And is this a potential risk for meeting client demand short term?

[Johan Karlsson, CFO & Executive VP of Business Support]

I think what we have seen is that the global supply chains are in a bit of a, let's say, chaotic situations. We have managed it relatively well, I would say. Because remember that the way we sell to the SMB customers primarily is, of course, that we push the products we already have on stock to them. So that makes it easier for us to sell any kind of product that we have on stock becoming -- whichever PC we have, we can sell it. Slightly harder to the larger corporates that demands a specific configuration. And there, we have seen delays in deliveries, but I would say, no significant effect on sales. But of course, if there is a delay in delivery, it can affect the inventory level at a certain point in time, which was the case in the end of the quarter.

[Daniel Thorsson, Research Analyst]

And have you seen that accelerated in December? Can you comment anything on that or beginning of January?

[Johan Karlsson, CFO & Executive VP of Business Support]

We have seen no acceleration of that. It's a continuous complicated situation, let's say, of global supply chains at the moment. And we are trying to manage within that space, yes.

[Operator]

And the next question comes from the line of Mikael Laséen from Carnegie.

[Mikael Laséen]

I have a question about the project-related services. If you can elaborate a bit on development in Q1 and businesses between countries and overall utilization and what you can sort of take out more from the organization going forward.

[Thomas Ekman, President & CEO]

I think, overall, you can say that this, of course, has been a bit off and on during the fall, depending on how countries have behaved, whether it's going through harder lockdowns or not. But -- and that has, of course, still been challenging to come into offices to do installation and so forth. However, we see also that, that is sort of -- I mean offices will change going forward now. So that might change going forward, but we'll see. But it has been, during the fall, it has been challenging on that side. And that, of course, creates a lower utilization when we have the people that are sort of ready to do that, but it cannot come out to the different clients and do the work. So yes.

[Mikael Laséen]

But you saw an improvement quarter-on-quarter compared with the summer?

[Thomas Ekman, President & CEO]

Yes, yes, yes. Yes, we did that. We did that. And that's also back to the fact that, that was also -- what we also talked about in our Q4 report that we then we saw some lights on the activity or the increased activity among our customers, especially then on SMB side. And that, of course, is an improvement from Q4 in Q1 where more companies are adjusting to the new environment and then also see the need of increasing or implementing new solutions in their offices, which, of course, is -- benefits us. So we are very much on our toes here, but we can -- we have more capacity than we needed in Q1. But still, there is an improvement quarter-on-quarter.

[Operator]

And the next question comes from the line of Fredrik Stenkil from Nordea.

[Fredrik Stenkil, Research Analyst]

Congrats on a good report.

[Thomas Ekman, President & CEO]

Thank you.

[Fredrik Stenkil, Research Analyst]

I was wondering if you could talk a bit about acquisitions, kind of your outlook on that. I guess debt levels have started to come down quite well for you. And if you could talk a bit about kind of the pipeline or the short list you have and how the discussions are going. I guess you're looking for service-oriented companies and if they're willing to sell at a time like this when it might not be a peak earnings year for them, if you know what I mean?

[Thomas Ekman, President & CEO]

Sure, sure. I mean they -- as you know, our -- we have quite a clear acquisition strategy, and it's a quite clear part of our overall strategy to do acquisitions. And we -- and I should say, the pipeline of possible acquisitions for us is good. And we are evaluating constantly several different targets. And as we also mentioned before, I mean, what we can see now is that given how our portfolio have developed now, we can be much more targeted in our sort of acquisition hunt going towards much fill-out where we have white spots in our service portfolio. And I would say the market is good. I mean we haven't seen that much changes in pricing or in multiples. There are still -- everything as we have -- as all our monies has been between 6 and 9. So -- and that continues.

[Johan Karlsson, CFO & Executive VP of Business Support]

I would say the pipeline is among the strongest we've seen in the last 5 years coming after summer. So it is a good environment for that. But of course, we are -- we look thoroughly to what kind of targets we should look at.

[Thomas Ekman, President & CEO]

That's a good market.

[Johan Karlsson, CFO & Executive VP of Business Support]

Yes, good.

[Operator]

And the next question comes from the line of Christoffer Bjørnsen from DNB.

[Christoffer Wang Bjørnsen, Analyst]

So I was just wondering, I guess you don't want to give any guidance for the current year. But could you just give any further comments on what kind of environment you're seeing in the current quarter where you have visibility over the rest of the year? Is kind of momentum we're seeing in terms of organic growth in Q1 something you expect to be sustained during the year based on what you're seeing now? Or is it still a bit of a black box in terms of the trends you're seeing?

[Thomas Ekman, President & CEO]

I mean we, of course, monitor everything, as you know, very closely every day. And without giving any forecast to it, I mean, as also building on what Johan said, we see some difficulties in the supply chains, and that we'll monitor carefully and work hard with. There is a strong demand in the market has been in Q1. And we see now how things come along now when January starts up as well.But overall, I think -- I mean, long term, our position, as was mentioned before, long term, our position is getting stronger and stronger in this new environment where everything goes more online and everything goes more for security and mobility, the demand for sustainability and so forth, what we have mentioned before. So that, of course, is encouraging for us to have that and to further build that and strengthen our position.

[Christoffer Wang Bjørnsen, Analyst]

Great. And just...

[Thomas Ekman, President & CEO]

And overall -- sorry.

[Christoffer Wang Bjørnsen, Analyst]

Yes, overall?

[Thomas Ekman, President & CEO]

No, overall -- I mean, overall, the changes, it is -- I mean, for everyone, is, of course, a bit hard to see what the future might hold, depending on how the lockdown, how that changes. But I mean if we look from the society as a whole, there will be more and more people get vaccinated, more and more people can come sort of back to a normal position, but that's how long time that we take, well, we'll see.

[Christoffer Wang Bjørnsen, Analyst]

Yes, sure. Just a quick follow-up. Are you seeing any kind of changes in the market dynamics in terms of, for instance, in the public sector where some of the big entities are kind of splitting up previous contracts in more kind of narrow contracts, whether separating software and hardware or infrastructure and clients, and also inviting a higher number of vendors per frame agreement so that they're kind of driving the public sector, kind of customers are driving higher competition and that is hurting margins or your ability to win? Or hasn't there been any changes there over the last 12 months? Or...

[Thomas Ekman, President & CEO]

No, no specific changes. I mean the public sector just goes on right now, which is, of course, very good. And that's also back to the mix we have with the SMB, large corporates and public. And the public side is good to have as a base. But there hasn't been any changes, rather contrary.

[Operator]

And we have a follow-up question from the line of Ramil Koria from SEB.

[Ramil Koria, Analyst]

A question on net working cap. A few quarters ago, you were talking about having temporary improved terms with your suppliers. And now it seems like the story is somewhat different. Is the current -- should we read your comments today as this level of payables versus sales or what have you as the sustainable level?

[Johan Karlsson, CFO & Executive VP of Business Support]

I think you should read them. First of all, temporary, we've always explained by the fact that we don't have longer than 3-month contractual agreements on the payment terms. That's why we call them temporary. That doesn't mean they will fall due or change within 3 months. So it can continue for longer. At the moment, given the situation, we have prioritized in the mix of, let's say, customer terms, Ts and Cs that we have with our distributors. We have prioritized payment terms with all of them at the moment. That's why we are on such a high level.I think over time, that will change slightly. So we might keep some of these longer payment terms to some of the distributors, but not to all of them. So we will come back to more normal numbers. And then again, that normal number might be at the level of where we were last year compared to where we were this year. So it depends a little bit on our own priorities when it comes to the Ts and Cs we would like to accept with our suppliers.

[Ramil Koria, Analyst]

And just a follow-up. I mean could you come -- you going back evaluating on other factors than payment terms lead to higher gross margins. So is such an impact negligible in the grand scheme of things?

[Johan Karlsson, CFO & Executive VP of Business Support]

I think limited, actually. I think it comes more to reducing other kinds of risks. Let's say, returns of products that we have bought, for example, would be one that we could go back to a higher number. So that would take away more of the risk in the inventory rather than maybe pure margin effect.

[Operator]

And the last question is from Daniel Thorsson from ABG.

[Daniel Thorsson, Research Analyst]

Final one from me, please. On private label, you said that, that was pretty strong in the quarter. What product specifically are performing the best? And does it have any positive pandemic effects, for example, products related to work from home? Could you also give an update on what's the share of today's sales versus your targeted level in the financial targets? So what's the progression on that?

[Thomas Ekman, President & CEO]

Yes. I mean private level has been -- had a strong quarter. And what we sell -- I mean displays has gone very well, everything from home office. Since this is a fairly basic hardware and sort of low complex products, I should say, display, keyboards, mouses, cables, of course, as always, they are very good, and also headsets. And now we're also moving -- have moved into webcams. And we have managed to have quite a good actually production on webcams, given the fact also that Logitech and other suppliers has been out of stock. So that has been very good for us.So we are moving towards the different kinds of new product categories like webcam, for example, and also developing that. So I should say it's quite broad on private label, but -- in all segments. But everything you can think of that you need for your home office, we can now provide, and we have special packages for that on private label also. So private label has done -- we have done a very good job on that.

[Johan Karlsson, CFO & Executive VP of Business Support]

And I think in terms of financial targets, remember, we set the target to add SEK 40 million of profit in the first 3 years. We added SEK 45 million actually on the first, and then we set out the new targets for the next 3 years, which was another SEK 45 million added, which would accumulate and become SEK 90 million. And we are now in the first year of that journey between SEK 45 million and SEK 90 million, and we're doing really good progress. I mean compared to 3 years ago, we were doing less exchange of sales, let's say. So we are, let's say, selling less, but with a much better margin improvement than we thought from the beginning.It comes a little bit from the categories that we are selling, so displays and cables, primarily cables where the margins are -- improvements are better, so compared to sales as such. So we're doing very good on profit. When it comes to private label, slightly, let's say, less. We're a bit behind the absolute number of exchange sales from branded products to private label products, but that doesn't change the total adoption sales because we're just exchanging sales.

[Thomas Ekman, President & CEO]

Yes, we're just letting...

[Daniel Thorsson, Research Analyst]

Yes, I see. I see. So what's the rough fraction of sales coming from private label today in SMB versus LCP, for example? Just to get a feeling where you are.

[Johan Karlsson, CFO & Executive VP of Business Support]

Oh, that -- I think it's still at the level of between -- depending on the category that we have launched in, the -- we are somewhere between -- on some -- it's very broad now. Again, in some categories, displays, for example, we might be on the level of 10% to 20% of sales being private label. Cables, we are much higher. And others, we are on the lower side of 10% of sales. So it differs very much between the categories.

[Operator]

And we have just one more follow-up question from Ramil Koria from SEB.

[Ramil Koria, Analyst]

Sorry, guys, a final one from me. On the OpEx side, just calculating a bit backward, it seems like underlying cost inflation is in about 3% to 4% squaring in the savings you've been able to have in the last few quarters here. Is that sort of how we should reason about the homes going forward, 3% to 4% increases? Or is there anything else to reap in terms of savings? Could this business center closure, for instance, lead to any savings in the coming quarters?

[Johan Karlsson, CFO & Executive VP of Business Support]

I think you should see the business center close more as a change of marketing mix. So we would probably continue with the same level of investments in the market, in the market mix, let's say, moving towards, as Thomas was saying, more towards mainly brand marketing. We are constantly, of course, increasing the paid search investment. So it's -- I wouldn't look at that as a possibility of cost saving.I think your number is more or less in the range where we expect costs to develop. That will be different, slightly different in different quarters due to the fact that the variable pay and provisions are, of course, varying depending on how well we perform this year compared to last year. So that could vary a little bit between the quarters. But if you take a slightly longer period, I think your number is good.

[Operator]

And as there are no further questions, I will hand it back to the speakers for closing remarks.

[Thomas Ekman, President & CEO]

Very good. Thank you very much, and thank you all for listening in to our Q1 call, and thanks for your question. And just please follow up, if anything else, just e-mail or call us, and we're ready for you. Thank you very much for that, and have a great continue of the day, and talk to you soon. Thank you. Goodbye.

[Johan Karlsson, CFO & Executive VP of Business Support]

Bye-bye.

[Operator]

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.