Sdiptech AB (publ)

Thank you and welcome everyone to this presentation of StipTech's report for the second quarter. As already mentioned, it's myself, Bengt, placed from here with our CFO, Susanna Sotelius, that will guide you through the quarter and also a brief look ahead. But let's start with just some words about StipTech in short, as most of you know. We are a technology group that are acquiring and developing companies that all work for a more sustainable, efficient and safe society. Much of that being built into infrastructure. So that's also why we focus a lot on finding companies within the infrastructure sector that will support this future. And we have divided our business into two business areas, resource efficiency and special infrastructure solutions, where we have three sub-segments each, which you can see from this slide. and what's common for all these six industrial segments is that we believe that are sustainable drivers for growth much because of that we all want a more sustainable efficient and safe future and but also that the infrastructure of today is quite old so it needs to be renovated or replaced we also consume more of infrastructure and more of our resources. And as well, we're going into the direction of more sustainability. We also put some more regulations around all of this. So all in all, that means that the companies we look at to acquire and the ones we already have are well positioned for a sustainable, good demand and growth over time. And as you can see to the right hand in this slide, our companies currently, they are residing in the Nordics, UK, the Netherlands, Italy, and Central Europe based in Croatia. All in all, 40 business units, as we call them, since they are more legal entities, but we call them business units, which we follow up and report on. And we are currently almost 2,400 employees. And we have had a very strong profit growth since 2017 when the B share was listed over 38% in average. And since we have a strong focus on sustainability, how much of our turnover is actually contributing to one of the UN sustainability development goals. And for last year, 2023, that was 79%. So that was StipTech in a brief presentation. But let's go for the main topic of today then, the second quarter. And as a summary, and we will get back to all of this in more detail, we are very happy and proud to present that we had a strong sales growth, 9% organically excluding currency effect. All in all then together with acquisitions, acquired companies, we had a 19% growth, almost 1.4 billion Swedish in a quarter. Our profit almost developed the same way, 13% all in all, which 1% was organic, excluding again the currency effect. And that number was then 260 million in adjusted EBITDA. We were happy to see that our activities and measurements we have done to improve the cash flow had effect. So we had a cash conversion, as we calculated. But in absolute numbers, it meant that almost 200 million of cash flow from the operations was brought into the group. Which, of course, adds to our position to be able to continue with our acquisitions further on. And we will come back to that as well, of course. The margin was somewhat lower than last year, but more or less in line with last quarter, 18.7%. And part of that was that we had a sales mix shift. Some of the companies that have been very, very profitable have a good quarter, but not as good as last year, but still good. But we're also taking some measures and costs for restructuring of one of our business units, the one that we still have within our elevator business in Central Europe. But we will comment on that as well. During the quarter, we acquired one company, Watertech of Sweden. It's a small company, but it's a company that's complementing our other companies within the water treatment area. So they cooperate already with the Chemitech in Denmark and the UK. We did also actually divest the company, which we don't typically do, Frigotech, a company that services and installs different types of cooling equipment in warehouses and shops, et cetera. And the reason for that being that they are We're not really part of our main focus in the business. As you know, we're focusing on product-based companies, companies that control their own product and their product development. It could also be software, of course, or more productified services, you could call it, but pure service and installation of other companies. products is not our focus and Frigotech being a very small company in the group and also perhaps would have a better future with another owner. We discussed and had a careful consideration about what to do and together with the management decided to divest the company and they are now part of the Nordic Climate Group where they have much more in common with our sister companies than what they had with us so nothing dramatic really and it's nothing that we do typically because we are forever owner to our companies but in this case we thought it was of value for for all parties then looking a little bit more on the distribution of our business in turnover by type of revenue. As mentioned that we focus on product based business and as you can see from this chart we have 60% of sales is product sales and then we have an even split between installation and service and that is then mainly on our own products. We like installation and we like service because that brings added revenues and profit to a hardware offering. So typically our products, you cannot buy from the shelf as just as a piece of hardware, but instead we install it and we service it over the software also attached to that hardware. So we get a long-term relationship with our customers and also then recurring revenues. Another way to split the sales is through the geography. And here you can see that UK is our main geography when it comes to where our customers are. So this is really who is receiving our invoices. And Sweden is less than 20%. And then we have a split between many countries. So UK is, of course, very important. And for us, UK has been a very stable economy. when it comes to infrastructure operations. And we'll see what the new government in UK will do. They have promised to add more funding into infrastructure initiatives. So perhaps we can benefit some from that. And yet another way to look at our turnover is to split, or rather our profit, to show the split between our different business units. And this chart is to show that we don't have any company above 10% of our total profit. And as you can see, we have a pretty big number of companies between 4, 5, and 10%, which is a good risk diversification, we believe. For some years ago, we had a few larger, in comparison to others, business units. But now, as you see, it's a pretty decent and a good split, which means that we're not dependent on one or two business units performance. So all in all, a good diversification. then looking into our acquisition activities and as you can see from this chart we have reduced the activity levels not the least last year because of the increasing interest rates which meant that we when calculating how much we're willing to pay for a certain company we reduced that price which of course meant that the dialogues with sellers take longer But also that we wanted to bring down the debt leverage a bit. And we think we have done that. We are still on a path of reducing the overall debt level somewhat. And interest rates have stabilized and started to go down a bit as well. So for this year, we have said that we increased the pace to perhaps 100, 120 or so in acquired profit, which means that we have acquired about half of that through the two acquisitions we have made already then. In addition to WaterTech then this quarter, we acquired a pretty big JR Industries in Q1. But it means that we should acquire some 40, 50 million of round rate profit in the second half. And we have a very and we have a strong pipeline in order to shield that. So that looks promising.

Yes. So in order to look a bit closer at the financial numbers for the quarter and starting overall for the group. So what we see demand and sales continue in general for our companies. And this resulted in a quarterly revenue of around 1.4 billion. And on rolling 12, the revenue is now at 5.3 billion. That was a sales increase in the quarter of 19%, of which nine, like Bengt said, was organic growth. Also year to date, we've had 9% organic growth. Then for the margin, we can also see that it continues to be stable. It was 18.7% in the quarter, 18.8% year to date, and 18.9% rolling 12. And then moving to adjusted EBIT A. We can see that several of our especially larger business units are showing stronger profits than last year. We also have some acquisitions contributing, Chemitech, JR, Watertech versus last year. Then we also do have some challenges. Bengt mentioned, for example, our elevator unit where we've been working with restructuring efforts and had a negative result in the quarter. I will come to this when we talk about segments. And yesterday, we had 3% organic growth. In the quarter, it was 1%. And then if we look a bit more at the segment, and start with resource efficiency, so our companies within water and sanitation, power and energy, and bioeconomy and waste management. So resource efficiency had a good quarter. We see that in some of the larger and also high margin units, we had a strong growth. One example being IDE, our company for temporary electricity solutions that had different projects in this quarter that contributed. And also other companies that we have within power and energy had a good performance in the quarter. And then the new companies Chemitech and Watertech are also part of resource efficiency, and they performed in line with expectations and contributed. And the overall numbers then for resource efficiency was a sales increase of 15%, adjusted EBITDA increase of 24%, and the margin increased as well to 22%. And then if we move to next segment, so special infrastructure solutions, where we have our companies within air and climate, safety and security and transport and logistics. And here we think it's important to mention that special infrastructure solutions had a very strong second quarter last year. Sales then grew by 50%, adjusted EBIT A grew by 63%. So it's been quite challenging comparables for a number of of business units here. And if we look at the challenges here, I mean, that's been one of the challenges, and that has resulted in a couple of our business units not being able to show better results than last year, basically. On the negative side here, we've also had the remaining elevator business that we have mentioned a few times here. where restructuring efforts are still continuing. We had a negative performance in the quarter of minus seven. Our aim and ambition is to turn that company to profitability towards the end of the year. If we look at the positives instead, we have of course JR Industries that's contributing from acquisitions and then A couple of our largest business also with high profitability have been going strongly here in special infrastructure solutions. So a couple of examples of well-performing companies here is ELM, which is our customized forklift equipment business. GAH, our customized equipment for cooling last mile transportation. and also Hiltip, and Hiltip is producing road maintenance equipment, and it's based in Finland. And so a bit pros and cons, and the total result is a sales increase of 21% in the quarter, EBITDA increase of 8%, and then a margin decreasing slightly to 19%. And cash flow, cash conversion. Now, we are pleased to see this development continue. It's been going on in the right direction for some time. We are still putting in quite a lot of effort in order to work with the companies to keep improving the cash flow and cash conversion. and cash flow amounted in the quarter to 197 million or 83% cash conversion and this despite increasing sales. The rolling 12 number is 84% and this is well within our sort of internal aim of being somewhere between 70 and 90%. If we look at Profit after tax and earnings per share, those numbers have been going down compared to same quarter last year, despite an increasing EBITDA. And the reason behind this is higher interest cost and tax. And just as a comparison, if we look at free cash flow per share, that trend has been increasing and free cash flow per share is now higher than earnings per share. So it's at 12.12 for LTM. So above the 11.34. And finally, our debt leverage numbers, they are showing a decreasing trend. We believe this trend is going to continue over time. But it's just good to bear in mind that the timing of acquisitions can, of course, affect these numbers. So it's going to go a bit up and down, but the long-term trend is going to be downward. And with that, I'm leading back over to Victor.

Thank you Susanna. And a few words then about looking ahead. As I mentioned in the beginning, we have selected our industrial segments based on that, that they should be pretty resilient. Of course, they can go up and down quarter by quarter. And for example, now in different seasonalities, the next quarter is this quarter we're already in, then Q3 has all the vacation period, et cetera. But all in all, we have a solid platform and a solid growth underlying our businesses. And we believe we have a good diversification then, as I mentioned, with all the 40 business units of different sizes, but that no one is really too big. So it's a good split. When it comes to the quarter three, we could also mention that it's a pretty tough comparison during that quarter. We had some 20% organic profit growth and sales growth last years, of course. We will do our best to meet those numbers, but we'll see. And also then looking at the acquisitions, as I mentioned, we had a strong financial position and we have a very strong pipeline. good pipeline and we control the processes ourselves so we we can try to at least then even out when the acquisitions eventually are completed and executed instead of being since we're doing it ourselves not relying on structured deals and the like so we're very much in control of the speed of when the timing and when the acquisitions is actually happening. But we're optimistic about that. And we will also then based on our leverage situation and on the interest rates, we're slowly but steadily most probably increasing a little bit the speed of the acquisitions going into next year. But that we will see, of course. But Our aim is to acquire and still grow the company from acquisitions and a good solid organic growth. With that said, we open up for questions. We have already received a few questions on the chat, but perhaps we would let the conference call questions in first.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Max Baco from SEB. Please go ahead.

Thank you, operator, and hello, Bengt and Susanna, and as said, Max Bakko from SEB speaking. A couple of questions from my side. Perhaps starting with, as you mentioned, very tough comps here in Q3, but could you perhaps give us some comments on the seasonality Q3 versus Q2, perhaps both on sales and earnings? I mean, looking historically at your numbers, Q3 normally has a bit lower sales, but quite often the adjusted EBITDA is very much on par or even slightly higher in Q3 compared to Q2. Is that a fair assessment to do?

Well, it's of course, when looking at our historical numbers, you always have the acquisitions that are blurring the picture. But of course, Q3 is the weakest quarter in the sense that we have all the vacations going on. So typically we have lower sales and should also have a bit lower profit in Q3 compared to Q2, for example, which is a strong quarter. And we have some seasonality as well when comparing Q3 compared to Q1, for example, as well. Since some of our companies are selling products that are aimed at the winter season, like heat work. Some of the companies structurally have more sales in the Q4, Q1, than compared to the summer. But yeah, so it's more to see that we had a strong year last year.

Okay, perfect. Understood. And then perhaps two questions relating to the cash flow. I mean, during the last 12 months, you have had a really nice support from changes in networking capital, helping the cash flow, which is quite impressive given the high organic sales growth. Do you see any further potential to release more from working capital in the coming quarter? Is that work done? Would you say?

Yeah, well, the work is never done, more or less. We continue, not the least, working with inventory management in our companies to try to be as efficient as possible. When it comes to accounts receivables, for example, when we sell more, that number increases, but we still try to negotiate and bring down the number of credit days for the customers. But yeah, no, we haven't, we're not done yet with the activities. So we will continue that work. So hopefully that will be seen in the numbers as well.

Perfect. And then I noticed here in the quarter that looking at the CapEx a bit higher than usual, I guess, It was some 4.6% of sales in the quarter. Did you have anything special in the quarter or was it just whatever?

No, if you look at the first six months, I think that number was 3.8. I think we're very much in line with the amount of depreciation we're doing on the assets. So we're more or less replacing all assets.

Understood. And then perhaps a question to Susanna as the new CFO. Let's see if you agree, Bengt. I mean, you're super clear on your intention to reduce the leverage and I guess also to some extent the absolute interest bearing debt. But besides that, do you see any potential to improve the current debt structure and thereby also reduce your interest expenses? I mean, you have your pref share and you have your bond that I think trades quite below what you paid in interest on it. So do you see any potential there going ahead?

I would say that we are discussing a bit how we should How this should roll out going forward. I mean, there's always potential for improvement, I think. But I wouldn't go into any details about plans. Bengt, what would you say?

No, but as Max is saying here that our bond is trading at a much lower rate than what we pay. I think it's below 300 basis points now. But that's, of course, good because we still have some 400 million to tap on that issue. So if we would need, but we don't currently because we have good financial funding from our banks. But if we would need, we could always get some more funding to lower rates today than we did almost a year ago. So let's see how this works out. But hopefully, all in all, all the interest rates will go down a bit.

our reference rate that's the biggest part of our rates is the reference rates understood and one final very brief question on the elevator business where the restructuring is perhaps taking a bit longer than initially expected and you commented in the report that you or at least aims to show black numbers in the end of the year should we

expect a gradual improvement in that during the second half here with a bit less negative impact in q3 already perhaps compared to q2 yeah perhaps it's always difficult now but as you said it's taken longer we have been forced to lay off more staff actually more than 20 percent staff and this is a big company with 300 employees so it's a lot of people that have been forced to leave and that takes time and it costs money and we've also done other restructurings of the business and moved production and such things and it costs money in the beginning but pays off in the long run but still as we have said it's our clear ambition to to be on the right side uh before year end perfect

That was all from me. Thank you very much for taking the questions and have a nice weekend when we get there.

Thank you and you too, Max.

Thanks. The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

My first question is on the order situation. I believe a quarter ago you talked about the favorable environment. I was just curious to hear if you could provide any comments on the backlog or order situation now.

No, it's the same. I mean, we have our transparency differs from business units to business units. Some of them have pretty short order stock going forward and some others are very long. All in all, it's the same situation as previous quarter.

Just a bit of clarification, I understand the Q3-23 figure, then you had good profit and sales growth excluding Rolex, but I would assume that the comparable comment that you make, that shouldn't be as much of a headwind in Q4, considering that it's easier if you exclude Rolex and that Rolex was a recovery year last year.

uh true rolex recovery but also excluding them we had some was it eight 17 18 percent or so i'm not exactly numbers but some around that and we don't we look at the total and it's just um yeah we just see that we have strong comparisons in the next quarter and as mentioned the previous speaker here that the seasonality etc is that the q3 It's typically a bit softer quarter than Q2.

Understood. Then on the elevator side of the business, you highlighted that at least one of the two had a loss in Q1. And this quarter you specify a number. So I was just curious, you know, how this 7 million compared to the Q1 performance?

We mentioned it because it was more substantial in this quarter. So it explains more of the difference. So if you can count in many different ways, but if that company had made a zero result, a profit margin of 0.5% higher, for example. But it was just to give some flavor to the magnitude. And as mentioned also just previously here that We're aiming at having this in black numbers before year end.

And just one more sticking on that subject, the kind of, let's call it overall business performance compared to the actual restructuring costs that you took. Is the change year over year mainly attributable to these upfront costs that you take or took?

uh yeah but it also that it takes some time to get get these different measurements to pay off so it's not only to cost cutting it could also be to invest and to be in a better position and take some cost for example to move things and then it takes some time before that's then giving contribution so it's a mix of both

Understood. My final one is then on pricing strategy. Especially a couple of years ago, you did highlight the inherent ability to raise prices, but that it could take a bit of time sometimes due to contracts and so on. I was just curious about this current environment. Do you still feel that your units are raising prices or is it more about maintaining prices and that customers are in other areas perhaps pushing back a bit

I haven't, I think, experienced the pushing back demand from customers, really. And I think we even commented on the business areas, resource efficiency in the report, also that we have price adjustments to increase prices. So, as I said, we have a strong position, but it's lagging. But nowadays, we don't have that strong inflation. So, we have caught up since some time. So I think we have a good pricing position all in all. So, yeah, that's a long answer to your short question. But, yes, we increase prices still.

Okay. That's helpful. Thank you. Those were all of my questions.

Thank you, Carl. The next question comes from Niklas Sovis from Red Eye. Please go ahead.

Hello Bengt and Susanna. I want to focus a bit on the UK today. You mentioned that the newly elected government are offensive on infrastructure build-out and so on. I just wanted to hear if you have any examples of how you think that could benefit a few of your business units in the country.

Well, we haven't seen that in detail yet, but I know that the new government is more positive to the electrification of the UK when it comes to, for example, then charging infrastructure and so. But I mean, it's too early to see what that will actually be in the future. real politics apart from promises in the election process. But at least everything else equal, it should be positive for us that they are putting more money into infrastructure development.

Great. Another question is with regards to acquisitions. I mean, you have been a bit Yeah, put the brakes on that a bit. But now, I mean, the debt level looks more solid and I continue to see, I mean, strong cash generation ahead. So at the same time, you have been more, I mean, the prices you have paid for the recent acquisitions has been lower than before. And you mentioned that the process takes a bit longer due to that you're a bit more strict on what you pay. Is that a risk that you... I mean, think about for the longer term when you're going to scale up M&A again. I mean, do you think you would be able to do that with the prices that you're willing to pay now?

Yes, I think we're more now on equal terms with sellers. So currently, it's not a difference compared to two or three years ago, even though the level has been reduced some half or one multiple. So no, we don't see that as an obstacle going forward.

And is there any follow-up on that? It seems like a few of your competitors or peers in the Nordics are also ramping up their acquisition activities in the UK. And even though you have your own sourcing and do more yourselves than others, maybe relying more on brokers, do you still... I mean, do you still... think that the competition is not an issue and do you foresee that to continue in the long term as well?

Yeah, I mean, UK is a very big economy and there's a lot of companies and we have actually, we don't run into each other in the different situations if it's not the structured process where the seller is actually inviting others as well. But no, we don't see that as a problem at all. it is for all but also we are having other geographies and if we feel that we get better deals within our scope in other geographies we we concentrate more on those so for example in italy even though we haven't done any acquisition there since some time ago but it's still a very active m a geography for us where we have a number of companies in the pipeline so So if we would feel that now competition is like we have seen in Sweden, for example, for many years, it's a little bit too tough. We have other geographies to focus on.

Okay, perfect. Thanks for that. And have a great summer, both.

Thank you. The next question comes from Carl Oscar from Burenberg. Please go ahead.

Yes. Hi, everyone. Just really one question on my side here. Thinking about this divestment of Frigatech, also thinking about the elevator business, could you walk us through if there are any other out of your 40 companies now that you're kind of thinking of reconsidering, let's say, or is this work that you do on an ongoing basis, follow up? Is this part of our strategy still? I'm just trying to think about the future. We should expect more of these

type of divestment and presumably maybe for these elevator businesses also clearly doesn't maybe fit in as well as some of the other names you see here your thoughts on that would be helpful yeah well first of all we as i said we focus on on the type of companies we focus on but we also have the companies we have and we take care of them and and we have a number of companies that was acquired before we set the strategy that we have today we have had the strategy for about five years, but we have companies that are older than that in the group and they're performing well and bringing good cash flow into the group. So even if they wouldn't be 100% according to our current focus, they're still good companies and we will continue to own them. Then we have some companies like Frigotech and the former elevator businesses that we divested some three years ago. that are a little bit further out of scope and where we believe strongly that these companies will have a better future in another constellation. And that's why we took the capital decision to divest Frigatech. That could be still one or two more companies perhaps in that, but when it comes to the elevator business that we've been talking about, our main focus now is to get that company in shape and in good numbers. And so we don't have any other plans than that for that company. So no, it's not, it will not be something that we do every year, but it may happen.

Fair enough. Now that makes sense. I was just curious to hear other than that, I think most of the, uh the discussion here has uh has covered most of my other questions so i'm happy to jump off thank you have a nice summer as well you too thank you

All right. And then I think we are then switching to our questions from the chat. I don't think we have any more questions in the conference call. And I received a few. First question was, what is your largest subsidiary at the moment? since we showed the split between different units, and the biggest one having some 9.5%, I think, of the group Bivita, and then we have some others. But this may change from one quarter to the other. And that's the whole idea of why showing this, that it's not really important which one is which. We have a good diversification of the biggest. So we don't actually disclose that who's the biggest from one quarter to the other. But of course, we can mention that previously, Rolex was our biggest one. It was, I think it was 15% or even bigger when we acquired that company. And of course, that one has reduced in relative terms compared to the whole group, since we have more or less doubled the group EBIT since then. But Rolex performs well, and they have an impressive EBIT margin for being a company focusing on charging business. They are above 20% EBIT margin, which is, I think, good in comparison to many other companies. And right now, they see a good demand coming in from fleet different fleets and so in the UK, which are investing in electrical vehicles. So they are a healthy company. And if you want to read a bit more about our biggest companies, you can look at the year-end report where we described the five biggest companies at that time. um another company sorry another question was around the two construction units we mentioned in q1 was that the elevator company we're talking about now yes that was one of them and the other one was a swedish company dealing in construction business and since the swedish company we have restructured and refocused a bit on their business we think they are running in a better way now. But yeah, as we have discussed now a few times, we're taking measures still in the elevator business. And then, yeah, it was also a third question regarding the comparisons with last year and the year before. But as I mentioned, this was more a fact that the Q3 is all in all from seasonality and from vacation times, et cetera, typically a bit softer quarter than Q2. and that we have a very good performance in a number of units last year. And we'll try, of course, to meet that also this, but let's see how that will end up. So I think that was the question coming in from the chat. So with no further questions, I'd like to hand over back to our hosts.

Thank you. There are no more questions from the telephone conference either. So I hand over to you, speakers, for any closing comments.

Yeah, and I guess the only comment there is that we would like to wish you a very nice summer and whenever you get the opportunity to take some time off, a good, well-deserved vacation. So thank you and goodbye all.

Thank you.