Sdiptech AB (publ)

Thank you and welcome to the presentation for Stiptex, the third quarter report. I'm Bengt Lidström and by my side, CFO Susanna Sotilius. And we will walk you through a few things, of course, highlights from the quarter, but also some news when it comes to organizational changes. Let's start. And as you are probably aware, Stiptech is a niche technology group within infrastructure. We create sustainable, efficient and safe societies. That's our vision and mission. And today, so far, we are organized within two business areas with six different segments. Tomorrow we will be four business areas, but I will come back to that. And when it comes to numbers and in our report, as well as in this presentation, we have excluded one of our operations, our business unit in Central Europe for elevator service installation and production, since we have decided to divest that business. And we will come back to that as well during the presentation. So, but all the numbers you see in this presentation is then excluding this business unit. And so excluding that one, we are currently 38 business units and we're a little bit about above 2000 employees. We have had a 35% CAGR development in our adjusted EBITDA since the listing on the Stock Exchange 2017. and which is very important for us that at least around 80% of our revenues are connected directly to one or more of the UN's sustainability development goals. Okay, so let's see some highlights from the quarter. On the overall picture, we see a continued stable demand in line with last year. We had a tough comparisons last year because that was an extraordinary good quarter. We had a 20 percent organic sales growth as well as a 20 percent profit growth organically last year. So that was not easy to meet. But we did at least one percent organic growth this quarter, all in all, seven percent, including the acquisitions that we have done so far during the quarter. up to quarter three. But as some of you perhaps noticed, we sent out the press release only 20 minutes ago about our third acquisition this year. And we will, of course, come back to that one as well. So we see a pretty stable demand across all the business units. We had some that had extraordinary performance last year. Susanna will come back to that a little bit more in detail. So we're happy to be able to at least be in line with last year when it comes to the turnover. When it comes to the profit level, our yesterday beta KPI, it was an organic decline with 8%. And that was mainly due to that last year, some companies have extraordinary high sales connected also to an extraordinary high profit margin. So they are today operating at the normal level. and more normal profit margins which means that we're lowering the overall profit margin of the company and thus a negative profit growth but still very good performance in the major part of all our business units which we are of course very happy with Cash conversion, good. We got in 167 million Swedish in our cash flow from operations. For being a quarter three, that's not bad in the seasonality. And we will tell you a little bit more about that as well. We then have decided to divest our elevator business. We made a decision already four years ago and even longer. to change strategy to go away from service, pure service businesses. And already in 2021, we divested seven business units within elevator service and roof maintenance service and such things. We had perhaps one or more two companies already then that we thought of divesting. And we have done that this year. We have divested our business within servicing of cooling units. company we have that we divested in quarter two. And now we have taken the decision then to divest our business for elevator service installation and production in Central Europe. And since this has been decided, we must, according to all the audit rules and so on, according to IFRS, report this business separately. And in the report, we mentioned then that we took a hit of 53 million this quarter. Major part of that being a write down of goodwill, but also some restructuring costs in order to get things in order for the divestment. Right. So looking at the sales split, it looks more or less the same as usual. We have about 60% coming from the sale of products. And then more or less 20% each when it comes to installation and services. And the geographical split is also pretty much the same as before. And the Swedish part is decreasing a little bit more, now 18%. While UK is 40%, and then it's spread between different European offices. It's pretty much stable, but as we acquire more and more product companies, we get more and more export sales and less domestic. Yes, and I hand over to Susanna.

Thank you, Bengt. Yeah, so some more comments on the numbers. And then just again, coming back to the elevator business that we are planning on disposing of. But when we look at the numbers here, as well as in the report, the comparative figures for last year, so 2023, and of course, as well, the numbers for 2024, they exclude the elevator business. When you have charts here that go back further in time, those numbers are the reported numbers, the historical numbers, just for clarification. And then for adjusted EBITDA margin for the group, it's also been highlighted a few times before, but we did have a very strong third quarter last year with organic growth of 20% both on revenue and EBITDA. And despite those tough comparisons, we can still see that there is continued demand in our business units and we are pleased with the results that we land on this quarter. So sales increased in the quarter with 7%, 1% of that was organic Year-to-date, we had a sales increase of 17% and then 6% was organic. Looking at the margins, they were in the quarter 19.1% and year-to-date 19.6%. And then moving to adjusted EBIT A. If we look at the quarter, we were in line with last year, so 231 million. Organically, however, it decreased versus the same quarter last year by 8%, the organic growth. Year-to-date, we had an EBITDA increase of 13%, so we're now at 751 million and 1% organic growth. Then in these numbers, we have some of the new acquisitions. JR Watertech, for example, they're performing in line with expectations. And just noting that if we look at rolling 12 months, adjusted EBITDA is now slightly above 1 billion SEK. And then some comments about the two segments, starting with resource efficiency. are companies within water and sanitation, power and energy, and bioeconomy and waste management. So for resource efficiency, this was a solid quarter. We had several of the business units showing strong or stable performance versus last year. So for example, IDE, our company within temporary power distribution, WTP, which is water treatment products, and then Rolek, our charging equipment for electric vehicles. For some of the units within resource efficiency, it was a more challenging quarter where they had difficulties meeting comparables. One example of that is our unit for replacement and renovation of electricity and water meters. But summing up them for the segment, all in all, this resulted in a sales increase in the quarter of 7%, adjusted EBITDA increase of 1%, and the margin slightly decreasing versus same quarter last year, and is now at 22%. The rolling 12 margin is at 23%. And then our other segment, special infrastructure solutions. So our companies within air and climate, safety and security, and transport. So in our view, for special infrastructure solutions. The third quarter was in line with our expectations. We had a few different factors, though, that affect the results in the quarter. So firstly, like you've seen and like we mentioned, we had the elevator business, which was part of special infrastructure solutions, now being excluded from this segment's reporting as it is being held for sale in line with IFRS 5. Then we had two of our major business units in this segment. So you have the names there. It's GAH, our unit for transportation refrigeration solutions, and then RDM as well, our refrigeration control and monitoring company. And those two did not manage to meet the comparatives for last year. The reasons for the challenges they had in the quarter, it's both timing of sales. So they had a very strong Q1, sorry, H1, where more of the revenue ended up. We could also see some inventory buildup at their suppliers, which in turn reduced order levels and affected revenue for this quarter. And they also had very strong quarters last year for the both of these units the underlying demand for their products remains strong if we look at the majority of the other business units in the segment they do perform better than or in line with last year then we also of course we have the equity contributing and positively important And then all in all for the segments, all this together means that sales increased by 7%, adjusted EBITDA was flat versus last year, and then the margin decreased by one percentage unit to 20%. Yes. And then we have the cash flow and cash conversion. We have mentioned a few quarters about the work that we do internally in order to improve cash flow and cash conversion going forward. And that work still continues, and we will continue to focus on that together with our business units. If we look at cash flow in the quarter, it was 167 million, corresponding to 67% conversion. It's slightly down versus second quarter. We can see slightly higher capital tie up during the quarter compared to Q2, but it's a temporary effect and we still see the work paying off from our work with the companies. Then we have rolling 12 at 77%. and year-to-date 74% cash conversion. So if we look at those numbers, they're well in the aim that we have to be somewhere around 90% in cash conversion in the long run. Finally, then, some additional metrics. If we look at profit after tax, it is down versus the same quarter last year. Some reasons for that is lower EBIT. Then it's also increased interest cost. We do see interest rates starting to come down, but in comparison, it still affects the levels. Then it's also currency effect tax. And looking at the decrease in earnings per share, it's the same factors that affects that number. Then the debt leverage, and if we look at net debt over adjusted EBTA to decrease, it was 3.13 in the second quarter and is now at 3.08. We've been mentioning that our long-term aim is to keep decreasing that number, just bearing vary over time depending on the timing of our acquisitions. And with that, I'm handing back over to Bengt.

Yeah, thank you Susanna. And talking about acquisitions then, we're happy then to present our latest and just completed some 30 minutes ago. We had, of course, preferred to be able to mention this one in our quarterly report, but sometimes parts of a process takes longer time than expected. And in this case, it was to get the security clearing from the UK government that we are a trusted owner of the high security solutions company. So we welcome Eagle Automation Systems, a very nice company in the London area, bringing about two million pound in annual EBIT to the table. It's really a one stop shop for what's called physical parameter security, especially for hostile vehicle mitigation solutions. And on the picture you can see some of their products. It's bollards, it's gates, different kinds of blockages to protect different type of buildings or properties that are of high security value. And this of course contributes to one of the UN sustainability development goals. Just pinpointing this to have a to prevent violence, safe and secure environment for people. And, well, you could say, unfortunately, the demand for these type of solutions are increasing steadily. And this company started locally in the UK, of course, but have also started to export their products to other countries as well. So very happy to welcome them into the group and we look forward to work together with managing director David and his team, Dave and his team. And looking then on how much we have done then so far this year, compounds could be translated into some 27 million Swedish in EBIT, which means that together with the JIR solutions we acquired in January already. and Swedish WaterTech. We are now up to 92 million in run rate profit acquired this year. We have a guide that we should probably be somewhere between 100 and 120 perhaps. And we're still comfortable that we will reach within that range before year end. And for next year, that's also our ambition to be back again in the more normal span to perhaps up to 150 million. We'll see. We always have a very strong and solid pipeline of companies. The timing of those could depend on different things. And we also have a strong financial position, as Susanna was mentioning, with our debt leverage, which is coming down to be around three times all in all, including provisions for earn-out debts. Earnouts that depend or are assuming a higher profit level than today in order for them to be payable. But we have to provide for them already at day one. All in all, our acquisition processes and work run as always. So that's promising. So talk something about our new organization. We released a special press release just five minutes before the quarterly report where we wanted to present that we are changing our organization to be more transparent and clear towards you and all the entrepreneurs that we are approaching for acquisitions. So we have then divided the two business areas we have had, resource efficiency and special infrastructure solutions into four, roughly speaking, cutting them in half, but also some minor adjustments between these business areas. We will present in detail in the coming year and report is then belonging to which new business area and we will also submit pro forma numbers for the full 2024. and all the quarters. But we think then going ahead, it will be much more clear for us and for you that we can present the trends in it, how the performance is doing, et cetera. And if we look a little bit closer to these business areas, they are built upon the common drivers for growth that we have in each business area. New business areas will be from left to right here, supply chain and transportation. As you know, we have a number of companies providing solutions for transport and the supply chain. And we see clear growth drivers with increased demand for volume and more sustainable solutions and be more efficient all in all in the whole chain from start to end. So we look forward to welcome more companies into that one. Water and bioeconomy is another of the new business areas. As you also know, we have a number of companies dealing with water treatment, chemical water treatment, water... Sanitation and ultra pure water, etc. And we see still opportunities to find new good companies within that area. Growth drivers are of course increased use and consumption of water and more scarce resources of clean waters if we need to recycle them even better than before. So that's promising for us to be able to find new niche companies to solve these important problems that society is facing. Also within the bioeconomy area, currently we have really only one company in that segment our Italian agro system that takes care of the sludge coming out of sewage plants and make fertilizers out of that. But we see many other opportunities as well to find great companies within that area. Looking at safety and security, we have our most recent acquisition, Eagle Automation System, being one typical company for that new business area. We have many others within fire detection and information security with cryptified communications, just to mention a few. The growth drivers are, of course, in technological development, but also a stronger need to provide safe and secure solutions to different processes and habits around in the society. So we're sure we will find more companies as well within that segment. And last but not least, what we call the energy and electrification business area. Here we have companies that are providing both temporary electricity or charging equipment or monitoring of the electrical quality in the grid, etc. We strongly believe in the electrification of society. There are some ups and downs in the progress of that. um but in the long run we clearly go to more use of electricity and electrifying many different applications not only vehicles so we strongly believe that we can find more very strong and the good profit margins within this area also to be more efficient in the use of energy belongs into this business area So we're very happy about this, and we strongly believe it will support us in finding new companies to run the company, support them, and also present to you how this is all performing. So we will come back with more information about who is heading the different business areas, et cetera. And it will be all internally. The succession will be from internal staff already present. Right, so some highlights then to sum it all up. So as we have said, we see continued solid demand, strong market positions, not really dependent on the overall economy, so pretty much resilient to cyclical changes. see any big changes in the demand all in all throughout the group of course being them 38 business units 39 now the eagle that could be ups and downs in each and single business units and from time to time depending on how money that could hit the group as well but the more business units we get the less they affect the group on the group level We see continued tough comparisons also in Q4. We also in Q4 last year had 20% organic sales growth. So that's pretty tough, but let's see how we can do compared to that. We don't give any forecasts, but just to remind you that it was a strong quarter also Q4 last year. the new organization will come into effect and we strongly hope that that will bring benefits to the whole group and to sum it all up with acquisitions that we have a strong pipeline and many good dialogues with different types of companies so we sure that we will be able to present more acquisitions going ahead so that concludes our presentation for questions.

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.

Hello Bengt and Susanna. Thank you for taking my questions. So perhaps starting with two on the elevator business. So here in the quarter, if I understood it correctly, it was minus 18 million in adjusted EBITDA for Miastos, which is a clear deterioration compared to Q1 and Q2 this year. Have you taken any additional restructuring costs or something similar during the quarter that has waited on adjusted a bit, or is this actually the underlying performance of the company, is the first question then.

Yeah, I'll try to answer that directly. No, we have 10 million Swedish of costs that are not related to operations this year in the quarter. So clearly, yes, still some quality tidying up, still restructuring costs. We have split the group in three separate parts, service, installation, and then production in order to find perhaps different buyers to the different parts. We already have discussions with part of the management to perhaps buy parts of this, and there are also other parties that could be interested. We're pretty confident that we will be able to divest these businesses in the timeframe of at least during next year and hopefully in the earlier parts. But let's see, we will come back to that. But the short answer, yes, there are extraordinary costs taken in the quarter.

Okay, perfect, and that partly answered my second question also. So basically an indication of interest on potential buyers, but that you already answered. I mean, what kind of price level do you expect for this, given that it's actually a loss-making unit or at least parts of it? Are you willing to sell for a quite negligible sum, so to say?

uh it's different pricing on this if you look on the service portfolio it's uh more or less a trading price of a certain amount per service and that's kind of a market price like selling living stocks for cars or whatever and we sell service stocks um so that is a given price more or less and then when it comes to installation and production we will sell it as a profit generating business and then take a multiple on that profit level then of course then the expected profit level for next year so um yeah we will do our best to get the most cash in from from the divestment of course but we don't want to put it at any discount really

Okay, understood. And the final one from me. So obviously, two key employees, Frederick and Steven leaves the company quite soon. Do you see any risk that your acquisition and or operational activities will, will be disrupted by this? Or do you expect to make a smooth transition?

No, we don't expect any disruptions. And we presented that also in the separate press release this morning. So they both... leaving the company towards February next year. Our head of M&A, Steven, he has more or less done such good job, so it's not really necessary any longer, you could say. We have a great team and many processes and structures in place. So the work continues as usual on the M&A part. We have decided to make an external recruitment of that position. So that has already started and we will be able then to speed up that a bit now when it becomes public. When it comes to the business area management and Fredrik Navjord who is also then leaving in February. So I presented the new business areas and they will be staffed by already existing people within group. So we don't see any disruption in that either. It will be a in orderly fashion and manner succession. We are used to do successions in our companies and we should also be able to plan and do a performance succession within our parent companies. No, it shouldn't be any effect because of this.

Okay, understood. That was all from me for the moment. Thank you very much.

Thank you, Max.

The next question comes from Albin Nordmark from Nordea. Please go ahead.

Thanks Dan, this is Sanna and thanks for taking my question. Albin from Nordea here. So you mentioned timing of sales for those companies that had very strong quarters in the last third quarter. But how should one think here about the Q4 and also about H1-25? I mean you had the strong organic growth both in Q1 and Q2 for 23 and 24 so How certain are you to deliver organic growth in 2025 and especially in the first half?

Let's take one quarter at a time. Our companies have a very long visibility of their order books. We have some companies delivering projects that can continue for six months or so. But we have an underlying recurring business of service contracts on our own products. We like that kind of service when we service our own stuff. And of course, that's a steady income. We also have some, you could call it recurring product sales, where customers need our products on an operational basis and a daily basis. So that's a good foundation. So what makes turnover and profits go a little bit up and down from quarter to quarter is more of this... shorter term projects one of type of sales and yeah as I said we must take a quarter by quarter so cannot really give you any good more insights into to how next year will be just mentioning then again that last year Q4 was strong all right that was my only only question so thank you a lot okay thank you

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

Thank you. Good morning, or good morning, I have to say. Good afternoon. Just the first question is on the divestment. If I read the report correctly, it had roughly 240 million sales in 2023. So just to clarify, is this only relating to the Croatian business, or is it also to the smaller Swedish construction units?

No, this is the company based out of Croatia. They have operations in Bosnia and Serbia, and their main geography is really Germany. But it's no Swedish operation.

I don't know really which one you mean there, but I think you might be thinking about Swedish going well earlier. No, that's a separate company and it's not related to this.

Yeah. And that one is expected nowadays.

All right. All right. That was my follow-up question. So just to follow up the prior question a little bit, I understand the flagging of tough comparables this quarter with you know even 18 organic revenue growth last year and also high profit growth but like if we then look at organic profits in queue for last year it was only five percent so i understand the revenue comparison but the tough comparables on profits i don't fully understand as well so Is it because of some of these high mortgage units have a bit of a tougher period apart from tough comparables? Or is it that, is there anything else here that we need to keep in mind just for the next three to six months?

Yeah, well, to just clarify the numbers as reported last year, Q4 was 20% excluding currency effects on sales and 9% organic growth excluding currency effects on the adjusted EBITDA.

Yes, but that was next Rolex. 5% was ex Rolex and Rolex was 45% the year before.

Yeah. No, as we said, it's mainly a question of meeting the high comps in the turnover. And then, as always, you have a sales mix. So as I mentioned, we have some companies that perform extra good last year and then with very high margins, they are now performing more or less as usual. That means an organic decrease for them. And then if we then compensate that, as we did in this quarter three, with increased sales in many other business units, but them having a lower profit margin, still good, but lower than the ones that were extraordinary last well-performing last year. That means we lower the all-in-all profit margin on the group, meaning it will be a decrease in the adjusted EBITDA. So it's more that sales mix change that makes the profit growth being less than the sales growth. And I, as you said, 5% XROLIC is that's within our range, but we were referring them to the sales growth sales growth.

Okay, understood. Then just two more here. And the first one on the cash flow, if we just look at operating cash flow and so on, it's down year over year. And you did mention some temporary effects in working capital. Apologies if you clarified it and I missed it. But can these temporary effects together with seasonality help drive a bigger release in Q4 and improving cash conversion?

Yeah, so what I was referring to was versus the second quarter, that this quarter is slightly down. If you look at the details of the numbers, inventory versus last quarter, there is slight capital tie-up in remaining figures. I think like Bengt also mentioned initially, there is some seasonality to this. And, of course, there is a range up and down between the quarters. I wouldn't say that there would be a massive release in the fourth quarter. I would just still go back to that we have an aim of being between 70 and 90%, and there will be some deviations between. We're still aiming to stay there. And we keep working with our companies, but there will always be some timing effects that can go one way or the other. And there are many companies that can have different directions.

We pay our bills on time.

Yeah.

OK, that's good to hear. My final one is just resource efficiency continues to perform very solid profitability. And you mentioned that the EV charging business contributed nicely this quarter. So you previously highlighted the kind of difference that Rolex has compared to a standard B2C EV charging company. But is it so that you still see a good market for EV charging or is it perhaps more about the company performing very well?

As I mentioned before, we strongly believe in the electrification and that will happen. It can take a number of years, of course. And just coming home from UK the other last week, there is still a lot to be done in UK to set up more charging points. And they have great ambitions for that, as I understood and understand. We also see some other more or less giving up because they have spent too much money on marketing and other things. And so we really don't try to take those customers to us, the ones we don't already have. So our company in UK is working very efficiently and good in increasing their sales and we see some good opportunities. So even though it's a bit slower pace right now, both in UK, I guess, and in the Nordic countries with the expansion of charging points all in all, we still see good opportunities to perform well in our niche for a long time ahead.

Okay, thank you for that.

Thank you Carl.

The next question comes from Niklas Sovus from Redeye. Please go ahead.

Hi Bengt and Susanna. Hello. So I have a question on the pace of acquisitions. You mentioned that you expect to get back to normal pace next year. Can you expand a bit on the question from before on Stephen leaving? I'm just thinking that acquisition is a relationship game, so to speak. So no disruption from him leaving in those dialogues, I mean.

We're already today and since a couple of years back organized in three geographies when it comes to what we call the deal-making. We have one guy in Italy, we have one in the UK and we have one other guy in the Nordics running the projects, keeping the relationship with the entrepreneurs etc. So that's already done by other people in the organization. head of the M&A team is, of course, coordinating stuff and supporting the processes, et cetera. But the field work, we'll call it like that, is done by other colleagues within the team. And they are still there and will continue to do that. And as well, our cold calling We have two colleagues here that their main task is to call and keep up the relationship with the entrepreneurs in the very early stages. So that will continue as always.

Perfect. That's comforting. Do you expect to open up any new geographical markets during next year?

We're looking at some. We have been a bit opportunistic in the Netherlands, looking in Benelux type of countries. We are not able really to work the same way as with some of the other geographies, meaning we don't have access to all the data that we need to run our systems. But still, we have also looked into Spain. Haven't really found companies there yet that we think is attractive enough. And there are other geographies as well that we're looking into. So we're still good pipelines in the existing geographies, but we're ready to step into one or two more European geographies sooner or later.

Just a last follow-up question on that. Is there more competition as you see it in any of the markets that you are more active in?

We don't really feel the competition but we have noted that more of our peers are active in the UK. The UK is still greater than all of the Nordic countries together. From time to time of course we hear that entrepreneurs we're talking with have been approached perhaps by one of our Nordic peers, but it's not very common still. Okay, great. Thank you so much. It's a huge space if you use that term. Yeah.

Okay. Thank you so much.

Thank you, Niklas.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Yeah, and we don't see any questions, written questions in the chat either. I guess that will conclude our presentation and we would like to say thank you and wish you all a nice weekend whenever it starts for you. Goodbye.