Sdiptech AB (publ)

Hello everybody and welcome to Stiptech's presentation for the second quarter. My name is Anders Mattsson and I am since 1st of June the CEO of Stiptech and today I also have with me our CFO Bengt. I will start with a short introduction to Stiptech. Stiptic acquire and develop niche businesses within the infrastructure sector. We look for high quality product-based companies with a strong market position that can be protected. We divide the group into four segments, supply chain and transportation, energy and electrification, water and bioeconomy, and safety and security. The key drivers for our business are an aging infrastructure that constantly needs improvement and upgrades, We foresee continuous investment into our selected segments to increase the efficiency and safety and sustainability in the societies. Geographically, we have a strong footprint in the Nordics, UK and Italy. We are today 41 companies in the group and since 2017, we have grown profit by 32% in average per year. So some highlights from the report of the second quarter. It was no doubt the challenging quarter for us. Net sales decreased with 4% to 1,288,000,000. That is minus 4% organically, additional minus four due to currency effects, but plus four thanks to new acquisition coming into the group. We had a stable demand in our core portfolio. which is good to see, but we had a lot of customers postponing orders and sales later into the year, and that is due to the overall uncertainties in the markets. If we look at adjusted EBITDA, it decreased with 10% to 242 million in the quarter, minus 9% organic, additional minus 5 due to currency, and plus 4 due to the new acquisition coming into the group. That resulted in an adjusted EBITDA margin of 18.8% compared to 20.1% last year, the same quarter. And adjusted EBITDA dropped, of course, as the result of the lower sales. We also had some high comparables due to specific project deliverables in quarter two last year. An example of that was strong deliveries into the Olympics, for example, last year. Cash flow, 121 in cash flow, corresponding to only 45% in cash flow generation. That is for us a relatively low number, but it was affected by inventory buildup in specific companies that have orders and deliveries to come in the second half of the year. So as a group, we are not happy with the developments in the last quarters. That is the reason why we have initiated a number of strategic actions to restore, very importantly, the organic growth, but also to improve a very important metric for us, the return on capital employed. The first section is around the business area organization. We would like to increase experience and sector knowledge for our key segments. that we work within. I have also decided to include the four heads of the business areas into the management team of Stiptic going forward. We have recruited a new head of supply chain and transportation starting in August. important decision is that we've decided ahead of energy and electrification in the uk located located in the uk it definitely makes sense for us to have a stronger footprint uh in the uk and also for the energy and electrification which is a very important segment in the uk for us second important strategic activity is portfolio divestment We made a strategic shift in 2018-19, where we said that we focus only on product-based companies, and we initiated new investment criteria. For example, companies should have at least 15% in EBIT margin to be able to join our group. We still have a number of companies that do not meet these requirements. And the group of companies represent roughly 15% of the sales and 5% of the adjusted EBITDA. And we have decided to divest these companies. We will report them separately from Q3. It will be a one-off effect of roughly 400 to 500 million in goodwill revaluation. And why are we doing this? The primary reason is to allocate capital more efficiently and according to our strategy, where we want to be. We would like to be able to focus more on a core portfolio, which looks very attractive if you're looking at the numbers later. And also, of course, for the future acquisitions to come. And we would like to be more strict on the acquisition criteria we have decided together in the group. And this is nothing new for us, actually. We have already divested eight units since 2021. primarily the service elevator businesses. So we are comfortable that we will manage this in a good way. The third strategic initiative is around fine-tuning our strategy. We have a solid strategy in place, but we need to fine-tune it and we need to set ambition for a partly new management team that we are building up now, especially to start in August. And it's also important to align the day-to-day operation with the long-term goals to see how we're going to reach the goals year by year. So that's important topics for today. And I would like now to hand over to Beng to more of the financial results for the quarter.

Thank you, Anders. Yes, and we will start to talk a little bit about our sales. In the quarter, as Anders mentioning, we had a decrease all in all of the sales with 4%, which was also the organic decline, 4%. But many of our units had a very stable demand coming in, ticking in. And even though some companies see that customers are postponing or delaying their orders, the demand is still there. So as many times before, when the situation occur, we know that the demand is out there and our product deliveries are important to our customers. So they will come sooner or later. But right now it's a little bit of wait and see in some companies. So as Anders mentioned, we had some extremely good performances last year, especially within the business area, water and bioeconomy, as well as in the energy and electrification. And we will come back to that when we walk through the business areas in a little bit more detail. over time we have had a very steady um sales growth 23 on a compound annual average and of course some of that are coming from acquisitions but as you see in the chart on the right hand side where these circles mention what the organic excluding currency effects have been. The organic growth has been in the sales year on year. So it's a combination of both successful organic delivery and successful acquisitions. And in the last 12 months now, as of the last of June, we see a minus 3% in organic growth, but we're taking measures as Anders was mentioning here to improve that number. Looking into the sales split on the geographical dimension, it has been more or less stable over some time. We have roughly 45% coming in from UK-based customers. And that's also a reason why, as Anders was mentioning again, that we're looking for a new member to the management team coming from the UK, since it's a very important geography for us. Sweden is reducing its part of the pie while exports are increasing as we acquire product based companies. US is of course an important geography to have a look at and as previous quarters we don't have that much sales. It's a few companies selling their products, software and hardware into the US. So far been able pretty much to mitigate any tariffs. So not a huge impact on that directly. It's more of these indirect effects we mentioned with that kind of wait and see approach for the bigger projects that some customers have. Looking on the turnover by revenue type, the product sales is increasing slowly but steadily while installation then is being reduced, especially since last year, since we closed the business in a Swedish installation company. And now also some more than is up for scrutiny in the program that Anders mentioned divestments. So that share, piece of the pie will also probably decrease. We like installation if it's on our own products as we like service on our own products. So a lot of that service, the 25% is on our own product deliveries, which of course is very good when it comes to customer stickiness and retention. Having a look then on EBIT A development with 10% all in all, of which 9% was organic decline. But then acquisition of course contributed and we could see that those acquisitions had a big impact especially for the safety and security area where also some the other companies had a good development so we all in all we had a positive contribution on the profit from the safety and security business area while on the supply chain and transportation and water and bioeconomy we had a negative contribution meaning that profits were lower than last year and EDN electrification was more or less flat versus last year but we will comment that a little bit more soon and on the margin side we saw a drop in the margins because of sales drop with fixed costs that happens then that We get a lower EBIT margin. We also saw some cost increase on wages still. We mentioned that in the Q1 report because of the new legislation in the UK for minimum wages and social fees. And that was also an effect in Q2. We have reduced the number of employees to mitigate some of the volume decline in the companies. So the number of employees is less, but still the cost per employee has increased. We continue to focus on initiatives then linked to profitability. So a lot around the pricing, procurement, and then of course, cost cutting or being very careful about costs all in all. So that will continue. As with the sales development over time, we have had a good EBIT development, 32% on annual average over the years, both then coming from organic growth. As you see in the chart in these circles, a number of years having a very strong positive organic growth, but also, of course, then acquisitions. Taking also view then on cash flow. We see this quarter coming in lower than usual. And as Anders mentioned, we had a 45% cash conversion with 121 million coming in, but it was impacted mainly then from an increase in working capital due to inventory buildups in companies that have strong deliveries in the second half. Some of them seasonal type of companies, but also some other companies having good project sales and also for this project-based sales we saw some increase in revenue recognition this also then hurts the working capital but that will come in as cash soon enough and so we're working with that of course to improve the average over the The last 12 months was 73%, which is in our span of some 70% to 90% on average that we should be within that band. I could also mention then regarding cash flow that we had some heavy tax payments because of the good profits last year in some companies. We had to do some final payments of tax as well in this quarter. But for the last 12 months, we were around 800 million coming in from our operations, which of course is good that we can spend the money on acquisitions and on other capex. Looking on some additional metrics, we see the profit after tax declining, of course, then because of the lower results compared to last year, but also that last year had a profit from a sale of a company. and that improved the numbers with 12 million all in all as an effect on the profit after tax and but otherwise it's also increased tax percentages all in all compared to last year with an increased number of profits coming back countries so that dilutes the profit after tax as the earnings per share as well a little bit Looking at the financial situation, our financial net debt, which is all that we have, excluding the debt for conditional considerations, increased because we paid out some of these conditional considerations, which of course is good because that means that these companies have had a good development during the years we have owned them. But so that increase is quite a lot. But the total net debt, which includes these provisions for the conditional considerations, didn't increase as much because that's more reflecting the result and the new acquisitions coming in. So still a little bit high, perhaps, but still very much under control. And we think a very comfortable level still. then finally before handing back to understand some on the return on capital employed that has decreased since last year mainly due to a lower result all in all but also then because of adding some capital employed through the acquisitions So of course we're addressing that and as was mentioned that we will see next quarter we will make a write down on some of this goodwill and other immaterial assets which of course will make the return on capital employed improve for the group. But the business units themselves are strong, 57% on average for our businesses. The difference is, of course, all the assets that we add when we acquire companies, which is mainly then goodwill or other immaterial assets. So it's a big difference between the group level and the business units level. Of course, very important that the business units have a solid and good return on capital employed. That's what we have calculated with when we acquired the companies. So with that, I hand back over to Anders.

Sorry Bengt, I think you had one more slide there.