Sdiptech AB (publ)

Welcome to SDIP Tech Q3 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Anders Mattsson and CFO Bengt Legstrom. Please go ahead.

Hi, everybody, and welcome to our... Q3 presentation and Q&A. I am Anders Mattsson, CEO of StipTech, and I will be presenting the result together with CFO Bengt Leistrom here today. I will start with the highlight of the quarter before we go into the more general content with the financial result. So in the quarter, we have implemented Dreamline, our portfolio, and StipTech will become a more coherent and better aligned group going forward. Until today, we have consisted of 41 companies in our four business areas. We have historically been growing our adjusted EBITDA at a good level, but we have at the same time been quite volatile. Our portfolio has partially been based on installation companies, companies with exposure to cyclical end markets like construction, and quite a few companies with a margin around 10% in the group. And these companies were usually or mostly acquired before our strategic shift in 2020. So if we look at the financials here for this total portfolio in Q3, we had approximately 19% in adjusted EBITDA margin and 12% return on capital employed. If you look in the middle, so what have we done? We have a set based on our key strategic priorities. We prefer product-based companies. We like markets with strong underlying growth drivers. And we would like to see a clear niche, which is usually protected a good way. And that's also a real reason why we in many of our business units. So based on this assessment, we have made a decision to divest 11 companies from the group. We have already started the process of finding new homes to these companies and we have good progress with several of divestments so far. As these 11 companies only stand for roughly 3% of the year-to-date adjusted EBITDA, the P&L effect is minor. On the balance sheet, the result will be a write-down of 500 million Swedish kronor in goodwill and other intangible asset. And Bengt will come back to this later in the presentation. So if we look to the right here from today and going forward, we will consist of 30 companies and a better aligned portfolio. We believe we will be able to more proactively drive organic growth with this portfolio. And from our point of view, it's also better allocation of capital towards our strategic priorities going forward. Financially in the quarter, as I said, it's a minor effect. Adjusted EBITDA will be reduced by 7 million from 242 to 235 million. But our adjusted EBITDA margin will go up from 19.4 to 21.3%. And return on capital employed will increase from 12 to roughly 13%. So in the presentation going forward now, I will present numbers according to the core portfolio. So summary of the quarter from a financial perspective, net sales increased with 9%. That was 4.5% organic growth and roughly 9% due to acquisition. We were glad to see... Solid demand from all our business areas. It was positive to see a slow recovery from some larger business units where orders have been pushed forward in the year. From Q1 to Q2 and now in Q3, we finally got some sales realized. Adjusted EBITDA increase with 9%, 2.4% organic. and rough from acquisitions. The increase in sales made EBITDA grow as well. So it's not only because of cost adjustment. And year to date, we're still behind last year's numbers, but positive with organic growth in the quarter. We have also been able to maintain the margin of 21.3% in the quarter, which has been quite challenging due to tough market conditions. both on price and also actually to getting the customer to commit to the orders. We had a strong cash flow generation in the quarter as well of 94%, which resulted in 255 million in cash. And that was primarily a result of improved inventory levels from a high level in the last quarter. If we're going into the net sales, the net sales increased with 9% to 1,102 million Swedish krona. And as I said, it was a good demand, solid demand from all our business areas. And the 4.5% organic growth is something we are, of course, satisfied with in the quarter. As I also talked about previous quarters, we have experienced a slow first half of the year, especially from some larger business units in the group. So it's a positive sign that I mentioned as well that we have been able to deliver and recognize sales in the quarter. We have also had a strong contribution from acquisitions. And some of the acquisitions is influenced by strong growth drivers linked to security around data center as one example. And that is in our smallest business area, safety and security. In the graph to the right, we have separated the core portfolio since 2023. And from this date, you can see we have achieved a CAGR of 13% in sales growth. If you're looking at the sales split, the sales split of the portfolio looks now a little bit different. After the separation of the core, Sweden has decreased in size and now it's only between five and 6% in total sales from the portfolio. UK is still our biggest market. We believe we are successful in the UK. We like the trend with the long-term investments in infrastructure assets. Other Europe is now roughly at 20%. This is a geographic area we foresee to continue to grow in. If you look to the right, turnover by type, proprietary products is the dominant type of revenue for us as a group. Installation has been reduced as a result of the core portfolio. The installation and service that you still see now is primarily on our own products. And we have several companies with a strong service offering that enables stability in the earnings. And that's usually both service on hardware, software and manual labor hours as well. But again, primarily on our own products then. Coming into the adjusted EBITDA, adjusted EBITDA increased by 9% to 235 million. That is for us a stable profit growth with 2.4% organic growth. We also had a strong contribution from acquisition with 10%. And it's coming primarily from companies within safety and security and also from companies within energy and electrification. And again, that's the trend around security for data center that has been driven this acquisition quite good in the quarter. The margin at 21.3%, we have been able to maintain from last year. As I mentioned before, it's been a price pressure in the market. So being able to maintain this margin is a result of a good cost control, both from activities within purchasing, but also from overall overhead cost development. If you look at the diagram to the right, we see a stable and high level in adjusted EBITDA in percentage since 2023. If you also then look at the CAGR, the CAGR of the EBITDA is at 11%. And we know we can do better than this. But in this graph, it's affected by a slower pace of acquisition since last one and a half year. And it's also weaker, as we know, organic growth since the beginning of 2024. So looking at the development in our... Our four business areas, I think it's important to mention that we believe our four business area serves us well as a group. They are broad enough to enable good M&A opportunities within each and every business area. And they also align our focus to the market with strong underlying growth drivers, which is very important for the long term development for us as a group. In Q3, all four business areas had solid demands. It's also positive to see that our smallest business area, safety and security, had a strong development in the quarter. If you look at supply chain and transportation, we have begun to recover in this one after a week in the first half of the year. Several customers in this business area postponed their orders. actually from Q2 during the summer into Q3 and some into Q4. But in Q3, we released some sales and it was also a good scalability, which led to margin improvements in the business area. Safety security, as I already mentioned, had a strong quarter and it was several smaller units benefiting from favorable market trends. The one I already mentioned around data center, but also about around emission control, pollution control, which is a strong area for us. And then you acquired companies in this business area also affected positively. Within energy and electrification, performance was mixed. A few units were driven by continued strong demand from energy efficiency, while some units were still affected from some very tough comparison from last year. That was from Q1, Q2, and also now in Q3. In water and bioeconomy, several units performed well, although margins were impacted in this business area by some cost pressure. And we are working But we also need to be balanced to foresee future opportunities and future growth in regards to our cost base. And with that said, I hand over to you Bengt.

Thank you, Anders. Yeah, and let's have a little bit deeper look into the cash flow and cash conversion. The whole group, as Anders was mentioning, we had a very good cash conversion of 94%. Much of that coming from inventories that were built up during the summer for seasonal sales that have started now and will continue into Q4. Improved the whole situation with inventory levels. We also saw some lower tax payments compared to last year. So it's all in all a good quarter. And as you can see there on the chart, that typically we are between 70% to 90% in cash conversion. That's from operations and from working capital ups and downs. And we're now on the last 12-month basis right in the middle at 81%, comparable with last year's 83%. We also start to show in our reports now the free cash flow per share. We haven't reported that for a very long time, but we report it now. And we had a very good free cash flow. That means all cash coming in from the business and also after the working capital adjustments, but then deducting the amortization of different leasing contracts. as well of deducting the capital expenditures for different type of investments in the companies. So really the only thing not included is when we acquire companies or pay earn out debts to already acquired companies. that cash flow was very good and apart from the good cash flow from the operations we saw a lower capex level in this quarter as we have done also for the full year we work very closely with the companies of course to decide what type of investments they should do and we do that by looking um Very classical DuPont chart, you could say, where we look at both their EBIT margins and their capital turnover and see what kind of return on capital employee they have, and from that decide what's most prioritized. So, yeah. And also the free cash flow for the last 12 months, as you see here at the last bullet, is also very strong, coming then both from the operations and from lower capital expenditures. Looking down at some additional metrics, we have the profit after tax. Of course, an important measure. But this quarter, it's a bit affected quite heavily, actually, by this write-down of goodwill. And it's all of 500 million Swedish, this write-down of goodwill and other immaterial assets. When we moved these companies that will be divested out of the business areas, we could then make a full impairment tests of their values. As you know, we do our impairment tests tests on Goodwill, etc, based on our business areas because they are our cash generating units. And all our four business areas have been able to defend very well the values that are in there. There is no risk for write-downs of the business areas. But when we then subtract out these specific companies, we have enabled them to look at them individually and elected in a total write-down of half a million Swedish. But if we exclude that more bookkeeping exercise, it's not cash. Generating anything not affecting the cash flow, then we see that the profit tax was a little bit lower. The difference is mainly because of the currency effects. We had 14 million of currency loss in the quarter. And as you could see and hear from Anders previously, that it affects both top line and profit, of course, this 4 or 5% all in all FX effect. But in our finance net, it affects us with 14 million in the quarter. And that also affects us on the last 12 months. Then total, the finance net is affected with 50 million, most of that coming from currency effects. And as you saw on the chart on our distribution of sales, that currency effect could, of course, be quite substantial as the Swedish currency becomes stronger, as we have more than 90% of our revenues ticking in from other currencies. Then another measure then taking that profit after tax and take it per ordinary share. After the dilution, you see then a very hefty minus in the quarter, minus 11.14 Swedish kronor per share. But if we then exclude this right down, it's two, a little bit more than two kronor per share. And it's of the same reasons as I just explained. And that also goes for the last 12 months compared with last year. Then taking a look on the leverage. We saw quite a big increase in the financial debt leverage compared with last year and also compared with the year end last year. And that's because we have paid out earn out debts. These earn outs have been provided for in the balance sheet ever since we acquired the companies. So the payout of earn outs do not affect net debt in total the bottom line but it affects the financial net debt and so that has we have paid out about 150 million second quarter and almost 400 million in the year year to date so that's of course a lot of money going out but it's going up and it's having performed very well since we acquired them so it's a good thing to pay or not The total net debt compared with the adjusted EBITDA has decreased since new year, since we haven't made so much acquisitions, but it increased from last year, September, because we have acquired 85 million of profit the last 12 months and of course that affects the balance sheet and since the organic growth hasn't been top-notch during that period that affects the profit and results in an increased slightly increase in the net debt leverage. Then as the last financial metric here presented, we look at the return on capital employed, the ROSI. And as Anders mentioned, it was 12% now. It's counted as, of course, on the average capital employed for the last four months and then compared with the EBITDA profit we have had. And that decreased because we have increased the capital employed from the acquisitions and the organic growth, as I said, has been last 12 months have been slightly negative. If we just look at the outgoing balance of capital employed after the write-downs of Goodwills, we are at almost 13%. And if we only look at the core businesses taking their capital employed and their profits, then we're at 13.5% now. So as we divest these companies one by one, then of course, then capital employed is reduced and this row C will increase slowly but steadily. If we look upon the operational return on capital employed, that is the average from our operating units, we're at 51%, which is, of course, very good, we believe. Okay, with that, back to Anders.