Sdiptech AB (publ)

Hello, everybody, and welcome to Stiptik's presentation for the first quarter. I'm Anders Mattsson, CEO of Stiptik, and I will be presenting here together with our CFO, Bengt Lægström, today. A short intro to the group, as usual. Stiptik acquired, developed, and created a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 32 companies in the group and we operate in a decentralized structure and each company is responsible for the day-to-day operation. But from last year, we've also added more guidance and support in what we would like to prioritize strategically from the group level. We divide the group into four business areas. Each segment has a clear and structured underlying growth trends for the future. On a rolling 12, Stiftek as a group has 4.5 billion SEK in revenues, 964 million SEK in adjusted EBITDA, and an adjusted EBITDA margin of 21.3%. And these are the numbers for the core operation, excluding the companies that are being divested. A short interview. To start with, I would like to give you some highlights to the quarter as well. On a strategic level, we have had a good progress. We've been able to divest nine companies in the quarter, and now we have only one more to go. This one is targeted to be done during quarter two. Thanks to a good cash flow position, we decided to repurchase our preference share in the quarter for a total value of 184 million. Financially, we are satisfied with a stable organic sales growth of 7% and an organic profit growth of 4% in the quarter, showing a good demand for our products and services. We still experience a strong currency headwinds of minus 7%. Both in energy and electrification and in safety and security, the demands have been strong with plus 15% sales growth, excluding currency. The cash conversion in the quarter was poor, primarily due to timing effects. So we had high sales in March, which has increased accounts payable quite a lot. But rolling 12, we are still at a good level above 80%. Our priorities going forward. To support our companies in growing smart and sustainable, we need from the past that we need to be careful with our working capital and CapEx requirements when we are growing with the companies. We have a good pipeline in place, and the focus is to convert the opportunities into signed deals. We have a good cash position, but we will continue to be selective and disciplined with the coming M&As. I would like to follow up as well a little bit more on our strategic work we initiated last year. The first one is around portfolio management. I already mentioned the progress with our divestment, nine companies sold in the quarter. We achieved an enterprise value of full year EBIT times six for these companies, which is in line with our expectations. These companies were sold to different takers. We sold four companies to an industrial group similar to us. We sold three companies in a cluster to a private equity owner, and we supported two MBOs. The nine companies resulted in a one-off cash contribution of 258 million. We also had a capital loss of 84 million due to higher book values compared to what was realized. And it's important to remember that we had opposite situation in Q4 where we actually had a capital gain of roughly 60 million. The last company that we are divesting is planned to be divested in quarter two. We also continue to be more prudent on which companies to allocate capex to based on our updated framework, which we divide the companies into different groups based on the capex need. We have a segment that we call the strengthen bucket and capex should be allocated to fix a specific problem before we do anything else. We have the harvest companies. We should be restrictive with capex here and it should mainly be for maintenance purposes. And we have the accelerate one where we invest to reach growth opportunities. And this is working good in practice for us now as a group. And we are at the run rate of 3% of revenue in CapEx, which is in line where we should be. We have another important strategic pillar as well, and that is what we call proactive ownership. We decided last year to increase focus on return on capital employed, and all our companies in the group have a target that they should reach. This is a long-term shift for us in focus, and it's something we are implementing carefully. Our financial target is to reach about 15% in return on capital employed. In this quarter, we reach 12.8%, which is an increase from last year in the same quarter of 12.5%. But in this quarter, we know it was negatively affected by the capital loss of 84 million from the divestment. If we look at return on capital employed for our operational unit itself, it's stable level around 63% and the majority of the companies are performing well. Then we're coming into the financial development. When I'm presenting the numbers, we focus on the core portfolio, which is our remaining portfolio. The companies we have sold in the quarter contributed roughly with 100 million in revenues and 5 million in adjusted EBITDA. And they will not be part of the group from quarter two, as we know. So the core portfolio, good net sales development in the quarter as a result of strong demand overall for the group. 7% organic net sales growth, only 1% growth from acquisition as we didn't acquire that much last year. The currency effect, negative 7% is still substantial in the quarter. From next quarter, we foresee the currency headwinds to ease in the comparable numbers. In the quarter, we had a strong development in energy electrification and safety security specifically, with about 15% net sales growth excluding currency. And it was a strong demand from several companies in these business areas. It's also positive to see 4% net sales growth in supply chain and transportation excluding currency, which is indicating that our largest business area is also back to growth. We don't have any significant changes in our geographical distribution of sales. UK still our largest market. Proprietary products is at the same amount as previously with 67% of the total sales. Coming into adjusted EBITDA numbers. In the quarter, adjusted EBITDA came in at 241 million SEK. Organic growth was solid at plus 4%, excluding currency. Here again, of course, we had a large negative effect of the currency, minus 7% on the profit as well. Strong adjusted EBITDA development from energy electrification and safety and security, driven by volume growth, but also a favorable mix between the companies. The margin of 20.8% in the quarter is a slightly decrease from last year, but that's primarily reason is the weaker margin in water and bioeconomy in the quarter. If we look to the right, adjusted EBITDA margin development per business area. Supply chain and transplantation had a flat margin development around 17%. We still have some delays in the factory expansion in the US from our Finnish company Hiltip. We have also initiated pricing projects in two larger units as we see big potential for the future. In energy electrification, the beta was up to 29% in margin. Our company phase three have a very strong momentum and the high margins are affecting the business area positively. Water and bioeconomy, EBITDA was down to 21%. We have a number of companies that have been too lean operationally and organizationally, and we've been needed to take some actions to that. Safety and security, EBITDA up to 34%. Strong momentum from several companies and high proportion of software sales is affecting those margins as well. So with that said, I'm heading over to Bengt.

Thank you, Anders. And then let's look a little bit closer on our cash flow and cash conversion. Looking at the upper graph there, you see the free cash flow. That is all the cash flow from operations and the capex spending and amortization on leasing that has developed on a 12-month basis per share. The orange line and then the black one is the earnings per share also on a 12 month basis. And as you can see, both of these KPIs, they decreased a bit from year end in Q4, but still higher than last year. And the decline comes to the free cash flow because of the buildup of working capital. And the earnings per share was affected then by the capital losses for these divestments. But that was, of course, a temporarily one-off effect on the earnings. Looking on the cash flow in more detail, you see the chart on the bottom there where it's quarter by quarter how the cash conversion has developed. And in the middle, the dotted line is then on the red. last 12-month basis, which has been pretty stable within the range that we aim to be between the 70% and 90% on a 12-month basis, but going up and down because of the season and other things. In this quarter, we saw a buildup of working capital on a few different items. We saw an inventory buildup, both for the season itself, some Companies that have their main sales during summer and autumn, they build capacity in their inventories now with finished goods. But also we invested in some raw materials, some companies to avoid future price increases or the risk of increased prices, at least because of the situation around the world. So that was a decision. We also saw a increase in accounts receivables and short term, other type of short term claims. And that mainly because of a lot of the sales were taking place in the later part of the quarter. Orders coming in at the beginning of the quarter, orders that were a bit delayed from last year, but coming in this quarter, being delivered later part of this quarter. That meant a buildup of accounts receivables. And then we also had some revenue recognition in larger projects that took place during the quarter, which also then is a buildup of the working capital. For example, deliveries of trains in our Italian company who deals with grinding of rails and trains for grinding. So that was more temporary, you could say, effect during this quarter. But all in all, looking at the 12-month basis for the cash flow, it's very stable, as you can see from the chart. If we then look at another KPI, the leverage, and the leverage has continued to decrease. As you can see in the chart on the left-hand side, we were up above three, 3.3, almost 3.4 last year, but took a decision really to get it down under three here during the autumn, and we have succeeded in that. And we stayed well below, although we did the redemption or preference shares here in March. So 2.8 then as a leverage all in all that earn out provisions and the leasing and everything. If we exclude the provisions for our future earn out payments, the leverage, what we call the financial net debt leverage is 2.09. Also a good stable development downwards. The capital and return on capital employed under Statsche Pond already. It was a decline from last year, Q4, due to the capital losses. Also, it's a one-off effect. So that one will bounce back. And looking at the operations themselves, as you can see in the curve in the middle there, going from 61%, 23% up to almost 64% now. It's very stable. across the operations, very good return on the capital employed out in the units. And the difference between these two KPIs is of course, all the goodwill and other required material assets. And the top line there at 82% on the 12 month basis in the quarter is the return on our working capital, which is also a measurement of the efficiency in the companies, which we think develops Very good. So that was just a brief dive into some of the KPIs and then back to Anders again with the business areas.

Yes, thank you, Bengt. So starting with supply chain and transportation, our largest business area had a stable performance in the quarter, net sales growth of 4% and adjusted EBITDA growth of 1%, excluding the currency effects. It was a strong performance from our Danish company within truck attachments after a much slower last year from this company. The result is negatively affected by two businesses primarily. Our company within Winter Road Maintenance, Hiltip, as we have said in last quarter as well, we have invested in an improved factory and organization in the US to be able to serve the North American market locally. The cost for this action is still high relative to the sales we achieved, but the situation will be improved during the year as the order book looks stronger and we now have a stronger momentum in getting the products out from the factory. Our company with import automation, Certus, still have challenges when turning orders into sales, which is affecting the business area in quarter one as well. But overall, we are optimistic for the full year as orders are good and several companies in the business area are performing strong. In the business area, we're also glad to add a new acquisition, Rail Safety System. It was actually in last week they came into the group. It's a company based in the Netherlands, revenue around 6.6 million euro with a good profitability rate. The company develops and supplies patented magnetic safety barrier systems used when around railroad maintenance work. So instead, as you can see on the pictures there, so instead of digging and interfering with a foundation under the railway, this is a smart and efficient system that is based on the magnetic, placing them on the sites, as you can see. The company have a strong position in the European market, serving a railway infrastructure like Deutsche Bahn is a typical customer and can also be contractors around the maintenance work. It has a strong link with our Italian company, Mechno, who is doing rail grinding equipment and they serve the same customers. So we look forward to continue developing the company as part of the Stiptic Group. Then we are coming into energy and electrification. Energy and electrification at a very strong quarter, high growth numbers, both for sales and adjusted EBITDA. It's a strong demand and development for several business areas or business units in general. And we prosper from strong competitive products and solutions. We had a specific strong development within following applications. It was a cold winter with strong sales for our company Heatwork, offering heating solution for frozen ground for all kinds of work that is needed during those time periods. Energy efficiency and upgrades in supermarket segment for cooling applications. Our company RDM had strong and are in a strong momentum. Many upgrades, improvement still drives driving from the energy efficiency perspective. And we also have electrification in the UK with Rolex performing at a good level. From a margin perspective, our latest acquisition in the business area, phase three, is supporting the margin uplift and it's supposed to continue that way as well. Then coming into water and bioeconomy. The business area had financially a weak development. Net sales growth is minus 1% currency adjusted, which is of course not good, but still indicating that the challenges are more on the cost side. On a positive side, returns are at the high level, above 100% return on capital employed within the business area. We have negative effects from a few business units that is undergoing strategic updates. In general, as I already mentioned, we have been quite lean operationally in some of the companies. In the chemical cluster, for example, we have invested to adhere to updated environmental requirements in three of the business units. We have also three new MDs currently onboarding. That means double costs and also some efficiencies at the moment. We have also our Italian company invested in additional production capacity in our sludge treatment company. And that will take off later in the year with improved volumes. So all in all, it's not a short-term fix, but with higher volumes, the margins will start to recover during the year. Then we're coming into safety and security. Safety and security had a very strong quarter with high growth numbers, both for sales and adjusted EBITDA. We see strong demand and development in several application areas. The security for data center, we have mentioned it now. The company Eagle have had strong development and continue so. Clean air in hospital for gas evacuation have had a very strong last six months and are in a very good momentum. And secure communication, as we know, is on top of many agendas. And this company as well within our group is performing good. The improved profitability is largely thanks to a better product mix. And it also been a higher proportion of software sales compared to previous year. Then we are coming in to M&A. From an M&A perspective, we are on track to increase our M&A activity for the year. We have a good pipeline and we have good discussions ongoing. We didn't close any deal in Q1, but Dutch rail safety company RSS, it was closed in April. Our current cash position is strong, but we are aware of it and it's important to continue to be selective and disciplined. But we look forward to ramping up number of deals in the year. And then on a final note, to summarize the quarter today, we had a stable development in quarter one, although we have some companies that we are working on improving. Strong development from energy and electrification and safety security that we foresee to continue. Overall, we have a continued positive outlook. We have a good order book for the coming months. for several companies in the group. Of course, the strategic initiatives, it has been a very good momentum and they are almost completed. And we look forward to close the latest acquisition in Q2 if everything goes according to plan. And we are having good discussions ongoing and we are looking forward to more activity within our M&A work. So that was all from us, me and Bengt, in the presentation, and we open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Anton Ingves from Nordia. Please go ahead.

yes hi and good morning starting off here within the energy and electrification you stated that some of the units here perform very well and how large is the effect here on the margin improvement from this single unit so to speak and can you give any hint on the organic growth here in the segment for the quarter

I can start with organic growth. We know we haven't done much M&A except for this one company in the business area, but usually we don't guide on specific organic growth in the business areas. We look at the total when we talk about organic total growth. But it's a larger entity and It's having a good development and margin, but more specifically on the organic, we don't go into, actually. Bengt, I don't know if you have anything on the contribution on the margin side.

No, it's only one. Well, talking about the organic also, it's only one month that was not organic for this acquired company. The phase three that we acquired last year, so that was very little. So almost everything of the development is, of course, organic. And when it comes to the margin development, again, it's this new company that has a high margin that, of course, then improves the whole business area. But also some of the other units had a good development. So overall, a good quarter, very good quarter for the business area.

Okay, perfect. And then Then on the ramp up here of deliveries in supply chain towards the end of the quarter, is this effect expected to continue here into Q2 with a better momentum for the entire quarter? And also on the same topic, you said that you saw a stable order intake in the area. Can you give any more specific numbers to put that into perspective?

From the order intake side, it's been a strong order intake from last year, quarter four in the business area. So it was primarily GH that came in and had a much higher order book coming into the year. And yeah, the effect was that it was delivered quite a lot in March, not stable January, February, March, but it's still a very strong order book. So yes, that momentum, let's say of delivering on a strong order book, it's for many companies in the business area. So, yeah, that's positive from that perspective. And we feel comfortable that the growth will continue then for the business area.

Perfect. And then one final here from me, if I may. You mentioned here there's some price increases within supply chain. Are they sort of implemented now? And can you be a bit more specific on the effect from this?

it's it's actually no it's not anything that is implemented we have seen um a big opportunity to work with prices more efficiently so we're actually driving in a pricing project not only within this business area we have targeting four companies to start with and two companies are within supply chain and transportation so it's a We use an external support as well for a framework for price increases and how to work with that long-term. And this has been now starting up during Q1. So no effect from that right now. And that's more of a long-term effect that we will see working, let's say, more proficient with pricing going forward.

Perfect. Very clear. Also me. Thanks.

The next question comes from Max Bako from SEB. Please go ahead.

Yes. Good morning, Anders and Beng. Thank you for taking the questions. Perhaps starting with water and bioeconomy, that specific segment which I mentioned here during the presentation. at a bit more challenging water. But you mentioned also that with volumes, you expect profitability to improve during the coming quarters. Do you expect to be able to match the profitability that we saw during 2025 for Q2 to Q4? Is that possible in your view?

So I think From a volume perspective, yes, it's our Italian company. They invested in a new production facility. They have They are adding a third one, so they're building up small production facilities, let's say closer to the customers. So we are taking the cost for the investment, but volumes need to come in to be able to get the benefit from that investment. And that we foresee coming during the year, definitely. On the margin side in general, as I said, we have felt that we have been a little bit too lean in some of the companies, higher requirements coming into the chemical cluster as well. So these actions that we need to take is not that we are fixing something and then the margin is going to come back. This is going to be a little bit more that we are adding costs to be more proficient and long-term focused for these companies. So it will be challenging to come back to those quite high numbers part of last year in the business area.

Okay, understood. And then the final one, basically, you also mentioned on the topic of cash flow and networking capital that you took some inventory build up here during the quarter to mitigate potential supply chain disruptions but I think you also mentioned that it was to hedge for potential increases in raw materials and so on and so forth. Have you seen any disruptions yet or is it more of a precautious measure?

Well it's more of to be precautious and take some opportunities

to do efficient procurement here so yes okay yes understood uh that was all from me at the moment so jump back in the queue the next question comes from stefan nutson from red eye please go ahead

Good morning Anders and Bengt, thank you for taking my questions. First up, very impressive development within both energy and electrification and safety and security. Do you see this momentum as a structural long-term driver or was there any one-time effects that we should be careful to extrapolate?

I think from energy electrification, we had a strong winter seasonal effect. And from Heatwork, the company producing equipment and solutions for frozen grounds. Yes, they had a very strong winter, let's say, January, February sales. But other than that, no, it's a general trend with electrification, with the energy savings. that is taking place. So it's actually a broad momentum in these companies. We, of course, would like to add more companies to the business area as well, because we see the trends there for these companies at the moment. And safety security, very much similar, I must say. It's a broad, general, good momentum. And we have niche products, niche services, strong products and solutions that we foresee definitely to continue.

Perfect. And secondly, given the current geopolitical situation, do you expect any meaningful impact in Q2 onwards? And if so, in what business area do you foresee elevated risk for any disruption?

We have had some companies with delays order from Middle East. We are not exposed too much, but definitely we have seen some hesitant from that region, of course. But no, in general, I think what banks also mentioned that we have taken in some, sorry, we started to purchase a little bit more to... hinder potential increases in oil prices and transportation costs, etc. But other than that, we are not that exposed at the moment to see any big obstacles due to that.

Very clear. And then finally, on the accounts receivable buildup, do you expect this to recover in the near term or will this persist for some time as you see it currently?

No, I mean, it was more a call it a timing effect on where the quarter ends in relationship to invoicing and so on. So cash flow should be more normalized here going further. But I think it could be good to look at the more 12-month basis numbers because it can have quite some swing from one quarter to the other depending on when invoicing happens or revenue recognition happens.

very clear that was all for me thank you.

The next question comes from Carl Korsheden from DNB Carnegie. Please go ahead.

Good day Anders and Bengt. Just a question from my side on demand overall. We have seen now an upward trending organic trajectory here now for three consecutive quarters and just curious to hear a little bit more When you talk about you or when you talk to your current businesses and the orders they are seeing, would you expect this upward trending, I guess, organic trajectory here to continue over the next couple of quarters? Or is there anything here in terms of comps or similar we should keep in mind?

No, I think it's a positive momentum in several of the the business areas and the companies. I think it's important for us to see this now, the good momentum and to work discipline with it. Of course, the working capital and the CapEx and to make sure that we are doing the right thing to take, of course, the opportunity to grow with the market development. So in short, it's a good momentum that we foresee to continue. But of course, looking down at water and bioeconomy, we are having some challenges with some of the companies there as well. So that's what we saw in quarter one. It was affecting the total. But definitely that our mindset is that we will manage, we will work with these companies. And overall, it's a good momentum in the entire business.

Yeah, that's clear. And is it fair to say that you have now, I guess, recouped all of these orders we have talked about over the last couple of quarters where you've been talking about postponements? I guess you mentioned that not all of them have been converted to sales, maybe in this quarter in particular, but do you feel like you have received all the orders at least by now?

I think definitely the situation primarily in supply chain and transportation last year where they were wanting to place the order, but they were hesitant because of uncertainties. Yes, these orders are now placed with us. We have the orders, let's say. It's a little bit, maybe, as I said, in Certus, the port automation company, that the larger ports could be a little bit hesitant to, let's say, what's coming late in the year. But no, it's nothing that we really count on at the moment. So the delays in placing order is over, let's say then, from that perspective. Yeah, I think that's clear.

Yeah, it wouldn't be possible to, I guess, break out the sort of remaining order backlog from those larger projects and orders that we have been talking about that wasn't delivered now in Q1 going into Q2.

No, it's not really possible, actually. It's still, let's say, the bigger retail companies in the UK. That's where we talk about the big orders coming from. They are saying that now, this year, we need, we place the order for these demand exactly when it's going to come, when we're going to deliver the vans, etc. It's not clear, but the order is placed, so to say, with us, at least.

Yeah, that's clear. And on the cash flows, you already answered a little bit about, I guess, the accounts receivables situation. But if we talk a little bit about the inventory buildup you mentioned here, could we expect also that to, I guess, convert into cash flows now already in Q2? Or do you see that as more, I guess, structural for a couple of quarters now, given the situation with supply chains and so on?

No, we think that was more now. But yeah, it's still also in Q2. Some of the seasonal companies continue to build the finished goods or semi-finished goods for deliveries during second half, especially a company like Hilltip with their snow salt spreaders and snow removal equipment. They sell most of their equipment during late summer and autumn. So still some But that's kind of a normal seasonality on our cash flow, so shouldn't be any unusual things.

Yeah, okay, that's clear. Yeah, thanks. That was all from my side. I'll get back in line.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.

Hello guys, and sorry if this has been already covered here. I was a bit late into the call. But first, I see a lot of focus on data center sales here that seem to drive a growth in several of your segments. And as a general theme, can you maybe share a bit more on that momentum here? If this is something that you expect will continue to build and should have a sustained positive momentum, you think, or was it more isolated to two good volumes for data centers here in this quarter? Because I don't remember you. You mentioned this last quarter, for example.

Yeah, OK. Now it's. It's primarily within safety, security company producing security gates for the data center industry. They are based in the UK and they have good customer relationship with contractors in Ireland. Ireland is the hub for it. So when they expand with the data center facilities, they are pre-written, so to say, in many of these projects building up globally, actually, with their strong product. So, no, it's not in general for many companies. It's more specific. This company within safety security that is driving or having a good momentum, thanks to that, but We see that to continue, but for us, it's not really a problem. We are having almost a full order book, what we can produce actually from this company. And we are looking into different options to expand or how to deal with it. But we are very cautious on that. will this trend continue? So we're very careful in balancing that, of course, as well. But the demand from this company is good for many different applications, but definitely the data center is driving, at the moment, the growth.

All right. Thanks for that. And on M&A, I think it's good to see that you are coming a bit more forward leaning here. And you also mentioned the strong M&A pipeline. and that you expect a ramp up. But if you could talk a little bit more about the timing and the magnitude of the ramp up in acquisition pace. There's just one acquisition so far this year. And when you say ramp up, do you expect to be at a relatively good pace already sometime this year? Or is it more a gradual ramp up throughout this year and then into 27? That may be the year where you are at a good momentum. How should we think about that?

We have definitely plans for closing in Q2. That's what we prefer to do. One more. It's already the end of April. But then... adding, let's say, definitely than Q3, Q4, more companies. We have the capacity, as we have said, for high M&A growth, of course, this year. But yes, as you said, the complete ramp up will be 2027. But if we are coming in between four to six acquisitions this year, that will be something that I foresee good for us.

All right and that would mean also that you balance the gearing below three times or maybe up slightly from here or do you think that we should expect you to be at these levels or how does that pace translate into the gearing?

I think it's definitely that we would like to be below three. That's our long-term target in the leverage. So, yes, we need to be careful about that, how we ramp up the M&A over the year. Definitely, we have that in mind, for sure.

All right. Thanks for that. That's all for me.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

And we have one question in the chat, in the feed, but I think we have answered that one already. It was regarding orders in the supply chain area coming in Q1 and being delivered now or in Q2, but I think we have answered that already. So I know other questions.

OK, but if it's no more question, then thank you all for listening in and good questions. It was good. Good discussions here today and hope to see you next quarter as well, if not before.