Sdiptech AB (publ)

Hello and welcome to our quarterly report, the second quarter. My name is Anders Mattsson, CEO of Stiptech, and I will be presenting it today together with our CFO Bengt Leidström. Before we start with the quarter, just a short intro to Stiptech for any new listener. We acquire, we develop, and we create a long-term home for niche companies within attractive infrastructure segments. Today we consist of 33 companies. We added two companies during the quarter and we operate in a decentralized structure and each company is responsible for the day-to-day operation. We divide the group into four business areas and each segment has a clear and structural underlying growth trends for the future. On the rolling 12, Diptech as a group has 4.7 billion SEK in revenues, 988 million SEK in adjusted EBD, and an adjusted EBD margin of 21.2%. And these are numbers for our core operations, excluding the companies that has been divested over the last 12 months. For today's presentation, I start lights of the quarter. On a strategic level, we are happy that we have completed the divestment program that we initiated last year in August. 11 companies plus our remaining elevator business have been sold. We have achieved a multiple around 6.5 times 2025 EBIT for the entire divestment program. And it's important to mention that the logic will be that the proceeds from the divestments will be allocated towards new acquisitions going forward. And that means for us that we are allocating capital where we find it more attractive for the future. From an M&A side, healthy M&A pace, two acquisitions in the quarter, and our pipeline has improved over the last 12 months, and it's now in a good shape for the future. We also experience a continued solid demand from our diversified portfolio within our attractive infrastructure segments. From a financial perspective, it's a positive momentum with a total adjusted EBITDA growth of 11%, organic adjusted EBITDA growth of 5%. Cash conversion in the quarter is 70%. And if we're looking at the last 12 months, it is at 90%. And this, of course, is important because we would like our own cash flow to be the primary funding for our continued M&A activity. And it's good to see improved momentum in supply chain and transportation. Energy and electrification and safety security is having a continued strong demand. water and bioeconomy is improving, but still negative development compared to last year. Coming into the financial development in the quarter, I should also mention here that the numbers we present here are excluding the divested companies for comparison reason. Net sales in the quarter came in at 1 billion 269 which is a plus 14% growth in the quarter. We had a strong organic sales growth of 11%. In the quarter, we had a negative currency effect of minus 2% and approximately 4.5% is coming from M&A growth. In the quarter, all our four business areas showed sales growth and especially strong development from supply chain transportation, energy electrification and safety security. The main reason for the solid sales development is not a specific business area or a specific company. It's more the continued structural trends that we see from our main segments, like electrification in general in society, and also improved safety elements in many different areas. If you look into the right side on the slide there, no significant change in our geographical distribution of sales with UK as our largest market. Proprietary products is increasing to 68% of total sales compared to 67% from last quarter. Then coming into our adjusted EBITDA, we came in at 258 million SEK, which is plus 11% growth in the quarter. We had a solid organic growth of 5%. In the quarter, we also had a minus 1% currency effect. And then roughly approximately or 6.5% is coming from M&A growth. In the quarter, three out of the four business areas showed growth in adjusted EBD. And again, the same business areas had a solid development supply chain transportation and electrification and safety security. We still have the negative development in water and bioeconomy, but improved performance compared to quarter one. And I will come back to that later in the presentation as well. Looking at the margin, adjusted EBITDA margin decreased to 20.3% compared to 20.9% last year. And that is primarily due to a growth in supply chain and transportation, which is our largest business area, but also in relative terms, the business area with lowest margin. And with that, I would like to hand over to Bengt.

Thank you, Anders. And let's have a look a little bit more in detail on our cash conversion. On the top chart there, you see our free cash flow per share compared with our earnings per share. And compared to last quarter, we improved the cash flow and that's not the least from the business and operational side itself. However, we have The capex spending, which is also included in this KPI, the free cash flow, has been a little bit higher during the first half of the year compared to our target. We have an internal ceiling or ambition of 3% of sales. We're at 4% so far, but some of the investments are done in the beginning of the year. So we're still aiming for the 3%. on the yearly basis, but still an improvement from last quarter, which is good. The earnings per share improved compared to last year, but quarter by quarter, it's still a bit affected by some capital losses from the divestments. All in all, we had roughly about 20 million in net negative effect from these transactions, including adjustments of the earnouts. Looking down at the lower chart, you see the cash flow generation and the cash conversion. We want to be in that yellow marked area between 70% and 90%. And we were exactly at the limits of that. Through the quarter, we were at 70%. But on the last 12 months, we were at 90%. And as typically it is during the quarter two, it's a little bit weaker than the other. We often see inventories, even though that this year it was lower than last year, but still the build up was roughly about 30 million SEK to be prepared for deliveries to customers during the second half of the year. We also saw increased accounts receivables from the increased sales. All in all, that part of the working capital increased with 80 million roughly. But the sales again were up 150 million compared to last year. So that number is pretty much what you could expect with that increased sales. So all in all, good. And we typically see then an improvement on the quarterly cash conversions during the second half. Looking then on the Island Street debt, the leverage ratio was more or less the same as the previous two quarters, still at 2.8. That's all in, so that's all debt, including the provisions for future earn-out payments. We have as a ceiling there to be at or below 3, as you can see on the left-hand side of this picture. And even though we made two acquisitions in the quarter, we're still at the same level as before those acquisitions because of a strong cash flow coming in from operations and the increased profit EBTA all in all. So solid development there. And looking at the right hand side, we see some return KPIs, three different ones. If we start at the top, we have the return on the working capital, which, as you see, during a number of years have been very steady around the 80%. That's measurement of how efficient we manage our working capital, the inventory and the accounts receivables, etc. And then the next line is the return on the capital employed in the companies. So that's excluding any good wills and other intangible assets in connection with acquisitions that we have on the group level. So this is from pure operations. And also they're very stable around a little bit above the 60%. which is of course very good and you will see soon how it is split between the different business areas. And then the third and the lowest in number then is the total return on the capital employed, including all these goodwill and other things on the group level. And that's pretty slow moving object we have as a target to come up to 15%. We're still hurt a bit of having the capital losses from write-downs of Goodwill and also from the sales. That affects this number, but once that has been rolled out, these numbers will improve. And even though we will not reach the 15% this year, it's clearly our ambition, even though, as I said, it could take some time, but the direction is clear. So all in all, that looks very good as well. And then I hand back to Anders for the business areas.

Yes, thank you. So coming into the business areas, we start with supply chain and transportation momentum with plus 16% in sales and plus 14% in adjusted EBITDA. We experienced an improvement from Q1, and it's good to see that we continue on this positive development in the business area. We had a strong performance from our companies, JR Industries, GEH and ELM. And JR Industries, as you might know, they are designing and offering roller shutter doors for the commercial vehicle markets, primarily in the UK. They have a very good market position, and we've been working with the spare part, improving availability, but also with the pricing of that. So that's part of the good development for JR Industries. GH used to be one of our top three largest, or they are still, or they is still one of the largest companies in the group. They are units for primarily delivery vans in the UK. We had a slower last year for them, but we saw the orders coming in and we were building up a good order backlog. And now we can see that we are delivering on that order backlog. So that's a stable business for us. It's continuously you need to replace and you need to update your fleets and you can work with the service element and the spare parts between those replacement cycles as well. So that's good to see for GH. ELAM, just to mention that ELAM is our Danish company, produce specific attachment to the forklift industries. They've been having a very good half year, 2026, and they have seen a bigger and larger demand for even more customized attachment. They have been quite bold in pricing those quite large customized solutions. And that's also what we see here. We see good development both in EBIT margin and also in revenue for ELM. So that's positive. On an adjusted EBITDA margin for the total business area, we see a slight decrease and that's primarily as a result of a product mix, GH, having lower margins in the business area and they've been growing in the quarter. You can also see return on capital employed is below the target of 50% for the operating units here. And that's mainly due to the acquisition in quarter two. When we calculate that KPI, we use the full balance sheet effect, but only one quarter of the profit. That's how we do it. So that's affecting in quarter two. Then we're coming in to the new acquisitions. And they belong into the supply chain and transportation business area. RSS or rail safety system. We mentioned it already in the Q1 report, but since April, they are now part of the group. They are based in the Netherlands and revenue 6.6 million euro. The company develops and supplies specific patent magnetic safety barriers, as you can see on the picture, instead of They have a magnetic system that you put on the rail itself. They have a strong position in the European market and sell primarily to different kind of rail operators. We own a company already, Mecno, in Italy, and they are making rail grinding solutions. We see here potential opportunities to actually open door for each other because they have different customers around the world, which could be something to work on for the future. Another new company is GLM. GLM design and produces specific industrial lifting equipment. And they are especially targeting vacuum lifters and smaller cranes. The company is based, as I said, in Denmark and annual turnover roughly 50 million Danish kroner. and GLM is strengthening our offering within efficient material solutions. We've been looking into that thanks a lot to ILM making the attachment that I described and all kinds of material handling equipment could be interesting for the future to look more into as well. Then we are moving on to energy and electrification. Energy and electrification has a solid quarter with plus 16% in sales and plus 14% in adjusted EVA. We see continued strong underlying market drivers, which create good momentum or growth drivers for the majority of the businesses in this business area, especially around electrification in general in the society and also energy efficiency is driving many of the companies in the business area. Phase 3, which are producing specific connectors to all kinds of applications. And also Rolek, who is our EV charging company, EV charging primarily towards business-to-business customers. So a fleet manager changing or improving EV charging for their, especially in the UK. Both of these two companies have performed well in quarter two with both sales and profit growth. We also see a slight margin decrease year over year, but that's primarily due to the product mix, but it's still at a solid level around 25% this area. Now we're coming into water and bioeconomy. We achieved an improved net sales development in the second quarter with plus 5% sales growth. On the positive side, we see good demand from purified water solutions, especially for cooling applications. And we have three companies somehow attached to these kind of strong trends. The business area, as we also said last quarter, continues to undergo operational investments to improve the businesses. And that has a negative effect on the adjusted EBITDA of minus 9% compared to the second quarter last year. And some of these investments are not just temporary. Instead, we see these improvements that are needed to secure long-term development. One example is that we're upgrading a product in the UK to meet the increased regulatory demands for how to treat chemicals, for example. And that's nothing that's going to be a quick fix. That's more improving for the future, which will drive some cost into that specific business. Then we're coming into safety and security. This business area showed again strong momentum with plus 15% in sales and plus 20% in adjusted EBITDA. We experienced a strong demand in all safety verticals, as we call it. Clean air in hospitals. We have our Swedish company Medicvent performing strongly. They've been successfully moving into new geographies in Europe as well, which is good to see. We have security around data center with our company Eagle that has been or continue to developing very good. And we have secure communication from our Swedish company Cryptify, which is also having a good quarter. Margin, as you can see, is at high 30% and improved profitability versus last year. And the primarily reason for that is a favorable product mix, but also a higher proportion of service and software compared to the previous year. And I think it's also worth to mention the high return on capital employed in the business area, and that's highest in the group. And it's, of course, one reason is that we have some software sales, but many of the companies here are quite disciplined in capital efficiency as well. We can learn from these companies within this business area to other companies in the group as well. Then we are coming into M&A. And from an M&A perspective, we are on track to increase our M&A activity for the year. As already described, we had two acquisitions that we closed in quarter two. Total EBITDA of around 35 million SEK. Our current cash position and also credit facilities are strong, but of course it's important for us to continue to be selective and very disciplined in the valuations going forward. And I also mentioned that we have been working hard on strengthening our pipeline over the last 12 months and we feel now we are in a good position that we need to be to accelerate M&A for the full year. And to end this presentation, I would like to summarize the quarter. We achieved a solid growth of 14% in net sales and 11% adjusted EBITDA, and that's including the organic growth as we described. We have completed our divestments and we can now fully focus on creating value for the businesses going forward. We also have an ambition to increase our M&A activity for the full year 2026, and we feel we are on track on that. And if you can see to the right here, I also would like to make a final remark on our strategic roadmap that we presented at our Capital Markets Day last year. What we said was that in 2025, we wanted to define new priorities and decided also to streamline our current portfolio. Now in 2026, we wanted to come back on the growth track with an improved balance sheet and new priorities for the group. And with new priorities, there was more focus on return on capital employed as a key metric in all decisions going forward. And then we also said that in 2027, we as a group should be performing according to our full potential and coming up to the plus 15% growth and slowly then also start to increase our return on capital employed, which is then a slower KPI to change, but definitely starting to improve that one going forward. And looking then based on the first six months in 2026, we still find this roadmap valid for us and we look forward to continue this journey that I just described. And with that, we are done with the presentation and we would like to open up for questions from the audience here today.