Sdiptech AB (publ) (938.F) Earnings Call Transcript & Summary

Good afternoon, and a big welcome to all of you here in Wallenbergsalen, and also a big welcome to you who are watching online. And as you know, this is Sdiptech's Capital Markets Day 2025. I'm Linda Nyberg, and I will be your host today. So I'm really looking forward to this because last time I was hosting a Capital Markets Day for Sdiptech, was 2021. And for those of you who remember, that was during the pandemic. So I do not have the pleasure to meet all of you in-person. So I think this is great to see so many of you here as well, present. We're going to jump straight into today's agenda, and I hope it comes here that I'm doing the right thing now. And here also, you have the speakers, of course, of today, and we will start with the CEO, Sdiptech's CEO, and there will be an update on the business strategy, of course, and also to just look at the new financial targets that was announced earlier today. Maybe some of you have seen that already. And after Anders, we will go into deeper in the business, and we will listen to the 4 business areas and the heads of those. And we will continue with, as you can see, also Michael L -- Michael Lund, sorry, from ELM. ELM in Swedish, which is one of the business units. And we will talk about their journey and also the partnership with Sdiptech and how the development -- the long-term development is supported because of that partnership. We will also shift focus later, and we will listen about -- listen to the Head of M&A, Peter Helsing, who will also then, of course, talk about the acquisitions. And we will see the new framework and what the future looks like with the M&A perspective. But first of all, we're going to get the financial overview from the CEO, but I have to say something because we're in Wallenbergsalen, and that's the air hostess information. So you know what I'm going to say now. We have 2 exits in the back. And for those of you who are not aware of that, there's a powdering room, as we say, in English. And you've probably seen it just by the stairs when you enter the room. And there's a meeting point we're in Sweden. So in case of emergency, God forbidden, we will meet at 7:11, that's everybody knows where that is, right, the closest. And we're not going to meet Sarah, sorry for the joke. So anyhow, I think now, Anders Mattson, are you ready, the CEO of Sdiptech, Give him a warm hand.

Okay. Now we can hear better. Perfect. Yes, I also would like to take the opportunity to welcome you to our Capital Markets Day. Great to see all of you here and also the one on the webcast. And thank you all for taking the time to listen to us today. I am then Anders Mattson, CEO of Sdiptech since June this year. I started my -- I came into Sdiptech in 2018, so I've been here over 7 years now, and I've gained a lot of experience working with some fantastic companies and also some very interesting entrepreneurs over the years. And today, I'm very glad to be leading Sdiptech now for the future. I would like to start to present my management team that you will meet later today. You will be listening to the heads of the business area, the forum. Daniel Unge, Roger Wood, Amanda Berninger and Sarah Strom. And later, you will also then listen to our Head of M&A, Peter Helsing, and our CFO, Bengt Lejdstrom. We have 2 people today that will not be on stage, and that's our Head of IR and Communications. That's My Lundberg. She's on parental leave. And then we also have Peter Stegersjo, Head of Strategy and Corporate Development. He's the one responsible for all the divestment at the moment, and he will not present here today. But I'm glad to demonstrate a very strong team that now we'll be leading Sdiptech together with me for the coming years. So let me begin with a brief overview of Sdiptech as a foundation for today's presentation. Sdiptech acquire, develop and create a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 30 companies in the group and divided in the 4 business areas: Supply Chain, Transportation, Energy & Electrification, Water & Bioeconomy and Safety & Security. And the numbers you can see here on the slide, they are excluding central cost and goodwill to show the operational performance of our entities. I just would like to highlight 2 KPIs. That's the margin. The average adjusted EBITA margin of 23.6% and also the return on capital employed, the average of 46%. These KPIs demonstrate that we have a very strong group of companies in the group and also that we have some strong initiatives that we are positioned within. And you will hear more about the different business areas later today from the heads of the business areas. U.K. is our biggest market with roughly 50% of the sale, remaining 50% is distributed among other European countries and 5% into the U.S. We operate in a decentralized model, and it's very important that the day-to-day mandate responsibilities is with the local companies. Our market, we have a modern view of looking and defining an infrastructure that goes beyond the classic definition or roads, tunnels and utilities. Our selected infrastructure segments are broad enough to enable a lot of M&A opportunities for the future, but they also create a focus for us as a group. And the -- but the most important aspect of our segment is that we see clear structural growth trends for the future. We know that European transportation, water and energy systems are old, and they require a lot of upgrades, digital upgrade as well, replacement and modernization. We also have a growing population, especially around urban areas, and that's demanding that we need to expand all of these systems as well. And finally, we have stricter regulations and also sustainability demands, so we need to invest to meet up to those requirements. And all of these megatrends that we see creating a very good platform for us going into the future. Before I talk about areas, we would like to improve that we have talked a lot about in our strategic now planning over the last couple of months, I would like to show you or discuss a little bit about our strong foundation. We have a strong track record of EBITA growth. We've been growing CAGR 26% since 2019. We are positioned well with our current portfolio within the attractive infrastructure segments, I just mentioned. Since 2018, we have acquired a very strong group of companies that will be the basis for our organic growth going in now to the future. And our internal M&A capabilities is strong. We have built up over many years, a strong pipeline that we constantly execute on at the moment. And our decentralized model is in place. It's working, and we have very strong leaders in several of our business units out there. Also on a more soft aspect, many entrepreneurs say that Sdiptech demonstrate a trust and belief that they really like the companies that would like to do something good with the companies. And I think that's very important because we know it's more than just financial metrics, when you're going to acquire family businesses that need to be sold or need to, but will be sold. So having described our strong foundation, we still have a number of challenges that we have addressed. We have had several companies in our portfolio that has not met up to our investment criteria, the investment criteria or proprietary products, EBIT margin above 15% and exposure to noncyclical end markets. We have also had a volatile growth for many years, which has led to challenges to drive sustainable and long-term organic growth with the core portfolio. We have focused on a little bit too much, we believe, on growing the EBITA and not on total return. A decentralized model doesn't mean that you cannot be active and support your companies out there. We feel that we have been a little bit too hands-off with many of the companies in the group. And we also have had a negative organic EBITA development over the last 1.5 years, and that's, of course, something we would like to address. So what are we doing then? What -- how we have addressed this? We have assessed our portfolio, and we have decided to divest 11 companies from the group. This is an ongoing process. And actually, as of yesterday, we have signed 1 of the 11 to be sold within the near term. We have also strengthened our business area organization. We felt ourselves; we wanted more expertise and experience. So we have recruited new people and we are also recruiting on more in the U.K. that's to come. And during the autumn, we have also created a strategic review together with the management team to clarify how we're going to ensure the long-term growth for the companies and also increase the focus on return on capital employed going forward. So based on the strategic work, we have defined new financial targets for the group. Firstly, we have moved away from a separate M&A and organic growth target, and now we are targeting a total growth instead. The target is to achieve 15% growth per year until 2030, which will result in a doubling of the EBITA over the 5-year period. Secondly, we have decided to increase our focus on return on capital employed. And we're targeting to reach about 15%. To be able to improve the return on capital employed, we need to improve the focus on cash flow in our current portfolio, but we also need to be very disciplined in the future M&A opportunities. On leverage, we also have a new updated leverage target and the target is to be below 3% in total net debt divided by EBITA, and we have stepped away from a separate or a financial external net debt target. In summary, we believe the new target give us the right focus and there are balance between growth and return on capital employed, and also keeping a healthy balance sheet in place for the long-term. To reach the new financial targets, we have defined 4 strategic pillars to focus on. And they are enhanced portfolio management, proactive ownership, disciplined and return-focused M&A and also cluster strategy to accelerate both the organic and also the M&A growth. I will go through now the different pillars, so you will understand a little bit more about the content. The first pillar is about portfolio management. We have decided not to treat all the companies the same in the portfolio, and we need to become more prudent on how we invest and where we invest for the future. First step has already been taken, and that was to assess the strategic fit of the companies, and we decided to divest 11 companies from the group. Again, to repeat, it's companies without proprietary products, EBIT margin around 10% and also exposure -- high exposure to cyclical end markets. Secondly, we have defined companies that strengthen, accelerate and harvest. So if the external market conditions are good, but we do not have the right products in place, so we do not have a great leadership team in place. We need to fix that. So we need to invest smart to change that position, and we should not focus on anything else. This position we call strengthen. If the external market conditions are good, and we also have the right products and the right services in place, and a great management team, we should dare to invest for growth, and this we call accelerate. And the last one, if the market conditions are not so good, it's a lower growth projection, but we have strong products and strong management team in place. We don't need to invest. We should try to harvest this position instead. So if you see to the right, you can see that the majority of our companies, they are in the accelerate quadrant. So by this framework, we will be able to prioritize investment towards these companies going forward. Next one is to become more of a proactive owner. Proactive for us means that we would like to guide and take more active decision with our companies. We will implement return on capital employed. That's a key metric to work with other companies. And to do that, we're going to implement a strategic framework, the classic DuPont analysis. So if you want to grow your return, you can work on your EBIT margin perspective, but you can, equally important, work on your capital efficiency side to increase total return. We will also -- which is very important, we will also tie incentives towards return on capital employed instead of just, for example, grow your EBIT every year. And we do not see that this more active approach interfere with our decentralized model. Actually, instead, I think this will guide the local leaders to make better decision day-to-day, and they will also be aligned with our target as a group. And if any support is needed to accelerate any development, we are there to support and come with active initiatives as well. That could be about pricing opportunities. We cannot require each and every MD out there know exactly how you are excellent in your pricing. We can come there and support. We can support with add-on acquisition. And of course, we can also support with from a working capital perspective, how can you improve your safety stock, for example? We don't do it all the time, but selected initiative where it makes sense. The other very important growth driver for us is the M&A. Peter will talk more about our approach to M&A, but I would like to highlight some specific areas, which is very important for us. Our M&A capabilities are strong. We have a central team in place that are supporting the business areas, each business area, but also the geographies. With improved experience and expertise from our business areas, we believe we can strengthen this position together with the central team. Second one is that we have to be disciplined in our evaluation to improve our return on capital employed, as I already mentioned. And we have shift focus to only look at EBITA multiples to look more for returns, and we're looking for IRR returns on each and every acquisition. The target is to reach 20% IRR for every acquisition we will do. And we also need to open up new geographies to support our M&A growth. We can do that by central initiatives like we talked about entering Germany centrally, but we could also do it from an individual company perspective. We get a great opportunity to move into a new geography. Don't hesitate, do that if it makes sense. And the last pillar is clusters. Cluster is a connected group of companies that benefit from supporting each other. It has nothing to do with 4 synergies from us as owner. With a more coherent portfolio, we see clear evidence of collaboration opportunities in the group. Collaboration usually comes from the customer or customers -- the companies themselves. It could be about opening up doors to customers, could be talking about great suppliers. We actually have examples where they can cooperate in R&D activities as well. And the benefit from cluster thinking is clear even from an M&A perspective. If we know the markets, we know the player in the market, it is more easily for us to identify those great targets that we would like to acquire. And it's another strong benefit as well, and that is about sector expertise. So if we know about the sector, we will most probably become a better owner. We also can come with an attractive offer to some of the companies. You can join our group. We have this cluster. This is what we bring to the table as well. And in the future, if we grow a cluster big enough, we can easily then, let's say, create a subsegment within one of the business areas. And you will hear example from this from our business areas as well later today. So the journey to achieve our financial target will include a number of milestones under the way. For 2025, we have now defined our strategy going forward. And we have also -- we will also enter now with a core portfolio after the divestment will be done. Next year, we will enter with a healthy balance sheet in 2026. We have a new team in place, and we will start to ramp up our growth. And that's also for the M&A growth, of course. From 2027, we will be forming a full potential as we call it. And to be able to double the company in 5 years, we need to increase the growth from '27 to 2030 to be abling to reach those 15% over 5 years. Just to summarize our financial targets again. Our target is to grow adjusted EBITA by 15% per year. The organic growth will come from our strong attractive segments that's going to grow more than GDP in Europe, which we all know is going to be -- or the forecast is going to be quite moderate for next year. Our proactive ownership model is going to generate more organic growth. And then on top of that, we have our M&A growth. That's going to be critical to reach the 15%. We will improve our return on capital employed to above 15%, and we need to focusing more on the capital efficiency and to be disciplined in our M&As. And our leverage should come down below 3%. So some last word from me, key takeaways from this introduction here today. Sdiptech has a strong position within our key infrastructure segments, and we see clear trends that these segments is going to grow for a long time. We have a strong core portfolio. You will be hearing some examples of that today, but that's the portfolio we're going to drive forward organically. Our growth agenda will be built on proactive ownership and also disciplined M&A, focusing on IRR for each and every acquisition going forward. Financial targets, focusing on the total growth target, improving the return on capital employed and have the total leverage below 3. So that was all from my presentation.

Well, thank you, Anders. It's a big hand. Thank you. We actually -- I have questions for a journalist, but you know in the chart, for those of you online, there's a chat function. So you can get your questions in there, and they can ask you later. But I'll start with the question now. And guys, if you have a question by the end of the day, save them. But you talked about a decentralized model. And then you also mentioned that we're going to be more hands on. Can you explain that a little bit further? What do you mean by that?

Yes. I think the essence in a decentralized model is that you have strong local leaders that not only there, but they believe that they -- or they have the mandate, and they believe they make the right decisions every day. That's extremely important that they have that belief, and they dare to do that. We think from an owner perspective that we can be much more clear on the strategic or financial targets for the year. Each company know where we would like to develop the company from an owner perspective. And that, for us, doesn't interfere with the decentralized model. And then sometimes I also mentioned it before, and specific selective initiatives like pricing, we definitely can support the companies to accelerate some of the development that we see from our perspective.

I know there'll be more questions on this. So thanks for now. Thank you. Warm hand on this. And as we said, for those of you here, you actually have microphones, as you can see, next to the chairs. Have you seen that? If you've been in Wallenbergsalen before? So it's excellent for the Q&A by the end of the session. Now we're going to go through the 4 business areas, but we have one who's going to start. So Sarah, you will be first, but we later have also Roger Wood, Amanda Berninger, of course, and Daniel Unge. But Sarah, please stage is yours.

Thank you, Linda. You can hear me, yes? Yes, it works. Good afternoon, everyone. My name is Sarah. I'm Head of Business Area Water & Bioeconomy. I've been with Sdiptech, just over 3 years, and I've spent most of that time with the companies in this segment. And I will give you an update of the segment, how it looks, also the landscape and how we see the market drivers. And at the end, I will give an example of 1 of the 4 strategic pillars, and as was referring to about clusters. So this is the water and bioeconomy area as it looks today. It focuses on technologies and systems within water, waste and bio-based solutions. We are currently 9 companies in the area spread over 5 countries. The companies in the group of water and bioeconomy, they are a mix of products, services and aftermarket offerings, and they generated an average EBITA margin of 25%. The returns are in general good, achieving 110% return on capital employed. And this is an area I'm very passionate about, not only because it holds business opportunities, but also because water is an essential part of life and our society. And it's well known, the growing -- the demand for water is growing, and it's expected that by 2030, the available resources in water will exceed the demand by 40%. And this is driven by private consumption, agriculture, but of course, new industries and existing ones like the semiconductor manufacturing, data centers, power generation and pharmaceuticals. All of those businesses rely on high-quality water supply. And at the same time, water has become a scarce resource. Only 27% of the surface water in Europe is achieving a good chemical status. And this is actually a reduction from 33% a few years earlier. Pollution, climate change and aging infrastructure generating leakages up to 50% are all areas affecting the amount of fresh water available. So there is a need for investments, and these investments are also driven by regulatory measures in the European Union. Water has been high on the European agenda for a long time. And this year, this has reinforced even more with the launch of a new water resilience strategy. This strategy has 2 components: one being to reinforce existing laws and regulations. And the other part is to drive investments and stimulate both private and public investments in the area. And on the right-hand side, you see an example of an urban water cycle. And we see that the companies in the Water & Bioeconomy segment is well positioned in this area from collection, distribution to treatment and used, all the way to wastewater treatment and discharge and recycling. And I will give two examples of what the companies within this area is currently doing. One is the group of 4 companies to the right-hand side, offering chemicals and products in the water treatment area. It's Pure Water Scandinavia, WTP in the U.K. WaterTech of Sweden and Kemi-Tech in Denmark. They offer solutions for water treatment to primarily hospitals and industries. And this market is driven by the need for to protect the equipment and also reduce the amount of water. Another interesting area is the area of data and analytics. And in this area, we have one of the newest acquisitions we have done, and that is Wintex in Denmark. They are offering high-quality soil sampling equipment for the agriculture industry. And this is a growing area as agriculture is seen as one of the drivers for an increased pollution affecting the water cycle. And we are, of course, looking after more companies in this area, and Europe is a good area to look. It's seen as the industry leader -- the leader in water management with 40% of the patents being placed in Europe. And the area in Europe consists of about 80,000 companies. And hopefully, a few of them will be part of the Water & Bioeconomy segment going forward. I will also give an example on how we work with the companies when they are in the group. And I will refer to the fourth pillar that Anders was talking about being part of one of our strategic areas going forward. And in the Water & Bioeconomy area this is in particular important because many of the companies in this area are quite local. Sludge is treated locally and waste and water management is also based on local -- yes, local solutions. So we see there is a great value in adding those companies together, share best practice and collaborate in areas like R&D, sourcing and pricing. And 2 of the companies in this cluster has taken this collaboration even further. That's WaterTech of Sweden and Kemi-Tech in Denmark. 12 of the products currently being sold by WaterTech of Sweden in Sweden is being produced in Kemi-Tech in Denmark. And this has resulted in a cost improvement by 5% in production and administration. And this collaboration is expected to grow even further in 2026 and to see opportunities in both markets. And the water treatment cluster is also a particular interesting cluster to look for more acquisition targets. And we have a list of approximately 10 companies that we're currently looking at complementing this cluster going forward. Another example has emerged in the wastewater treatment area, where we have Auger specialized in water mains and drainage solutions, and TOPAS, manufacturing water treatment solutions in Sweden. They are currently exploring an opportunity in the U.K. where there is a need to update aging infrastructure, also driven by regulatory demands. So they are currently looking at places, see if the Swedish products can be applicable on the U.K. market and is expected to make a pilot in 2026. So working in clusters for us is not only an opportunity to improve profitability and strengthen the local market positions, but it's also an opportunity to find new companies and develop the area going forward. So to summarize the Water & Bioeconomy area, we see this as an attractive segment based on the urgent need for water and wastewater solutions going forward. In 2025, we have been focusing on establishing clusters and collaboration and strengthen the business areas -- business units we have in the area, with local expertise and strengthen local market positions. And going forward, there will be an increased focus on M&A and to find new niche companies that are adding to the water -- urban water cycles and solve the challenge of water. And by that, thank you for listening to this area, and welcome Roger Wood, who will present another interesting area for the future, energy and electrification.

Thank you, Sarah. Good afternoon, everyone. I'm Roger Wood. I'm Sdiptech's feet on the ground in the U.K., having joined 3.5 years ago as U.K. M&A Director and currently acting as Head of Energy & Electrification. So Energy & Electrification is technologies, products for efficient generation, transmission and consumption of energy. The business area contains 6 niche high-margin companies together comprising about 1/4 of group revenue and profit. In recent years, the business area has been characterized by some variation in individual company performance, which has limited overall segment growth to around 3%, however, has continued to deliver robust and significant margins. The outlook for the business area is particularly positive. All of the businesses are operating in high-growth segments and there's significant international growth opportunities. And as talked earlier about the high-level macro drivers for infrastructure sector as a whole, as a number of these particularly at play in energy and electrification, underpinning the long-term attractiveness of the sector. We've got the ongoing upgrade to high-voltage infrastructure linked to the transition to green energy sources. This is obviously a function of climate change, but the rate of change is driven by government legislation. This transition brings some challenges, but also opportunities. The greener sources of energy are geographically dispersed and intrinsically intermittent in nature. This means lower scheduling accuracy and increasing demand for energy storage systems, load balancing tools and infrastructure for cross-border energy transmission. We've got rapidly increasing consumption in energy, driven by the obvious data centers, electric vehicles, climate change, urbanization. You combine this increased consumption with the unstable geopolitical environment and the fact that gas still remains a significant proportion of power generation, this means high energy prices. Commercial behavior is very much driven by the desire to save money rather than react to government legislation. And this is resulting in significant demand for products that reduce energy costs, so products and solutions that deliver energy efficiency. We focus more on the distribution and consumption end of the spectrum, as you'll see with where our portfolio sits, largely because this is the lower capital-intensive end of the market. And within distribution and consumption, we see some particular opportunities, energy management systems, sensors, storage, temporary power and of course, EV charging. All of these segments are forecast to grow significantly in the coming years. Within generation and transmission, we see some selective opportunities around power efficiency and quality. I'd now like to talk in detail about one of the companies in the portfolio, Resource Data Management. This is a great example of the proactive portfolio engagement that Anders talked about through our shareholder transition strategy. We acquired RDM in 2022, has a global footprint, headquartered in the U.K., sales office in the U.S., manufacturing and sales in Asia and strong distribution in Australia and New Zealand. RDM provides technology, products and software to control refrigeration, heating, ventilation and is fully integrated with building management systems. This product suite has enabled its customers or lots of its customers to save over 30% on its energy costs at the same time as maintaining regulatory compliance. RDM has a strong presence in retail and fast-food sectors, hospitality and leisure, fuel retail, smart buildings and cold chain. Cold chain is particularly interesting. This is an area that we see significant potential for cross-business area collaboration and potential clustering. So shareholder transition. When we acquired the business, there was a broad management structure, but as is typical of an entrepreneurial business, one shareholder, Managing Director, controlling all aspects of the business. The structure was fine for where the business was at that meant there was a number of bottlenecks for future growth. One example of this being the finance function was outsourced. This meant perfectly adequate financial reporting. However, in terms of actual financial data for day-to-day running of the business, that was a little bit more lacking. Post acquisition, we introduced a more formal board structure. This meant more regular and broader commercial discussions and a greater focus on long-term strategy. The only was cognizant of the need to develop the business for the future, so is happy to work with us for the recruitment of an experienced MD, who is now in place. And he has been incentivized and empowered to drive the business forward for the future in the next 5 years. So whilst the work is -- this recruitment now is ongoing with more functional expertise being brought into the business, heads of supply chain, technical and an in-house finance function. There's also an ongoing development of the sales structure with the help of an external consultant, and we're recruiting a new general manager for the U.S. market. So once the work is not complete, improvement in the organizational structure, combined with these expert functional heads is enabling the business to deliver efficiently on operational priorities. I'd like to finish by summarizing how we see the Energy & Electrification segment going forward. A very positive outlook with increasing global energy demand and the fundamental shift in how energy is being produced and delivered, and also a clear focus on high-grade subsegments. There'll be more proactive engagement to focus on operational strategies that will deliver more stable performance and work towards more efficient working capital. A number of the businesses in the segment are facing significant international growth opportunities, and we'll look to support these with targeted investment. And finally, through intelligent M&A, we'll look to identify products and technologies that we can add to our existing distribution channels and create some clustering around end customer needs and requirements. Very exciting times for the segment. Thank you for listening. I hope you found it interesting. And now I'd like to hand you over to Amanda Berninger.

Thank you, Roger. My name is Amanda, and I Head the Safety & Security business area. I joined Sdiptech in 2022. And in this business area, Safety & Security, we acquire high-quality companies that contribute to a more safe society. That can be both hardware as well as software products and services that somehow protects critical infrastructure, physical assets but also data, digital assets, and us, ourselves, the people and also the environment that we live in. Today, we are 7 business units in this segment. All market leaders within their respective niches, we generate the majority of the sales outside the company's domestic markets, which is enabled by, for example, strong distribution networks. And this has resulted in double-digit growth, high margins, 30% EBIT margin, and a high return on capital employed of 155%. So the current portfolio of the 7 companies that we have serve 4 key subsegments: cybersecurity, perimeter security, fire safety and clean air. These are all subsegments where we see a good underlying growth and where we think that we can find and attract more high-quality companies. In addition to that, there's also other adjacent safety and security areas that we will explore, but this is the main focus for us at the moment, these 4. And Anders mentioned in the beginning that and how the modern definition of infrastructure ties really nicely to all our business areas. And that is true also for Safety & Security. What makes Safety & Security a bit special is that it spans across all the business areas. So when we see underlying growth in any of the verticals, that means that there are more assets to protect. In addition, we live, unfortunately, in a geopolitically uncertain world economic instability, which has led to a sharp increase in threats, digital as well as physical. And as we see the threat level intensifying and escalating, we also see more regulatory compliance -- more regulatory control and loss. And there are a number of examples of recent acts that has been launched. That means or that as a result, we need more protective solutions. And to give you a little bit more example of the type of companies we have in the group, in perimeter security, for example, we have a company that offers security gates and other type of structural bollards, blockers to mitigate vehicle intrusion outside, for example, a data center that holds a lot of high-value assets, of course, but also airports with a lot of assets and also people. In fire safety, we have advanced solutions for detecting fire in metros, escalators, tunnel, complex buildings, and also specialty alarm systems to evacuate people in case of a fire. The fourth segment, clean air, we have our newest acquisition, Dado Lab, which detects and measures emissions in the outside air that we breathe, and specifically fine particles. And fine particles is the most deadly type of air pollution. Out of the 8 million people per year that die from air pollution, 90% of those have been exposed to too much of fine particles. We also have a couple of other companies in the Clean Air segment that focus on indoor clean air solutions. That is primarily to detect workers, for example, in a hospital or in a laboratory that can be exposed to too much of dangerous gases. And I thought I'd tell you a little bit more about one of these companies where we've done a great journey. Temperature Electronics, TEL, is a U.K.-based company that's been around for 50 years. We acquired the company in 2022. They make air flow controls and monitors. They work really closely with the fume cupboard manufacturers to develop the airflow monitors to make sure that they meet the regulatory standards. And when you optimize the airflow inside the fume cupboard, you don't just make sure that the workers are always safe, of course, but also you can reduce a lot of energy consumption, up to 85% of the energy consumed can be saved. And that saves, of course, costs for the customers as well as it preserves our environment. At TEL, we acquired them in 2022. And since then, we've done an impressive journey. We've grown the profits by 12% per year, while at the same time, increasing return on capital employed to above 200%. We've been able to do that by having a strong local leadership in place. We've applied our proactive ownership with clear targets and strategic support, but we have a really good team in place, a management team. There are also a couple of other prerequisites that has enabled this journey. For example, we own the designs, the IP, and then we outsource everything that is not core. We've also been able to scale through strong distribution partners outside of the U.K. distributors that are -- we have good relationships with and that are loyal to our products. And thanks to the fact that we can save the customers a lot of money, we've also been able to apply a value-based selling approach. So a great example, again, of a company where we've applied our proactive ownership with strong decentralized leaders. So looking ahead then, we, of course, need to continue the journey that we are on with TEL. We've just started that, but we also need to replicate this with other companies in the portfolio and in the group to continue to grow while maintaining capital efficiency. And in the Safety & Security segment, we have a couple of companies that have not just hardware offerings, but also attractive software offerings, recurring services and maintenance offerings where we can take the opportunity to explore and drive these type of high profit and the capital-efficient sales. And lastly, we see a lot of good underlying growth in the -- for example, the 4 key subsegments that I mentioned, but also other adjacent segments. And there are a lot of interesting companies for us to acquire there. So to summarize, we're a high-quality portfolio, high-quality companies, high profit, high cash conversion, and we have an interesting journey to continue with. We have just started, a lot of potential going forward. Thank you. And with that, I hand over to Daniel.

Thank you, Amanda. So I'm Daniel Unge, I'm Head of Supply Chain and Transportation business area. And the business area, supply chain transportation consists of 8 companies, which, in total, has a revenue of SEK 2.1 billion and a combined EBITA of SEK 443 million. It is categorized by stable growth and also diversified exposure to several growing segments. The growth has been on EBITA level, 32% since the Q3 2023. So if we look at the business area, we have 4 clear subsegments, the first one being the intra hub logistics, where we mean that we move products and goods within a factory or a warehouse. We have the hub-to-hub, which means moving in between hubs, so between a warehouse and the factory, for example. We also include maintenance of roads, for example, in that as well to facilitate easy transportation between the hubs. We have the Rail and Marine segment, where we mean moving goods using trains or ships and also, last but not least, the fourth segment last mile distribution. They all have common market drivers, but still, they have unique special needs and also end customers as well. So if we look at the market drivers, the first one being quite clear, e-commerce and cold chain exposure or expansion -- sorry. We have the second driver being the regionalization of production, but also resilient supply chain. By that, we mean that factories moving back from the Far East, for example, and also not be independent so much, so building up supply chains in Europe, for example. The last driver is regulatory demands, where especially in sustainability, where we have 0 emission cities coming in, for example, that shifts the behavior and how we transport goods within cities. These are all coming into play. If I just go back 1-second and mention the company GAH here in last-mile distribution. They are a company that are part of what both Sarah and my colleague Amanda and even Roger and Anders also mentioned, the clusters. So here, we have formed a cluster that we call the cold chain cluster. So this company is part of that. What they do is that they supply refrigeration units to trucks that ships food to supermarkets and other warehouses, et cetera, within the cold chain. They have niche products, and they are a niche leader within the segment or cluster, and they also are really, really strong in the U.K. They have several blue-chip customers that has reoccurring contracts, also with service and aftermarket sales as well. And the subsegment is experiencing, like I said before, but not in sustainability. They see regulatory demands coming in, in the temperature control. So it's getting more and more important to make sure and to be able to report and promise that you have kept the temperature through the entire cold chain. This has increased and is still increasing as an important factor. And then we acquired GAH back in 2020, and it's been a fantastic journey. I was not here. I joined Sdiptech back in August, but most of the colleagues were here, especially you too, of course, you've been here the longest maybe in the room, but they've done a fantastic journey with this company. They initiated let's call it, value creation initiatives and selected a few that really would bring value to this company and also then to Sdiptech. What they did was they put a strong management team in place, of course, together with that strong leadership and the proactive ownership of Sdiptech, they created something very good. So they worked on pricing as 1 lever where they, instead of maybe just raising prices every year, 2%, 3%, they looked at the data and use data-driven pricing to be able to have a diverse pricing strategy for them, which was really beneficial. And that led to great impact. Secondly, they also worked on looking at the service and aftermarket. So as we buy and acquire product companies, usually, there is a service and aftermarket sales as well with these companies. And they managed to grow this by 30%. Last but not least, with the help of Sdiptech, together with GAH, they also managed to enter new markets and also new segments. So new markets, we mean new countries like Canada, for example, they've entered during these years and other markets as well in Europe and outside of Europe. The other example is that they also found new segments. And thanks to or due to COVID, I think you all know about vaccine transportation. They also require a strict cold chain transport as well. So the Pharmaceutical segment has grown tremendously from almost 0 up to 20% of the revenue today. And GAH is a fairly big company, one of the biggest one we have in the group. So it has a really good impact. So GAH are also, of course, continuously looking at new markets and segments as well. So this is something that we shouldn't forget. We don't stop here. This is the beginning. So going forward for the business area, we would like to enhance the value creation. You saw one example, there are, of course, more, but there is also more to do with all the business units that we have. Through our proactive ownership that Anders mentioned earlier, we can help the companies to grow even further. We want to continue to invest in growth levers, specific growth levers to facilitate organic growth, but still maintain a capital-efficient approach. And thirdly, we would like to strengthen the market cluster formation and also focus our M&A activities in the most attractive niches. Thank you very much.

Daniel, thank you very much. I can see the questions in the chart already actually. But one for me because I mean with your experience also from different areas, business areas and the models also you have experience of, what would you say would be the key areas now for you to improve given that?

I think that all companies are unique. So that, of course, has to be taken into account. But there are a couple of generic ones, so I mentioned maybe 2 of them, but pricing is definitely one that is very often overlooked and just automatically happens each year. So that's something where we can be smarter. I think also since we are acquiring product companies, it is important to have a look at also the aftermarket and service sales as these are margin contribution from that is really good as well. So those would be the top ones.

Thank you so much. Warm hand. Thank you. Thank you, Daniel. It's time now for me to present our next speaker. I think it's used to it, the people say, Michael L, Mr. Michael Lund, right. So welcome up Michael Lund from ELM, Managing Direct.

Thank you very much. So my name is Michael, and I work as CEO for the attachment company for forklift trucks. We are a manufacturing company with the base in Denmark. So our company, since our foundation in 1967, we have aimed for perfection in whatever it comes to the way we produce, how we design or how we promote our solutions to our European customers. That have been a key part of the reason that we today have grown our team to 200 people, mainly based at our 2 different plants, 1 plant in Denmark and 1 plant in the eastern part of Slovakia. Since 2022, we have been owned by Sdiptech. And today, we are part of the business area, Supply Chain & Transportation. As I said just before, the majority of our colleagues work from the 2 different plants that we do have. But in addition to that, we have an extended sales team based locally in all our key markets, able to support all our customers with local support. In addition to that, we have, over the past decades, been working hard to establish a close collaboration with all the OEM partners within our -- in our industry, the manufacturers of forklift trucks. That is one of the key reasons that we have been able to grow our business and one of the key reasons that we believe that we will also, in the coming years, be able to grow our business. Our products, what we do? Ever since the foundation of our company 56 years ago, our mission has remained the same, develop the perfect attachment to ensure an efficient and safe internal logistics and handling solution. Today, we have award a very broad range of different products to highlight a few of them, fork positioners that you use to move euro pallets, rotators in many different variations and in many different capacities. Clamps, many different variations and many different capacities for clamping, steel, paper, white good clamps, et cetera. In addition, in the recent years, we have developed a new business area within our business, designing and producing customized solution. Together with the forklift truck dealer and together with the end customer, we design and manufacture an attachment that fits perfectly to their handling need to ensure and unlock opportunity for a safe and efficient handling solution. Within the attachment business, there are 2 different types of attachments, hook-ons and integrated. The majority of our competitors have decided to focus on the hook-on attachments. Hook-on attachment is based on an ISO standardized framework. It unlocks the following advantages: high flexibility because it's standardized; fast delivery, because it's standardized; can be reused from one forklift truck model to another forklift truck model, because it's standardized. However, we, at ELM, have decided to focus on the integrated attachment. Doing that, it gives us a more complicated internal value chain to master. We need to modify each and every single product that we produce to the specific forklift truck to the specific forklift truck mast. We have decided to do that to unlock the following advantages: optimal visibility. I hope it's pretty clear, and this is real pictures. The more you can see, the faster you can operate. The more you can see, the more safe you can operate. So we are not just providing our customers with bended, painted, welded steel. We support them with improved efficiency and improved safety. In addition, the lifting capacity of the forklift truck will be increased. The turning radius will be lower, meaning that the racks in the warehouse can be closer together and there is a lower noise level. Our standards. When you are a customer to ELM, we make very much focus on to make sure that all customers understand that, as I said before, we are not just a supplier of bended, welded and painted steel. We supply all our customers with best-in-class when it comes to safety, quality and sustainable production. Safety. Safety have been key to us since forever. That's why for so long, it has been a critical part of our product development. With an ELM attachment, you will have the best visibility on the market and thereby safety. Quality. We don't aim to be the cheapest. We aim to be the best. We build equipment that will last from the coldest part of Norway to the dustiest part of Saudi Arabia. Our products will have -- are designed with a significant higher safety margin compared to the minimum requirements of the CE marking. Climate impact. Sustainability matters to us, and we know that it matters to many of our customers. Therefore, we have committed ourselves to measure our CO2 emissions and committed ourselves to reduce our CO2 emissions by 50% before the end of 2026 compared to the base year 2022. Our financials. We aim to be the best, the best within our niche. We don't aim for growth. We aim for sustainable growth, growth within our niche. We believe that's why we can achieve a significant higher operating margin compared to all our competitors. Before Sdiptech took over our company, we had, I would say, basic understanding of financial performance. We worked hard for a year. Between Christmas and New Year, we checked our bank accounts, we emptied our bank account and filled our pockets. After Sdiptech acquired our company, we got a more nuanced understanding of financial performance. Thanks to that, we believe that we now today perform at a better level. Based on this DuPont analyze, I will show you, our development. In 2021, the year before Sdiptech took over, we had an EBIT margin around 10%, a capital turnover just above 2.5% and a ROCE just above 30%. In 2022, our EBIT margin increased to 13%, capital turnover close to 3% and a ROCE 35%. 2023, margins just below 20%, capital turnover just above 3%, ROCE almost 60%. 2024, EBIT margin above 20% capital turnover, a word that we didn't know were existing before 2022, almost at 3.3 and ROCE 74% -- 72% sorry. Our ownership, we act independently, but of course, as a part of a group. Our success does not depend on our ownership nor on the performance from the other companies within the Sdiptech Group since we operate independently. But at the same time, we pay great attention to the group of companies that we now belong. We benefit from a stable long-term owner with a clear financial target and with valuable strategic inputs. The group's portfolio of companies offer us great opportunities for learning. Our journey going ahead hand-in-hand with Sdiptech. We support the M&A team at Sdiptech, and we support the business areas. We actively seek for business -- for M&A activities when we do our daily operation. We are the boots on the ground for the M&A team at Sdiptech. Companies that would fit into ours or companies that would fit into the investment principles to Sdiptech are shared with the M&A team at Sdiptech. Obviously, we have been able to improve our financial performance in recent years. Of course, we are very happy to share all our experience within our business area and actively take part to try to improve the financial performance for the other companies within the business area. This was my words, and I hope that you enjoyed a short lecture about attachments. Thank you for your time.

Thanks, Michael. Technical for that from ELM. Actually, now it's time for the Head of M&A. So please welcome Peter Helsing, give him a warm hand. Stage is yours.

So good afternoon, all. Anders talked about some changes that we wanted to implement, and that is also very true for M&A. We want to leave behind a mindset of overly focusing on EBIT and EBIT growth and adopt a framework more holistic view on value creation and cash flow generation. It's also important to not overpay, of course, as it is for many compounders and not necessarily in terms of the multiples we pay, but more in relation to the cash flow we get. I will take you through this updated framework for M&A today. But before that, I'm Peter Helsing, I'm the Head of M&A at Sdiptech. I joined the group in May. And before that, I was the Head of M&A at Essity. So when we think about changing the framework, it's, of course, important to not jeopardize what we do well. And that is, of course, to buy great companies. Remember, more than 70% of our companies in the portfolio have a return on capital employed above 50%. So we have acquired fantastic companies over the years. So looking at the framework again, the in-house value creation is super important. So that is one of the 3 pillars that we have when we think about M&A and value creation. And in-house sourcing, that is about finding great companies first. Secondly, it's about having a great home for entrepreneurs. So for us, it's super important to have a great package to bring to the table. It's not only about paying a good price. Thirdly, we need to be disciplined in terms of M&A execution. Anders talked about this, and it's very relevant, of course. And we need to be disciplined in many ways. So one thing is, of course, to be very disciplined in the way we -- the number of acquisitions we do and how fast we can run. So we have the ability to run fast, but we can never run faster than the engine. And that is, of course, the organic cash flow generation. We also need to be disciplined in terms of the price we pay, of course, super important when you do acquisitions. And then finally, we also need to be disciplined when it comes to the quality of the businesses we acquire. So what do we look for? Yes, we have the European footprint, of course. We have our core markets in U.K. and the Nordics and Italy, but we also see M&A as a tool to move into new markets. And we look at Germany, for instance, now, that could be a very promising area to enter. We look for niche players in well-defined segments and also supported by the cluster thinking. We look for innovative players with high barriers of entry, and we look for companies in resilient markets with low cyclicality and underlying growth drivers. When it comes to the financials, we look for companies with an EBIT of between SEK 20 million to SEK 50 million. We look for companies with a proven track record, and we look for targets with a return on capital employed of above 50%. Finally, it's very important with finding situations where the founders and the entrepreneurs want to stay on board and continue to create value together. So how do we do when we source the deals? I mentioned this is very important, and this is about finding great companies first. We do this in many ways. First of all, we have in-house capabilities. We have a dedicated team looking at roughly 500 companies per week. We have a lot of collaboration throughout the group through the business areas, but also with the portfolio companies to try to find good targets out there. And this is further supported by the cluster thinking. We have an in-house proactive outreach team. So this is everything from cold calling these companies, but also building long-term relationships. And we all have that hat on us when we think about the daily business. We think about businesses we can acquire and building these long-term relationships is, of course, key, not only for bilateral deals, but also for structured deals where the competition is higher, of course. And if you have a relationship already, you can get a head start. So by working in this fashion over several years now, we have built up a fantastic asset in terms of a solid pipeline. And as you can see here, we have over 800 companies in this pipeline, and we are actively pursuing this. It's also well balanced between our segments, and it's also well balanced between our markets. And here, you can see also Germany there, which is a potential new market for us. We believe that Germany can be a good fit for us. I will come on to why, but it's a very attractive market in many ways. It's a huge market, and it's also the biggest market for family-owned businesses in Europe. So how do we win the deal? For us, it's important to provide a great home for entrepreneurs. That is key. So we're not like many players out there. I shouldn't mention any names, but there are players out there taking over businesses, restructuring heavily, changing the management and then reselling the business after, say, 5 years. And we're not like an aggressive industrial player either integrating the businesses beyond recognition. So we offer something else. So we're basically a long-term ownership. That's what we're in. We have a buy-and-hold philosophy. And by that, we can create a lot of continuity for the businesses we acquire. We value the brand and the culture of the companies we acquire, and we think that the local identity that has normally been so important to building up the company in the past that, that also will be beneficial in the future value creation. We have our decentralized structure, of course, but we can get a lot of support for the businesses through the work with the business areas and the cluster thinking. And we provide also opportunities to collaborate between the different portfolio companies. Finally, I talked about the importance of aligned incentives. Here, we have a toolbox that we can use. And one tool is, of course, to use earn-outs. And if they are structured well, they can be very efficient. So looking at an example here, just to demonstrate how earn-outs can work for us. Going back to GAH that Daniel talked about before, we acquired in 2020, and it has been a very nice addition to the group. So it's a busy slide, of course, but I will take you through it. So basically, the way we structured this deal, it was a SEK 26 million upfront payment and then a potential SEK 14 million in a full earn-out situation. At the bottom of the slide here, you can see 3 different cases. So first of all, bottom left, you have the business case from when we acquired the business in 2020. The mid-case there is the actual outcome. And then the last case, there is a fictive case based on where the company doesn't perform at all or running at a flat growth in profits. So going through them one by one. Starting with the business case back in 2020, what we believe then was a profit growth of 7.5%. And with that, the purchase price was SEK 33 million in total, so SEK 26 million in day 1 payment and then another SEK 7 million in earn-out. Here, we had, as I said, 7.5% in profit growth with a cash conversion of 90%, and that translated into an EBIT multiple of 7x for the first day and then a multiple of 5.2x year 4. And then, of course, the most important figure there is the internal rate of return, which was 24%. So very good returns. Looking at the mid-section there, the outcome, very attractive. We actually paid out a full earn-out after 4 years. So instead of paying SEK 33 million for this business, we paid SEK 40 million. And this business also performed better in terms of cash flow generation. So the cash conversion went up from 90% to 110%. So then you can see that, of course, the day 1 multiple goes up from 7x to 8.5x. And the year 4 multiple there was still 5.2. So that's quite stable. And here, you can see that even though we paid a higher price, the return went up from 24% to 28%, so super attractive returns. And then the final case there, I think it's important to have it in there because it demonstrates how we can protect from downside risk. So here in this example, we didn't pay any earn-out because the profit growth was only 0%. We still have 90% cash conversion in this example. So the multiples day 1 was 5.5. And of course, it stays at 5.5 then year 4. And this is what's important. You still get the return we require, which is the 20% return. So even though the business did not perform, we got the returns that we want. Of course, when you look at all these 3 examples, you can see that the actual outcome was the most desired outcome. So even though we paid the highest multiple in that scenario, the return is the highest and the value creation is the highest, and that's what it's all about, of course. So key takeaways. Looking forward now in terms of M&A, what we focus on is the great capabilities we have in the in-house sourcing. It's about finding great companies first. We offer a great home for entrepreneurs. It's about finding win-win solutions where we can create value together. And finally, being disciplined in terms of M&A execution. And this is about finding projects with an internal rate of return of about 20%. And in terms of leverage, always having a healthy balance sheet and the leverage below 3x EBITDA. Thank you for listening.

Thank you, Peter, but we're not going to let you go. You mentioned it there. You just -- you came in May from Essity.

Yes.

And looking into the markets and your experience, I mean, working with the same thing. You mentioned the new markets. And I know this is not in the script. Sorry about this because I know you good. No, but I think Essity had when I was there, 72 markets operating on something like that. If you look into what you just -- if we look into what we just saw here, you were focusing a lot on Germany. Can you explain that a bit? And also why are new markets now important for Sdiptech at this -- where you are right now, why?

Yes. I think it's not straightforward in a way. I mean many compounders and other companies have struggled with Germany. But it's a huge market, a lot of family-owned businesses in Germany, so that's attractive for us. And then I think the model that we have, the model that I just described fits very well in Germany. But we're not only focusing on Germany. We can -- if we -- through our cluster thinking, if we find other opportunities in other markets, then we can move into other markets as well. So that's the way we reason at least.

I love the way you also said taking note there, super -- I've heard you saying that before through the year, super attractive...

What was that?

You said super attractive returns. I hear you also say...

Yes. yes. I can't do that.

Well, we're looking forward to that and more of those. Thank you so much. Thank you. Give him a warm hand. And now we will talk to somebody you know, and he's been with the company for a while now. So let me introduce to Bengt Lejdstrom, our CFO.

Thank you, Linda. Good afternoon. I'm Bengt Lejdstrom, the CFO of Sdiptech. And ever since joining Sdiptech in August 2018, I think it has been a really exciting journey, and I look forward to continue with that together with all my bright colleagues here. Before I start my presentation, I should apologize a bit since having the Capital Markets Day today. We realized that it was Thanksgiving yesterday, which means that some people interested may have a long sleep over today. But they can watch the full conference here on our web page later on as you can as well if you want to see some parts again. And as well, it's Black Friday today, right? So perhaps today is the last day you can buy Sdiptech share at a discount and let's see how it goes further. Right. So my colleagues have given you some insights in our operations and the way of working with M&A. And I will try then to tie it back to what Anders mentioned about our targets by looking on some financial priorities. So I have divided the presentation then into the growth, the leverage, the returns and then also the financial as a foundation for all of this. So let's start with the growth target. As Anders was mentioning, it's a total growth target. Previously, we had 2 organic growth and acquired growth. But now it's one consolidated target. But of course, still, it's very important with organic growth. So when we say that this is crucial for our future and is that just talking or can we prove that we actually have it in our numbers and in our companies. This chart to the left, each dot here showing a company that has been part of the group since -- well, it's actually data ever since 2020, regardless if they have been part of the group since 2020 or not. But of course, relating to data availability and also since its CAGR on that left axis, it's also companies with a positive CAGR. We have 1 or 2. Every group has that, that temporarily has a negative organic growth, but we work to support them to get back on track. So these are some very good examples then. And all in all, if you want to some statistics that for the core business units in 2023, we had a 14% organic growth, means excluding currency effects. And in 2024, it was 5%. So that's better numbers for the core business than compared with the total group. And what you also can see from this chart is that companies that we have in our sweet spot to call it like that, they've once having a profit of around EUR 2 million to EUR 4 million EBIT have a very good growth as well. So we really do believe that we have great companies out there that can continue to deliver an organic growth, even though our target is a total group growth. And for those of you who are worried that we will stop reporting on that, we will not. We will continue to report on organic growth, of course, both when it comes to sales and EBITA. So you can follow-up how things are doing. So we think we have a very solid foundation for that part of our total growth target. The other part is then the acquired growth, and Peter has mentioned how we work with that and what's important with us -- for us with the returns. It comes some financial characteristics to these things when we talk specifically about the conditional debt or the earn-outs as we typically call them. It's an important part for us. It minimizes the risk if something doesn't turn out as expected, but it also gives the seller an opportunity to really earn some good money if things turn out very well. So -- and I guess many of you understand the model. But just to give you an example then on the left here that if we value a company to, say, SEK 100 million, for example, day 1, we may agree then that we pay the entrepreneur 19. We keep 10 as a potential consideration in the future. If things turn out as expected as they are at the time of acquisition. Let's say, we expect this company will grow 3%, all right. So as long as they meet that requirement and have a growth journey of at least 3%, we will pay those 10 eventually after the earn-out period is over. And if they didn't succeed, of course, they don't get that money. So that's the downside protection. Could be constructed in some different ways, but basically. But of course, most entrepreneurs, they want something more than just this. They want to have the opportunity to earn more money, so they want an upside. And for us, we have decided to have a little bit longer earn-out periods than many of our colleagues. Typically, you have a 2-year perhaps earn-out, 3 years at the maximum. We very often work with 4- to 5-year earn-out periods. And it has some advantages and some disadvantages, of course, as everything. The advantage being that we have the entrepreneur on our side and working and we get to know the company, we can have a succession in an orderly manner and so on. The downside is perhaps the same thing. We have the entrepreneur on board for 5 years, which means that some changes may take some longer time. And when the entrepreneur eventually leaves after 5 years, we may have a gap to close there when it comes to some investments or so. But we try to monitor this in a good way. If things turn out well and the company has earning more money than expected, more than the 3%, in my example, then the additional -- well, in this case, up to SEK 25 million could be paid out. And we're really happy and glad to pay out earnouts because that means that everything has succeed in a very good way. So to summarize, it's a good way for us to minimize the risk to have a downside protection and give the seller an opportunity to earn more money. And it's also, for us, a way of funding the actual deal instead of paying more upfront to say that, well, I will at least increase my business with 10%. So I want a higher multiple day 1 and we pay that, we can push that payment further ahead. So it's kind of a cash-free debt. We don't pay an interest on it. And so it's an important source of funding that we push that payment forward. But it has some implications for our books and bookkeeping, and I will come back to that. But all in all, we have investigated this model, and we will still continue to use earn-outs as an effective tool for us. Then looking at the other target, leverage. Previously, we have had a target about financial leverage, excluding these earn-outs. But since we are very much an acquisitive company, acquiring companies all the time, why not have also debt associated with that process also in our target. So our target now, the 3x to be below 3x is an all-in debt leverage. So everything that's interest, we pay interest on or as with the earn-outs, as I say, we don't pay it, but we book it. So all interest-bearing debt is included in this one, whether they are earn-outs or leases or anything else. To the left here, you see the development of our leverage over the years since '21 when this starting and what has affected the curve? Well, we have had a very aggressive M&A agenda sometimes. So you see here in the first 2 years, '21, '22, leverage going up. But then again, we acquired perhaps 30% of our total earnings in a year. We were at SEK 160-plus million per year in acquired profit. Of course, that strengthened the leverage. And we have also had some years with a bit slower organic growth, especially in '22 and '24, which then affects this curve as well. And through the years, we have done a couple of new issues of shares in order to bring the leverage down a bit, 3x since I joined and, on this chart, it's twice in '21 and '22. And of course, that brings leverage down. But that is not our plan or the strategy for us now to keep the target. So I don't think that we will issue shares every now and then to make sure we stay below the 3. That's definitely not in the plan. We are going to manage this with our own cash flow and operations. So as I said then, to drive the leverage a little further down, as you see, we are a little tiny above the 3.0, work with the organic growth, make sure the organic growth results in a good cash flow and then be selective, as Peter was saying, when we acquire new companies. That will make us really reach our target. Of course, from time to time, if we make a bigger investment, a larger acquisition, temporarily, that can make the leverage go up a bit. That's because we take on the debt. We take on the conditional debt also day 1, but we haven't got the profit yet. So typically, part of this conditional debt, now it gets a bit theoretical, part of this conditional debt would not be paid out if profits stay where they are today because they require and assumes a higher profit in the future. So if everything just stays as it is, we can release some debt and the leverage go down then, of course. One then important component of the leverage is the cash flow. Cash flow is important for us. It gives us flexibility to invest in different things. Here, you see the chart on the left here showing the free cash flow per share. That's the yellow line and compared with the earnings per share in the black line. Two different KPIs based on two different -- very different things. Historically, they have been impacted both on higher interest rates, meaning higher interest costs, put more earnings into high tax countries, U.K. and Italy, for example, and also some periods of a bit slower organic growth. The EPS curve, it doesn't really follow the free cash curve. And one reason for that is that, again, with these earn-outs, which we book as debt, we need to put the theoretical interest rate as well. And that hits the P&L. It's not tax deductible, of course, and so it goes all the way down and hurts the EPS. Currently, it's quite substantial then with SEK 6 per share. So this is the historical development. But in the future, we will continue to improve the free cash flow per share. That's very important for us. And that gives us the strength to do acquisitions, but we, of course, have to be careful there. We will work to improve the working capital efficiency. We mentioned the projects that we do from a central perspective and supporting our companies to help them to be more efficient with their working capital is, of course, one, make more inventory management, for example, and other types of initiatives. We will also be selective in our CapEx spending when companies want us to bring in some money for them to invest in something. And that leads me over very soon to the next slide. But just to summarize the cash point then that we want to stay at a high cash conversion as we measure it between 70%, 90% of all the profits we make will be generating cash in the pockets. Currently, we're at 81%. So talking then about the investments and spending the money, the free cash flow give us. The free cash flow, I should have mentioned, the KPI includes CapEx and paying leases, but the cash flow before the CapEx gives us some different opportunities. You have already seen this chart now in some of the presentations, the DuPont. And here is our core business units, at least the ones acquired before 2024 and those -- and excluding those that have a negative capital employed, that is, of course, very good. If you have a negative capital employed, your return are -- yes, you cannot measure it. And we have a couple of them, thanks to a lot of prepayments, for example, from customers. But most of our businesses have, of course, a capital employed. And here, you see the return on that. That's the lines. And it's a combination, as not least Michael Lund described, of EBITA margin and capital turnover. And actually, our average, I think Anders you twisted the numbers around, it's 64%, not 46%. But -- so all in all, a weighted average of all our operating core business units have a 64% return on capital employed. And then you say, well, in your reports, you say 12%, 13%, how come? Well, on the group level, we had all the goodwill and immaterial assets that we need to book when we acquire something and that return on capital employed becomes much lower number then, of course. And that's a more slow-moving object. But that is our target is to bring that slow-moving object up to over 15% that may take a little time. Sorry, since it takes longer time, of course, to improve the KPI that has in it about SEK 8 billion of capital employed compared to supporting the companies that have a much lighter balance sheet. But doing that, we will, of course, improve the full group's return on capital employed. So coming from a situation with a strong return, we then see how should we then spend the money our free cash flow has given us. And well, depending on then where the companies are in this picture, where should we put the money? Well, to start, the business unit needs to have a solid position to start with. So it's not in any turnaround situation. But if it's a solid return already, but could be better, cash flow steady to generate cash for the investment and of course, a clear business case to generate the profit, then we could discuss. And then we could select for a company over here with a very high margin. Of course, it's get better outcome to work with the capital turnover because that gives an increase in the return. On the other hand, if it's a company with a very high capital turnover already, it's better to work to improve profits and profit margins to increase the returns. So it's a simple tool. And of course, we have been using this in our minds for a long time, but just wait to show it more explicitly. So that was the targets. And then going to the financing then is a foundation to be able to deliver on the targets. And this is very illustrative model of our funding. We have a cash position today over here, about SEK 600 million in our pockets as of September and also then, of course, utilizing credit from our financing partners. Then over this period that we will deliver on our targets. We will have cash flow coming in from operations. We have also unutilized funding headroom from our credit providers, all in all, giving us what we call a financial headroom that's quite extensive for this term. And then we spend the money on M&A, the main thing, but also selective CapEx and leases. So we think our -- when we say that these are our targets, it's to double our earnings in 5 years, keeping the leverage down and the return up. We have simulated and we have proven it in that it works also from our financing position. Again, then which means that we don't need to ask you for more money in an issue, we can manage this on our own. So summarizing the financial perspective. Organic growth is key for all of our targets. So we will continue with that. Cash flow, of course, to get cash to utilize for acquisitions or the other selective investments, work with our M&A model, continue to enhance that one, but also be very selective and look on the IRRs as an important KPI for selecting which company to acquire. And then also in the foundation to have a solid financial capability going forward. So thank you very much.

Thank you, Bengt. And we do have questions coming in, but we'll take them later. Thank you. And now it's actually time for CEO, Anders, to come up and wrap summarize briefly what we have seen here today, all the presentations. And after that, I suggest we do have the Q&A.

Great. Thank you, Linda. Yes. So as Linda said, before some Q&A, I would like to summarize what you have been listening to here today. The first one that you've heard about is Sdiptech has a strong position within our key infrastructure segments. We see clear growth driver for each of those segments. You also heard the business area talked about the underlying drivers. A strong core portfolio of high-quality companies. You've been able to listen to some of the examples here today and also listening to Michael from ELM, talking about the company that we believe is one of the really core companies we have in the group. The organic growth agenda will be built on our proactive ownership. We gave some examples and also the focus on return on capital employed. We have talked and given you some example of where we have strong focus on the return on capital employed, but that's not all the companies. We have more to do, just to give that clear for everybody, and that we want to apply the thinking that we have showed you here today as well. Our M&A growth will be built on -- continue to build on our in-house sourcing capabilities to supporting the business area, but also to be focused and disciplined in the valuation in the coming years. And finally, then, our financial targets. They will be focusing on, as Bengt also said then on the total growth, improved return on capital employed and a healthy balance sheet with a leverage below 3. So that is the short conclusion, the summary here, and I think we can open up for questions.

Thank you. Thank you, Anders. Thank you for that summary of what we've just seen today. We have a few questions coming in online, but because I think of courtesy, yes, thank you, Peter and Bengt to get up. Out of courtesy, if we have any questions in the room, you are here in Wallenbergsalen, so you should get the first questions while I get my questions here on the iPad, if we can get some technical support there. Yes, please take the microphone next to your seat and it would be lovely if you want to present yourself as well, where you come from and your question. Thank you.

Nice. Max Bacco from SEB. So perhaps starting with, I mean, to my understanding, the key message here is one thing to do better and a more prudent and disciplined approach in terms of capital allocation, in terms of CapEx spending and net working capital management. And I thought it would be interesting to hear your view on how long does it take to fully implement that thinking throughout the group? And I guess, Bengt, your experience from your previous employer also could be interesting on that topic.

Yes, I think I can start a little bit and then you can take over then. But I think as Michael showed from ELM coming in with a focus in 2022, it can happen quite rapidly if you put in clear targets on what you would like to achieve on the capital side. So I think from that perspective, but -- yes, it needs to take a strategic period, 1-year, something like that before we can fully implement that. But we are not starting from scratch. All the business areas have had this in mind, and they have started to talk about it previous years and also now more in this year for the next year.

And to add, I mean, if we start with the Sdiptech journey when both Anders and I joined 7 years ago, we did that strategic rethinking and which have led up to the position we are today, and that takes time, as you realize, it's now 5 years or even more since then. So it takes some time to turn around the ship. But also experience from our previous employers in the business, also, for example, going from distribution to product-based businesses takes a number of years. But this is what we do now. It's more an update and gradual shift. It's not the total 180-degree turn.

Do you want to follow-up?

Yes. A separate question, a bit more short term. Anders, you mentioned in the beginning that the plan for 2026 was partly to start this transition, but also to return back to organic growth. And on the organic growth part, is it that you see that the market more broadly speaking, is recovering? Or is it more an effect of the initiatives that you have implemented throughout 2025. What's your -- what are you seeing there?

Yes. Just a comment on the 2026 for us as well. So the target of the 15% per year is going to be organic and M&A. So next year, we will come in with a lower M&A growth to start from. We need to start acquiring more for next year. So let's see what that can come in, in the year. But from organic, I think it's both actually that we see now we have a lot of budget discussions with the companies for the next year. It looks better and looks more positive for many of the companies. But also, I think we have been more focused on where to push for growth and not. And we see clear opportunities in some of the companies that here we can focus a bit more on growing as well. So a combination, I would say.

We have to -- thank you. We have one more question from the room. Thank you, guys. And there's actually questions coming up here to you, Sarah as well. So if you want to step up, I see that questions coming in. So just so we're prepared. Yes, please go, next speaker. There's a microphone on each seat. Unfortunately, so if you all want to -- just go.

A bit of a technical -- maybe a philosophical question because you have such a big U.K. exposure, which is quite different from many of the other compounders. I don't know what the profit is, but maybe half of your profit is from U.K. And I mean, it happens to be that the British pound is down like 11% in the last 12 months and share price is down 19%. So it could be coincidence, but there's a big correlation to the GDP. So what are you thinking in terms of geographical diversification? I mean, you obviously like U.K., but are there any like ideas on exposure to certain countries?

Well, I can start with the financial part of it, and it's very true, and we had last quarter, almost 5% negative currency effect, as you saw, half of it coming from U.K. and the 10% there means 5% on the group. Of course, we take -- consider that going forward with hedging and so on, but it will affect us also the Q4 and Q1 to a large extent since that's still very tough comparisons with last year. But to your question about if we like U.K. more than others, it's -- we like U.K. because they have great opportunities for infrastructure business. We know even the U.K.-based investors ask us why are you so much in the U.K. But we are not in consumer business. We are not depending on that. Our companies more follow the need for upgrading and renovating and expanding the infrastructure. So they seen obviously a very good track record, and you have heard some of the colleagues mention a number of them. But it's not an over ambition in itself to become bigger in the U.K. No, it's to become bigger in the other geographies.

And just to add to that, I think, I mean, Roger, as you heard here, has been our M&A person in U.K., and we've been very successful. So it's been easy for us to continue to acquire and also leads coming into us more regularly, and we are becoming more of a well-known player. But definitely, Peter will try to focus as well equally in the other countries as well to make us more -- less dependent on U.K. definitely.

We will stay in the U.K., but you were from SEB, and you are from the last question we got from. Okay. Thank you. So we have a question now to Sarah and in Parenthesis, Anders. Can you please discuss AMP8 in U.K. This is a GBP 100 billion investment plan for water infrastructure. This one is much larger than the last one.

Should I start -- yes, we know there are several investment initiatives going on in the Water segment, and that's also what we see, for example, with our company, Auger there. Who's experiencing and that's also the collaboration I discussed previously with Topas. So that is one initiative, and we also see investments all over Europe with one just recently being launched together with the European Investment Bank of EUR 50 billion. So it's an interesting opportunity for us, but we also see opportunities in all the European countries.

There was actually one more question. You guys have the same question. So to [indiscernible], thank you for your question, but I think it was answered otherwise, e-mail and blame me, but it looks similar. So we continue here. And this one is to Bengt. You distribute SEK 8 share per year after tax earnings to your preference share. Your redemption price is SEK 105 per share. Thus, this financing costs 7.62% and is not tax deductible. More cost-efficient financing should be available for Sdiptech. Have you considered redeeming the preference shares? I think...