Sdiptech AB (publ) ($SDIPB)

Welcome to Sdiptech's Q1 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Anders Mattson; and CFO, Bengt Lejdstrom. Please go ahead.

Hello, everybody, and welcome to Sdiptech's presentation for the first quarter. I am Anders Mattson, CEO of Sdiptech, and I will be presenting here together with our CFO, Bengt Lejdstrom, today. A short intro to the group as usual. Sdiptech acquire, develop and create a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 32 companies in the group, and we operate in a decentralized structure, and each company is responsible for the day-to-day operation. But from last year, we have also added more guidance and support in what we would like to prioritize strategically from the group level. We divide the group into 4 business areas. Each segment has a clear and structured underlying growth trends for the future. On a rolling 12, Sdiptech as a group has SEK 4.5 billion in revenues, SEK 964 million in adjusted EBITA and an adjusted EBITA margin of 21.3%. And these are the numbers for the core operation, excluding the companies that are being divested. A short intro -- sorry. To start with, I would like to give you some highlights to the quarter as well. On a strategic level, we have had a good progress. We've been able to divest 9 companies in the quarter, and now we have only one more to go. This one is targeted to be done during quarter 2. Thanks to good cash flow position, we decided to repurchase our preference share in the quarter for a total value of SEK 184 million. Financially, we are satisfied with a stable organic sales growth of 7% and an organic profit growth of 4% in the quarter, showing a good demand for our products and services. We still experienced a strong currency headwinds of minus 7%. Both in Energy & Electrification and in Safety & Security, the demands have been strong with plus 15% sales growth, excluding currency. The cash conversion in the quarter was poor, primarily due to timing effects. We had high sales in March, which has increased accounts payable quite a lot. But rolling 12, we are still at a good level above 80%. Our priorities going forward, to support our companies in growing smart and sustainable, we need from the past that we need to be careful with our working capital and CapEx requirements when we are growing with the companies. We have a good pipeline in place, and the focus is to convert the opportunities into signed deals. And we have a good cash position, but we will continue to be selective and disciplined with the coming M&As. I would like to follow-up as well a little bit more on our strategic work we initiated last year. The first one is around portfolio management. I already mentioned the progress with our divestment, 9 companies sold in the quarter. We achieved an enterprise value of full year EBIT 6x for these companies, which is in line with our expectations. These companies were sold to different takers. We sold 4 companies to an industrial group similar to us. We sold 3 companies to -- in a cluster to a private equity owner, and we supported 2 MBOs. The 9 companies resulted in a one-off cash contribution of SEK 258 million. We also had a capital loss of SEK 84 million due to higher book values compared to what was realized. And it's important to remember that we had an opposite situation in Q4, where we actually had a capital gain of roughly SEK 60 million. The last company that we are divesting is planned to be divested in quarter 2. We also continue to be more prudent on which companies to allocate CapEx to, based on our updated framework, which we divide the companies into different group based on the CapEx need. We have a segment that we call the strengthen bucket and CapEx should be allocated to fix a specific problem before we do anything else. We have the harvest companies, we should be restricted with CapEx here, and it should mainly be for maintenance purposes. And we have the accelerate one, where we invest to reach growth opportunities. And this is working good in practice for us now as a group. And we are at a run rate of 3% of revenue in CapEx, which is in line where we should be. We have another important strategic pillar as well, and that is what we call proactive ownership. We decided last year to increase focus on return on capital employed and all our companies in the group have a target that they should reach. This is a long-term shift for us in focus and it's something we are implementing carefully. Our financial target is to reach about 15% in return on capital employed. In this quarter, we reached 12.8%, which is an increase from last year in the same quarter of 12.5%. But in this quarter, we know it was negatively affected by the capital loss of SEK 84 million from the divestment. If we look at return on capital employed for our operational unit itself, it's stable level around 63%, and the majority of the companies are performing well. Then, we're coming into the financial development. When I'm presenting the numbers, we focus on the core portfolio, which is our remaining portfolio. The companies we have sold in the quarter contributed roughly with SEK 100 million in revenues and SEK 5 million in adjusted EBITA, and they will not be part of the group from quarter 2, as we know. So the core portfolio, good net sales development in the quarter as a result of strong demand overall for the group, 7% organic net sales growth, only 1% growth from acquisition as we didn't acquire that much last year. The currency effect, negative 7% is still substantial in the quarter. From next quarter, we foresee the currency headwinds to ease in the comparable numbers. In the quarter, we had a strong development in Energy & Electrification and Safety & Security specifically with about 15% net sales growth, excluding currency. And there was a strong demand from several companies in these business areas. It's also positive to see a 4% net sales growth in Supply Chain & Transportation, excluding currency, which is indicating that our largest business area is also back to growth. We don't have any significant changes in our geographical distribution of sales. U.K., still our largest market. Proprietary products is at the same amount as previously with 67% of the total sales. Coming into adjusted EBITA numbers. In the quarter, adjusted EBITA came in at SEK 241 million. Organic growth was solid at plus 4%, excluding currency. Here again, of course, we had a large negative effect of the currency minus 7% on the profit as well. Strong adjusted EBITA development from Energy & Electrification and Safety & Security, driven by volume growth, but also a favorable mix between the companies. The margin of 20.8% in the quarter is a slightly decrease from last year, but that's primarily the reason is the weaker margin in Water & Bioeconomy in the quarter. If we look to the right, adjusted EBITA margin development per business area. Supply Chain & Transportation had a flat margin development around 17%. We still have some delays in the factory expansion in the U.S. from our Finnish company, Hilltip. We have also initiated pricing projects in 2 larger units as we see big potential for the future. In Energy & Electrification, EBITA was up to 29% in margin. Our company Phase 3 have had a strong momentum and the high margins are affecting the business area positively. Water & Bioeconomy, EBITA was down to 21%. We have a number of companies that have been too lean operationally and organizationally, and we've been needed to take some actions to that. Safety & Security, EBITA up to 34%, strong momentum from several companies and high proportion of software sales is affecting those margin as well. So with that said, I'm handing over to Bengt.

Thank you, Anders. And then let's look a little bit closer on our cash flow and cash conversion. Looking at the upper graph there, you see the free cash flow. That is all the cash flow from operations and the CapEx spending and amortization on leasing that has developed on a 12-month basis per share, the orange line. And then the black one is the earnings per share also on a 12-month basis. And as you can see, both of these KPIs, they decreased a bit from year-end in Q4, but still higher than last year. And the decline was -- comes to the free cash flow because of the buildup of working capital. And the earnings per share was affected then by the capital losses for these divestments. But that was, of course, a temporary one-off effect on the earnings. Looking on the cash flow in more detail, you see the chart on the bottom there, where it's quarter-by-quarter how the cash conversion has developed. And in the middle, the dotted line is then on the last 12-month basis, which has been pretty stable within the range that we aim to be between the 70% and 90% on a 12-month basis, but going up and down because of the season or -- and other things. In this quarter, we saw a buildup of working capital on a few different items. We saw an inventory buildup, both for the season itself. Some companies that have their main sales during summer and autumn, they build capacity in their inventories now with finished goods, but also we invested in some raw materials in some companies to avoid future price increases or the risk of increased prices at least because of the situation around the world. So that was a decision. We also saw an increase in accounts receivables and short-term -- other type of short-term claims. And that's mainly because of a lot of the sales were taking place in the later part of the quarter, orders coming in at the beginning of the quarter, orders that were a bit delayed from last year, but coming in this quarter being delivered later part of this quarter. That meant a buildup of accounts receivables. And then we also had some revenue recognition in larger projects that took place during the quarter, which also then is a buildup of the working capital. For example, deliveries of trains in our Italian company who deals with grinding of rails and trains for grinding. So that was more temporary, you could say, effect during this quarter. But all in all, looking at the 12-month basis for the cash flow, it's very stable, as you can see from the chart. If we then look at another KPI, the leverage, and the leverage has continued to decrease. As you can see in the chart on the left-hand side, we were up about 3, 3.3, almost 3.4 last year, but took a decision really to get it down under 3 here during the autumn, and we have succeeded in that. And we stayed well below although we did the redemption of our preference shares here in March. So 2.8 then as a leverage, all in all debt, earn-out provisions and leasing and everything. If we exclude the provisions for our future earn-out payments, the leverage, what we call the financial net debt leverage is 2.09, also a good stable development downwards. The capital -- return on capital employed, Anders touched upon already. It was a decline from last year Q4 due to the capital losses, also it's a one-off effect. So that one will bounce back. And looking at the operations themselves, as you can see in the curve in the middle there, going from 61% '23 up to almost 64% now. It's very stable across the operations, very good return on the capital employed out in the units. The difference between these 2 KPIs is, of course, all the goodwill and other acquired material assets. And the top line there at 82% on a 12-month basis in the quarter is the return on our working capital, which is also a measurement of the efficiency in the companies, which we think develops very good. So that was just a brief dive into some of the KPIs. And then back to Anders again with the business areas.

Yes. Thank you, Bengt. So starting with Supply Chain & Transportation, our largest business area, had a stable performance in the quarter. Net sales growth of 4% and adjusted EBITA growth of 1%, excluding the currency effects. It was a strong performance from our Danish company within truck attachments after a much slower last year from this company. The result is negatively affected by 2 businesses primarily. Our company Winter Road Maintenance, Hilltip. As we have said in last quarter as well, we have invested in an improved factory and organization in the U.S. to be able to serve the North American market locally. The cost for this action is still high relative to the sales we achieved, but the situation will be improved during the year as the order book looks stronger, and we now have a stronger momentum in getting the product out from the factory. Our company within Port Automation, CERTUS, still have challenges with turning orders into sales, which is affecting the business area in quarter 1 as well. But overall, we are optimistic for the full year as orders are good and several companies in the business area are performing strong. In the business area, we are also glad to add a new acquisition, Rail Safety Systems. It was actually in last week, they came into the group. It's a company based in the Netherlands, revenue around EUR 6.6 million with a good profitability. The company develops and supplies patented magnetic safety barrier systems used when around railroad maintenance work. So instead, as you can see on the pictures there, so instead of digging and interfering with a foundation under the railway, this is a smart and efficient system that is based on the magnetic placing them on the sites, as you can see. The company has a strong position in the European market, serving railway infrastructure like Deutsche Bahn is a typical customer and can also be contractors around the maintenance work. It has a strong link with our Italian company, Mecno, who is doing rail grinding equipment, and they serve the same customers. So we look forward to continue developing the company as part of the Sdiptech group. Then we are coming into Energy & Electrification. Energy & Electrification had a very strong quarter, high growth numbers, both for sales and adjusted EBITA. It's a strong demand and development for several business areas or business units in general, and we prosper from strong competitive products and solutions. We had a specific strong development within following applications. It was a cold winter with strong sales for our company, HeatWork, offering heating solution for frozen ground for all kinds of work that is needed during those time periods. Energy efficiency and upgrades in supermarket segment for cooling applications, our company RDM had strong and are in a strong momentum. Many upgrades improvement still drives -- driving from the energy efficiency perspective. And we also have electrification in the U.K. with Rolec performing at a good level. From a margin perspective, our latest acquisition in the business area Phase 3 is supporting the margin uplift and it's supposed to continue that way as well. Then, coming into Water & Bioeconomy. The business area had financially a weak development. Net sales growth is minus 1%, currency adjusted, which is, of course, not good, but still indicating that the challenges are more on the cost side. On a positive side, returns are at a high level, above 100% return on capital employed within the business area. We have negative effects from a few business units that is undergoing a strategic update. In general, as I already mentioned, we have been quite lean operationally in some of the companies. In the chemical cluster, for example, we have invested to adhere to updated environmental requirements in 3 of the business units. We have also 3 new MDs currently onboarding. That means double costs and also some efficiencies, at the moment. We have also our Italian company invested in additional production capacity in our sludge treatment company, and that will take off later in the year with improved volumes. So all in all, it's not a short-term fix, but with higher volumes, the margins will start to recover during the year. Then, we're coming into Safety & Security. Safety & Security had a very strong quarter with high growth numbers, both for sales and adjusted EBITA. We see strong demand and development in several application areas. The security for data center, we have mentioned it now, the company Eagle have had strong development and continue so. Clean air in hospital for gas evacuation have had a very strong last 6 months and in a very good momentum. And secure communication, as we know, is on top of many agendas, and this company as well within our group is performing good. The improved profitability is largely thanks to a better product mix, and it's also been a higher proportion of software sales compared to previous year. Then, we are coming into M&A. From an M&A perspective, we are on track to increase our M&A activity for the year. We have a good pipeline, and we have good discussions ongoing. We didn't close any deal in Q1, but Dutch rail safety company, RSS, it was closed in April. Our current cash position is strong, but we are aware of it, and it's important to continue to be selective and disciplined, but we look forward to ramping up a number of deals in the year. And then on a final note to summarize the quarter today. We had a stable development in quarter 1, although we have some companies that we are working on improving. Strong development from Energy & Electrification and Safety & Security that we foresee to continue. Overall, we have a continued positive outlook. We have a good order book for the coming months for several companies in the group. Of course, the strategic initiatives, it has been a very good momentum, and they are almost completed, and we look forward to close the latest acquisition in Q2, if everything goes according to plan. And we are having good discussions ongoing, and we are looking forward to more activity within our M&A work. So that was all from us, me and Bengt, in the presentation, and we open up for questions.

[Operator Instructions] The next question comes from Anton Ingves from Nordea.

Starting off here within the Energy & Electrification. You stated that some of the units here have performed very well. How large is the effect here on the margin improvement from this single unit, so to speak? And can you give any hint on the organic growth here in the segment for the quarter?

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

No, it's only one -- well, I'm talking about the organic also. It's only 1 month that was not organic for this acquired company. And the Phase 3 that we acquired last year, so that was very little. So almost everything of the development is, of course, organic. And when it comes to the margin development, again, it's this new company that has a high margin that, of course, then improves the whole business area, but also some of the other units had a good development. So overall, a good quarter, very good quarter for the business area.

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

From the order intake side, it's been a strong order intake from last year, quarter 4 in the business area. So it was primarily GAH that came in and had a much higher order book coming into the year. And yes, the effect was that it was delivered quite a lot in March, not stable January, February, March, but it is still a very strong order book. So yes, that momentum, let's say, of delivering on a strong order book, it's for many companies in the business area. So yes, that's positive from that perspective. And we feel comfortable that it's -- the growth will continue then for the business area.

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

It's actually -- no, it's not anything that is implemented. We have seen a big opportunity to work with prices more efficiently. So we're actually driving in a pricing project, not only within this business area, we are targeting 4 companies to start with and 2 companies are within Supply Chain & Transportation. So it's -- we're using external support as well for a framework for price increases and how to work with that long term. And this has been now starting up during Q1. So there's no effect from that right now, and that's more of a long-term effect that we will see working, let's say, more proficient with pricing going forward.

The next question comes from Max Bacco from SEB.

Perhaps starting with Water & Bioeconomy, that specific segment, which you mentioned here during the presentation, had a bit more challenging quarter. But you mentioned also that with volumes, you expect profitability to improve during the coming quarters. Do you expect to be able to match the profitability that we saw during 2025 for Q2 to Q4? Is that possible in your view?

So I think from a volume perspective, yes, it's our Italian company, they invested in a new production facility. They have 2 -- one. They are adding a third one. So they're building up small production facilities, let's say, closer to the customers. So we are taking the cost for the investment, but volumes need to come in to be able then to get the benefit from that investment. And that we foresee coming during the year, definitely. On the margin side, in general, as I said, we have felt that we have been a little bit too lean in some of the companies, higher requirements coming into the chemical cluster as well. So these actions that we need to take is not that we are fixing something and then the margin is going to come back. This is going to be a little bit more that we are adding cost to be more proficient and long-term focused for these companies. So it will be challenging to come back to those quite high numbers part of last year in the business area.

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

Well, it's more to be precautious and take some opportunities to do an efficient procurement here. So, yes.

The next question comes from Stefan Knutsson from Redeye.

First up, a very impressive development within both Energy & Electrification and Safety & Security. Do you see this momentum as a structural long-term driver? Or was there any onetime effects that we should be careful to extrapolate?

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

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

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

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

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

The next question comes from Carl Korsheden from DNB Carnegie.

Just a question from my side on the demand overall. We have seen now an upward trending organic trajectory here now for 3 consecutive quarters. I'm just curious to hear a little bit more when you talk about your or when you talk as to your current businesses and the orders that you are seeing, would you expect this upward trending, I guess, organic trajectory here to continue over the next couple of quarters? Or is there anything here in terms of comps or similar we should keep in mind?

No, I think it's a positive momentum in several of the business areas and the companies. It is -- I think, it's important for us to see this now the good momentum and to work disciplined with it, of course, the working capital and the CapEx and to make sure that we are doing the right thing to take, of course, the opportunity to grow with the market development. So in short, no, it's a good momentum that we foresee to continue. But of course, looking then at Water & Bioeconomy, we are having some challenges with some of the companies there as well. So that's -- as we saw in quarter 1, it was affecting the total. But definitely that our mindset is that we will manage, we will work with these companies. And overall, it's a good momentum in the entire business.

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

Yes. I think, definitely, the situation primarily in Supply Chain & Transportation last year where they were wanting to place the order, but they were hesitant because of uncertainties. Yes, these orders are now placed with us. We have the orders, let's say. It's a little bit maybe, as I said, in CERTUS, the Port Automation company that the larger ports could be a little bit hesitant to, let's say, what's coming later in the year. But no, it's nothing that we really count on at the moment. So the delays in placing order is over, let's say, then from that perspective.

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

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

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

We think that's more -- was more now. But yes, it's still also in Q2, some of the seasonal companies continue to build the finished goods or semi-finished goods for deliveries during second half, especially a company like Hilltip with their snow -- salt spreaders and snow removal equipment, they sell most of their equipment during late summer and autumn. So still some of that, but that's kind of a normal seasonality on our cash flow. So shouldn't be any unusual things.

[Operator Instructions] The next question comes from Simon Jonsson from ABG Sundal Collier.

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

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

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

Yes, we have definitely plans for closing in Q2 then. That's what we prefer to do. One more. It's -- yes, it's already end of April. But then adding, let's say, definitely then Q3, Q4 more companies. We have the capacity, as we have said, for high volume M&A growth, of course, this year. But yes, as you said, the complete ramp-up will be 2027. But if we are coming in between 4 to 6 acquisitions this year, that will be something that I foresee good for us.

All right. And that would mean also that you balance the gearing below 3x or maybe upside from here? Or do you think that we should expect you to be at these levels? Or how does that pace translate into the gearing?

I think, it's definitely that we would like to be below 3. That's our long-term target in the leverage. So yes, we need to be careful about that, how we ramp up the M&A over the year. Definitely, we have that in mind for sure.

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

And we have one question in the chat, in the feed. But I think we have answered that one already. It was regarding orders in the supply chain area coming in, in Q1 and being delivered now or in Q2. But I think we have answered that already. So no other questions in the feed.

Okay. But if it's no more question, then thank you all for listening in and good questions. It was -- yes, good discussions here today, and I hope to see you next quarter as well, if not before. Bye-bye.