Ladies and gentlemen, welcome to the Sdiptech Q4 report 2018. Today, I'm pleased to present CEO, Jakob Holm, and CFO, Bengt Lejdström. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Speakers, please begin.
Good morning, and hello everybody. This is Jakob Holm speaking, and, together with me, I have, as always, Bengt Lejdström, our CFO. I think we can move forward directly to slide number three. In addition to the year-round update today, we also want to present and introduce new business areas that we will establish as of January this year. It's an important step for the group, to start off, we also want to walk you through the market trends that also drive the demand Sdiptech and to our business. With that said, let's move forward to page number four. There is a lot happening in infrastructure. It is on top of the mind for all major organizations and countries across the globe. It's a main objective within the sustainability goals of the United Nations and also unifying issue across political boundaries.
The trends are deep and unquestionable. Our infrastructures are aging, and there is an increasing demand to rebuild vast infrastructure systems. Let me give you an example. In Europe, there are 45 billion L of fresh water leaking due to leaking pipes. This corresponds to the water consumption of 200 million people in the Western world. This is, of course, not good, especially not when the water consumption also increases. On top of this, urbanization concentrates population and economies, putting further pressure and strain on the infrastructures that we have surrounding us. In summary, infrastructure as a market exhibits an undisputable volume demand over foreseeable future. Moving over to next slide, number five. In addition to an undisputable volume demand, we also want to stress a second phenomenon that drives change and improvements to the infrastructure sector.
Sustainability, efficiency, and safety are deeply rooted drivers of mankind. They have been, and we believe they always will be. With a reference to the picture to the left with the city traffic. We all expect a smooth flow of traffic when we travel to a city. In terms of transportation efficiency, of course, this is crucial. There are also less idle running cars, reduced emissions, and traffic safety is improved by controlled traffic patterns. These uninterrupted traffic flows are enabled by electrical automation that in Stockholm actually are produced by us in Sdiptech. Traffic lights are controlled by actual traffic load on site, and the lights are interconnected into green light systems. Going back 50 years, the traffic systems were substantially less sophisticated, but the bar is raised for what we expect in terms of sustainability, efficiency, and safety, and we do not want to go back.
Expectations are instead continuously raised. Policy makers adapt with more strict regulations, and everything is implemented as continuous improvements to the infrastructure. These technical advancements are naturally developed by specialists and experts that to a large extent exist in smaller niche companies. These niche technical companies are in fact what builds up Sdiptech as a group. With that said, move forward to page number six. In summary, Sdiptech is an infrastructure technology group. Our offering is with niche solutions to infrastructures. The market trends we just walked through, good volume demand, and a drive for improvements. Currently, employees, we are at slightly above 1,000. Our organization is based on 29 business units currently, and over the past three years, we've had an annual growth rate at 42%. With that said, we could move forward to page number eight. We move two pages forward.
I'm very pleased to announce that as of January, we established three new business areas. Our former business areas are structured based on their business model, installation versus products. Our new business areas are instead organized around markets. Water as a market with its particular customers, energy as a market. To the right in the picture, technical services for properties as a market with obvious customers in property owners. And finally, third business area, special solutions, where we collect a couple of market segments that I will come back to in a few pages. Within infrastructure, we have identified a number of areas as particularly important for society's development. Water, energy, air and climate control, data communication, transportation, and also security.
We have for a longer period in time, focused our work with acquisitions to these particular areas, we have not had the necessary size to also organize ourselves in line with this. We have been active to build areas, and we have completed 10 acquisitions over the past 15 months in line with the strategy. At this point, we see that we do have the critical mass of both business units and also customers to reorganize the group in line with this more market-oriented organization. This organization will enable us to better use the competencies, the market insight, and the networks that we gain about the specific business areas, to develop our business units and also work on acquisitions further as market experts. Moving on to next slide, number nine.
The sub-segments of the business area are Water & Sanitation, and Power & Energy. Both areas are the focus of global welfare and also constitute two of the main objectives of the United Nations Agenda 2030. The markets are expected to grow through several strong trends, such as aging infrastructure, increased consumption of Water & Energy, along with increased digitization and automation. As most parts of infrastructure, Water & Energy are also clearly characterized by a gradual introduction of stricter environmental regulations. Sales in the business area, about SEK 430 million at 2018. The profitability margin on an operating level, 15%. Number of units currently at 12. Actually, over the past 15 months, we've doubled the size there, so we've done six acquisitions. I'll just give you a short introduction to the segment, Water & Sanitation. In Europe, there are 18,000 water treatment plants.
There's also 7 million km of water and sewage pipes. A large part of this infrastructure was built in the 1950s, 1960s, and 1970s. Actually, some parts of London is from the late 19th century. Clearly, we are surrounded by aging water networks. At the same time, water consumption rises, and to continue with U.K. as an example, water rationing is expected to be introduced in London in 2025. In summary, the investment needs are substantial to develop our water infrastructure. I'll give you also some examples from what we actually do in our companies. The first example is Topas. Topas Vatten develops wastewater treatment plants. These plants are self-sufficient, and also serve them a local community, and offloads the strained central systems, which is important. The second example, Polyproject. Among other things, Polyproject produces and delivers pump stations to municipal water networks.
The third example is RIA, our Norwegian company. RIA offers automation of municipal water cleaning plants. I will stop with three examples, in sake of time, and moving over to power and energy sub-segment. Digitization and automation are strong trends that are gaining extra momentum currently. This means that we are seeing high growth in the number of processors that every day are active across our societies in infrastructures. For example, Internet of Things units are expected to increase from a number at 8 billion in 2017 to 20 billion in 2020. Actually in three years, growing from 8 billion- 20 billion. Societies are becoming increasingly dependent on reliable and uninterrupted power supply, of course. At the same time, sustainable energy sources such as wind power reduces the overall power quality in the power grids.
This is sure a challenging combination, and the poor power quality is estimated to cost the European economy up to EUR 115 billion annually, from unplanned disruptions and loss of production. Solutions that ensure reliability to power and uninterrupted quality are critical for the emerging digitized systems and societies. I'll give three examples from this area as well. We start off with Unipower AB, delivering solutions for power quality monitoring. Customers are typically power distributors around the world. The second example, EuroTech, providing solutions for uninterrupted power supply. Customers are companies that have equipment that must work around the clock. For instance, hospitals and computer centers. Here we have ongoing service agreements with approximately 1,000 uninterrupted power stations throughout Sweden. The third example, Centralbyggarna and Centralmontage. Here we produce electrical automation cabinets that exist in many places in our society where any kind of automation exists.
These are not mass-produced cabinets, but instead the cabinets are tailor-made for each specific purpose. We have increased our capacity over the past two years, and in 2018 we produced 7,700 cabinets to customers in Sweden. With that said, we're moving forward to page number 10, introducing our second business area, Special Infrastructure Solutions. The sub-segments in the business area are Air & Climate control, Safety & S ecurity, and Transportation. Sales about SEK 320 million. Profitability level, around 22%. Number of units, nine. It's also increased over the past 15 months with four acquisitions. In addition to water and energy, we have identified a couple of segments as particularly important for society's development. What we see in our research is that a lot of technical specialization and advanced products exist in smaller technical businesses.
In that sense, it is a fragmented market consisting of many technically advanced companies, therefore, a very good market for Sdiptech's business model, which is acquiring undeveloped needs and specialized technologies and companies. It's a good market for us. The first example I want to give you here is KSS, Klimat- & Styrsystem AB. The company is in the field of indoor climate control with a solution to increase energy efficiency. For example, KSS have actually reduced the power consumption in IKEA stores by 40%, which is a substantial effort. The second example, Frigotech. Cooling solutions is what they provide. Cooling solutions to supermarkets and to grocery stores is the main market for them. The cooling market is highly regulated. Currently, we have an extensive task of exchanging the refrigerants to bring down the global warming potential in the cooling systems with about 70%.
EU directives will continue to become stricter ahead, we will, on a steady basis, work to reduce the warming footprint of the cooling systems in the grocery stores and supermarkets. It's a very important task, but also good business, of course. The third example, Optyma Security Systems. The company delivers security solutions to hospitals, transportation networks, and government agencies, to name a few. In the hospital, solutions include highly tailored things as surveillance, intruder control, staff attack control, patient tracking. It's a very specialized type of solutions in terms of security. All of these three companies that I presented are examples of specialized Sdiptech companies. They are profitable, they have a long-term demand for their offerings, and this is typically what characterizes what to search for and what we believe will provide good building blocks for Sdiptech and in the new business area.
Moving forward to next page, number 11, introducing the third and final business area, Property Technical Services. The sub-segments in the business area to start off are Elevator business, then we have gathered a few other companies in what we call Other. The sales in the areas are at approximately SEK 750 million. Profitability levels at about 8%. Number of units, currently eight. We haven't done any acquisitions over the past 15 months, I will get back to you the reason for that. Sdiptech has its origin in technical services. In cities where population and economy is concentrated, there is a long-term need for service, repair, and modernization of properties and equipment inside properties. Our companies with this focus, they are labor-intensive, they also have a business logic that differs from product companies.
As we, in a more and more clear way, focus on our own products, we currently have no plans to expand this business area. No new acquisition to the business area in the past 15 months, no plans for any further acquisitions either. Anyhow, the business area works well after our profitability improvement plan program in elevators. I'll just give you some brief examples of the companies in here as well. To start off with S:t Eriks Hiss AB and his partner. They operate as one business unit, these two companies. They provide service, repair, modernization of elevators in the existing property stock of Stockholm. The second example, Castella Entreprenad, provides design and installation of lightweight interior constructions. The company specialized in gypsum and plaster inner walls. Customers are in Stockholm and also in Uppsala.
The third example, Tello Service Partner, performs roof renovations on existing properties in Stockholm, along with installation of security solutions for rooftops. The business area is clear customers and property owners, and we believe that with the new organization, also can reinforce our focus on this customer group. That was a fast introduction of our three business areas, and with that we'll move forward to page 13, and I will hand over the word to Bengt to walk through the year-end update.
Thank you, Jakob. Looking at some quarterly highlights from our fourth quarter of 2018. We had an increase in our sales, it was 27%, and with it we'd also had a profit increase, somewhat lower, 19% increase to SEK 56.5 million. We're very happy and proud of that we have been able to increase our EBITDA margin, throughout the year, starting off with 10.1% in the first quarter of the year, and having 11.7% during the second and third quarter. Eventually ending up with 13.5% EBITDA margin, for the fourth quarter. It's actually a little bit lower than last year. We had even 14.3% in 2017's fourth quarter, but we had some units that had an exceptionally high profitability during that quarter, so it was quite tough comparables. 13.5% we're happy with.
Part of that is because our elevator improvement program has been successfully completed. It has encompassed a number of units within the elevator business, and the activities have been focused on price increases and also measures to strengthen their off the market, their service offerings. Also, of course, to reduce expenses and also then reducing the number of staff within the area. Now we can say that we have completed the program and, we're now then looking forward to having all these companies performing well in the future. Our outlook, in summary, is positive. We think still we have a positive view on the growing profit levels going ahead, both from improvement programs still, compared to last year.
Also then, of course, of the added acquisitions that we have done in the past couple of months, but also that will come ahead in the next quarters. We can turn to the next slide 14, looking more at the full year. We had a 43% growth in sales and 45% growth in our EBITDA, which is of course very good. The organic growth was 5%. It was a bit higher in the beginning of the year, and slowed down a bit towards the end of the year 2018. Also there because that we had some companies doing very well the last quarter 2017. Still we are happy with this development and you can see on the chart there, you can see the quarter-by-quarter development of the rolling 12-month figures.
As you see, it's a very steady pace of increase in both sales and profitability or profits. Yes. Turning to slide 15. We look at some more key figures. Net sales we have touched upon as well as the EBITDA. As I said, the EBITDA margin did become 13.5%, and that's without these extra high profitability units that we had last year. Of course, that's good. On the year total, January to December 2018, that is then 11.8% all in all. We also have some key figures relating to our debt and our leverage. We have two measures that we are tracking. One is our financial debt compared with our EBITDA, the net bank debt, which then is all the debt to our banks and financial institutions, and that ratio is now 0.59.
Last year it was even a negative, meaning that we had more cash than financial debt. The second key figure is our total net debt, against the EBITDA. This one is a little bit more tricky because almost half of that total net debt consists of debt relating to what we call conditional considerations for acquisitions. That is both the reinvestments that our entrepreneurs have made into their old companies, so to say, when we acquired them, but also their earn-out part of their considerations. These are typically agreements running for four to five years, so it's a debt to be paid out in the future.
We also estimate them today, what the debt will be to pay in, say four or five years ahead, which is of course-Not always easy, but we then book in our books, in our financial figures, an estimated debt to then be paid based on a higher EBITDA level than today, because that's typically how it works. If the profitability is increasing, the profits increase in the different units, then the sellers will get even more in their earn-out. This figure 3.02 right now is then being expected that the profit will be even higher than today. It's not that easy to compare this key figure against other groups' corresponding figure. We're tracking it vis-à-vis ourselves.
Last year it was much lower, that was because we had some extra high, you could call it more accounting-wise income from releasing some debt, which then makes this comparison a little bit not so relevant, perhaps year- on- year. Three is a level that we think we will be more continuously running at, which for us is a healthy level. Okay. We look a little bit into the two business areas that we had during 2018, firstly the tailored installations. As Jakob mentioned, we have had an improvement program running well. Sorry, it's slide 16 that we're looking at. As you can see from the chart there, we are increasing profit and profit margins quarter- by- quarter. Also these figures on a rolling 12 months. At the end of the year 2018, we had 7.4% profitability.
In the quarter as such, it was SEK 9.8. We have had an organic growth of 13% throughout the year. That is, of course, very good figures coming, a part of that from the improvement program. The profit has increased quite substantially. It has increased from a little bit less than SEK 3 million up to a little bit more than SEK 22 million. That is, of course, very good, and a big part of that comes from the elevator companies. We also have had some other companies within this business area performing very well. Jakob told you about the cooling products and also the electrical automation products that have had a good year 2018 and a good ending of the year, especially.
In the elevators, apart from being successful in the profitability, in order to reach that, we have perhaps reduced the sales a little bit in some of the Swedish companies, that has been put intentionally to lower sales, but increase profitability. In some of our non-Swedish, non-Nordic units, we have seen a better demand and a good growth, which is also nice to see. We have made two acquisitions connected to this business area during 2018, and it was then at the end of year 13 units, all in all. Looking at next slide 17, that's the niche product and services. In that chart, you can see that the profitability has actually decreased a bit, the EBITDA margin. That is also that we had very high profitability in the end of 2017, quarter three, quarter four.
Also that we have added six companies during 2018, and they have perhaps not had as high profitability level as those that were there from the beginning, but still very healthy companies. As you can see now we're running at a little bit more than 20% EBITDA margin at the end of 2018. The year actually ended up with an even stronger figure of 21.3% profitability, which is, of course, very good. Some units that had a strong end of the year was, for example, electrical power monitoring company that Jakob also mentioned, and some temporary infrastructure companies that work with renting out infrastructure. At the end of the year, it was 15 units within this business area, and as we guided already in the early fall, we leveled out the profitability, as I said, around 20%. Right.
Yes, I hand over back to Jakob for some acquisitions.
Yes. Thank you. We move to page number 18. This is a summary of the acquisitions that we've completed in 2018. Actually, then we've added after the end of 2018, in January this year, we also completed acquisition of RedSpeed International. In total, eight acquisitions completed in 2018 and one in 2019. We can move forward to next page, number 19. Just briefly present the two recent acquisitions. Pure Water Scandinavia AB is a leading product company. It's in the business of ultrapure water. The products are typically used in hospitals, laboratories, but also in energy companies where the need for very clean water is crucial. And it will be included in the Water segment within our new business areas. RedSpeed International is in the traffic enforcement industry. The company specialized in developing digital enforcement cameras.
The largest customer is Transport for London, with traffic surveillance cameras in the larger London area. With this acquisition, it will be included in the Special Infrastructure Solutions business area, and it will be part of the sub-segment Transportation. We're very happy to add two very nice niche product companies to Sdiptech. Then to sum up the next slide, 20. You've seen the growth over the year. We're very proud of that. We're also very proud that we've improved the profitability over the quarters, as Bengt mentioned. We have an unchanged, very positive view on growing our profit levels further. By that, we hand over to any questions from the audience.
Thank you. If you have a question for the speakers, please press zero followed by the one on your telephone keypad. There'll be a brief pause while questions are being registered. Thank you. The first question comes from Robert Redin from Carnegie. Please go ahead. Your line is open.
Yeah, hi. Two questions please. One on acquisitions, basically. You've had another year of a high pace in your M&A process, call it. Previously you've sort of had an outlook comment on what the pipeline looks like. Now there wasn't one. My first question would be on your M&A pipeline, how do you think that's developing?
The M&A pipeline is normal. The work continues, the activity is the same. There's no change there. We have decided not to share the details regarding the pipeline. We thought it was an important piece of information when we were growing from smaller levels. I think now that we have proven that we actually do deliver acquisitions in a steady pace, and that the need to also demonstrate that with detailed KPIs is not necessary anymore. There's no change in the activities and in the number of candidates in the pipeline and everything is looking very good.
Okay, perfect. Follow up on that for 2018, what was the sort of multiple paid, would you say? Has it gone up, down, or is it the same as before, or do you have a number on it?
We don't have a specific number to share, but the multiples are approximately the same. We can say that we experience in Sweden, the acquisitional market has become a lot tougher. Many of the entrepreneurial-led companies in Sweden have been approached over a number of years from many different companies, not only Sdiptech. It's clear that they know their value, if you say so. We believe that the price points in Sweden are too high currently. Therefore, we are also happy that we have worked on the U.K. market for a longer period of time, and we see that there are plenty of good companies in the U.K. that also are priced on a more attractive levels.
Okay, perfect. On organic growth, you said that it sort of slowed a little bit during the year gradually. What was your outlook for 2019? Do you feel you'll deliver organic growth in line with your targets, or do you think there's headwinds here over here in 2020 on organic growth?
Mainly this slowdown was a bit that the comparables were quite tough. When we look forward, we think we will continue steadily. Our target is to be between 5%-10% organic growth, that's still what we're aiming for. Of course, the future will tell. That's Yeah.
Okay, perfect. Thanks.
Thank you. As another reminder to register for a question, please press zero followed by the one on your telephone keypad. The next question comes from Fredrik Nilsson from Redeye. Please go ahead. Your line is open.
Hello. Fredrik Nilsson from Redeye here. I want to start with the margin in tailored installations. It seems to have picked up quite well. Do you believe that this is a sustainable level going forward?
Yeah. That is mainly because of the improvement program we talked about within the elevator companies.
We will try, of course, to establish on that level. We have previously guided that for that business side should be between 8%-10% in the EBITDA margin. Now, the companies included in that business area has been split now into the new business areas, where most of these now are in the property technical services, eight of them, of those 13. The others are split mainly in the Special Infrastructure Solutions business area. yeah. It's here to stay, hopefully, this EBITDA level.
Yes. I can add to that also, that the activities and the measure that we have taken in the profitability program, we have taken the tough medicine. The changes are not the easy, quick wins that you also can achieve, but the quick wins, they are easily lost as well. We have gone to do some fundamental changes and really identify where is profitability in the elevator market, where are the customer segments that are willing to pay a higher price point, and we have redirected our efforts to those customers. Eventually, as a result, then we have reduced the staff also. The measurement that we have taken are definitely targeted to be sustainable. We are comfortable that what we have done is something that will be strong also in the future for our companies.
Okay, thanks. One more question here, if I may. The growth in niche products and services seems to be rather low, given that you have made a lot of acquisitions. What's your view on that?
Well, mainly, looking at the last quarter, we had the two of the companies within that business area having very strong sales development last year, which then also makes the comparison a little bit difficult for 2018. As you say, we have added a big number of companies, six of them. Half of them from summer and onwards. That will also then account for a high growth in 2019. Also, with these companies, we will split them into the new business areas, we're kind of having new track records to follow. The underlying business in these companies are developing well, I would say.
Okay. The revenue level in this quarter is normal and quite representative for a normal quarter, so to say.
Yes, absolutely.
Okay, thanks. That's all for me.
Thank you once again. To register for a question, it is zero followed by the one on your telephone keypad. The next question comes from Marcus Bolander, private investor. Please go ahead, your line is open.
Thank you. Question regarding M&A. How do you plan to finance future acquisition? Like Bengt said, your net debt to EBITDA is sort of getting up there and, your cash flow generation, it will not at least allow for this same pace when it comes to M&A as you have had before.
Well, we have our targets for our acquisition activities. We will increase our profit year- by- year. We have a good financing backup from our financial institutions, so we can continue with those activities. We are right now implementing, for example, a cash pooling mechanism that will make us also then being able to use our existing cash in our subsidiaries in a more efficient way. I do not see really any obstacles to continue acquiring, given both the financial strength we have and also that we can still have a good cash flow and net debt/EBITDA ratio. As we said, the 3.0 is not really representing the actual debt level. Today, it is more the bank net debt that is the crucial point that we are also then discussing when we talk to our financial institutions.
The other debt, if the profitability levels would decrease, then actually that debt would also decrease, this contingent or conditional consideration debt. You can still expect that we will have a high pace in our acquisition activities.
Okay, understood. Thank you.
Thank you. There appear to be no further questions. I'll return the conference back to you, speakers.
Okay, well, we thank everyone for listening, and meet you back again in three months to come. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference call. Thank you very much for attending. You may now disconnect your line.