Ladies and gentlemen, welcome to the Sdiptech Q3 report 2018. Today, I'm pleased to present CEO, Jakob Holm, and CFO, Bengt Lejdström. For the first part of this call, all participants are on a listen-only mode. Afterwards there will be a question and answer session. Speakers, please begin.
Okay. Hello, everybody. Welcome to Sdiptech's presentation of the interim report for the third quarter of 2018. Let us move forward to the next page. My name is Jakob Holm, CEO for Sdiptech. At my side I have Bengt Lejdström, our CFO. Move forward to next page. Just a brief repetition of who we are and what we do. Sdiptech, we are an infrastructure technology group. Our offering and what we provide to the market is niched technology solutions and services to the infrastructure sector. Our market, the infrastructure sector as such, is defined in growth terms by urbanization, also defined by demand for more advanced infrastructures that are fundamentally driven by improvements for increased sustainability, efficiency, and safety. Finally, about our business model. We truly believe that deep technical niches provide both barriers to competition and good profitability.
Therefore, we operate in a decentralized model where independent leadership and product development done in each subsidiary will ensure long-lived market competitiveness for us as a group. We continuously expand our infrastructure relevance and footprints to the market through acquisitions of additional new niched infrastructure offerings. In that sense, we also grow the group. We have had a solid year-on-year growth, 53% yearly growth rate in terms of sales since 2015. Currently, the group consists of 27 subsidiaries as of an acquisition that we did yesterday. I will come back to that one. Moving over to the next page. Infrastructure as a market, I think we all agree upon that it's defined by long-lasting growth drivers. In focus for Sdiptech's growth are areas within the infrastructure sector that are critical to welfare, and let me once again connect to the Agenda 2030, defined by United Nations.
It's a global call to action. Its goals include and address water sanitation, energy, infrastructure, sustainable cities and communities. The world and the society surrounding us need infrastructures that are more sustainable to reach the goals of UN. Sdiptech's acquisitions over the past 12 months have been within these areas. Companies that deliver specialized technology solutions and services within water sanitation, power and energy, air climate, and transportation. This is very much our focus. It really defines us. Moving over to the left bottom end of the slide. Growth in the infrastructure sector is on one hand driven by a growing gap between demand and capacity. This drives a large volume in demand. Infrastructures, for example, water supply, wastewater treatment, also electricity distribution supply are aging. There is an increasing demand to rebuild vast infrastructure systems.
As an example, in Europe, 45 billion liters of fresh water is leaking due to leaking pipes. This leakage corresponds to the water consumption of 200 million people in the Western world. This is, of course, a big problem due to aging infrastructures and it needs to be fixed and rebuilt. Also capacity requirements continue to grow. For instance, the new Facebook center in Luleå in Sweden has a power consumption equaling 40,000 Swedish households. A limited electricity supply is now considered as a delimiting growth factor in Sweden. The capacity requirements as such, it's also an important issue that needs to be fixed. On top of this, urbanization concentrates population which puts further pressure and strain on our infrastructures. There's an underlying strong demand for infrastructure technology over a long period of time.
If the growing gap is all about the volume demand, if we move to the right bottom side of the page, we highlight a set of growth drivers that drive improvements to the infrastructure sector. Sustainability, efficiency, and safety are deeply rooted drivers for mankind. They have been, and we believe they will always be so. To get there, well-functioning and upgraded infrastructures are essential. Let me give you an example. On the inner archipelago, the water has in 50 years never been as clean as it is today. This is, of course, thanks to a long-lasting implementation of stricter regulations of wastewater treatment. This is an area that Sdiptech has several offerings.
At the same time, the organization, Svenskt Vatten, has stated that the price on water will be doubled in 20 years in Sweden due to factors including new stricter requirements on water cleaning, but also the discovery of new contaminations in our groundwater. These improvements to water quality are based on what we believe are human driving forces for a more sustainable, efficient, and safe society. As a growth driver in the infrastructure sector, they are not new, and they will remain so most likely to a large extent going forward. Policymakers adapt. Regulations are continuously being updated to improve our everyday lives. We, as citizens and also consumers, change our behavior and also require improvements.
To implement stricter water cleaning, reduce air emissions, or better safety in elevators, just as a few examples of regulatory changes that are a natural part of Sdiptech's business and growth. Moving forward to the next page 5, to the quarterly highlights. We are very happy to present the continued strong growth in both business areas in the quarter. The organic growth in net sales was 5% in the third quarter, 9% in the first nine months of 2018. In the quarter, net sales increased 48%. EBITA* increased 56%. Also, we are happy to see that the profitability margin, the EBITA*, increased also to 11.7% from 11.1%. Continued strong growth. The elevator performance has also been strengthened with confidence, and we are very happy also to see that the improvement program continues with good progress.
The trend shift from early 2018 remains. EBITA* improves as well as the margin, most important. In a few areas, additional improvement potential still exists, and we will continue activities until we are completely satisfied with the profitability in the area. To sum up, the outlook's positive. Coming quarters, we have an unchanged positive view on growing profit levels. This is based on profitability improvement in the elevator installation area, also that products and services will continue on its profitable growth path. Newly added acquisitions will, of course, contribute to fine results to the overall profitability as well, naturally. The outlook is also positive looking forward. Moving forward to the next page six. If we start off on the left-hand side with net sales, it is growing year by year.
In specific, we have highlighted for 2018 that for the first three quarters of 2018, net sales has grown by 35%. During the same period of time, the first three quarters, the organic growth has been 9%, as I said. Both organic also acquisitional-driven growth in total gives us solid growth in terms of net sales. Moving over to our profits and EBITA*, they have grown in more or less the same pace. Overall, the profitability is stable during 2018. EBITA* has grown by 37% over the first three quarters, 2018. By that, we move forward to page seven, and I hand over to Bengt.
Yes. Thank you, Jakob. Here on page seven, we have summarized some key figures for the quarter and also year to date, 2018, and the rolling 12 months from up to September 2018. As Jakob just mentioned, for the quarter, we have had a very good progress, and the EBITA is improving more than the net sales, meaning that the margin is increasing, as you can see, from 11.1 last year to 11.7 now this year, Q3. Looking on year to date, we also have solid increased numbers for both net sales and the EBITA. We now have for the remaining operations, meaning that we have excluded the results from those operations we divested earlier this year. It's SEK 121 million in 9 months, meaning there is a margin of 11.2. We have a steady trend of increasing the margins throughout the quarters.
Looking at a rolling 12 months, if you notice there also we have a good progress, and you can see that the EBITA margin is actually even higher than what it is this quarter or in the year-to-date figure. That is because we had very good profitability last year in Q4, which makes, of course, a tough competition this year to match those numbers. Still, we are improving during the year, and we'll try to be up on the 12 level as soon as possible, of course. Turning to next, page eight. We see now some more detailed information on the business area of tailored installations. You can see on the graph that we have shown the path of the EBITA margin, which as you may know, has been decreasing the past years because of the challenges in the elevator businesses.
We reached kind of a bottom line there during the early months of this year and have since steadily improved. As you see in the chart, there is the rolling 12-month figures that were now up on the same level as last calendar year. In the quarter as such, as can be found in the table below, you see we are on 7.4% in total for the business area, which means we are on a steady pace, improving the margins. As Jakob mentioned, there is still some improvement programs going on, but the business area is not only elevator business. A big part of it is also a number of other business units. Especially this quarter, we could say that we have had good results from the companies working with cooling, uninterruptible power supply , and also the roof maintenance.
There are a total of 13 companies in this business area, and there are a number of companies having a very good development in the quarter. Turning to slide nine. There is a similar breakdown of the business area niche products and services, sales and EBITA* margin. This one has also decreased the last couple of years, but as mentioned earlier, mainly because we had a very good profitability during last year in some units. We guide that we are closing in on a normalization corresponding to approximately 20% in EBITA* margin for this business area. During this quarter, as you can see in the table on the left-hand side, we reached 20.3% in margin, which is also exactly the same as for the nine months of this year.
On the rolling 12 months, the number was higher than again because of the good last quarter last year. In this business area, we have currently 14 business units, including the latest acquisition of Vera Klippan that we announced yesterday. We will come back to that, as we said. Yes. We turn to slide 10.
Okay. Thank you, Bengt. This is our traditional summary slide of the acquisition status. We have closed seven acquisitions during 2018, totaling SEK 60 million of added profits to the group. I will come back to Vera Klippan on the next slide, but just to mention the status currently, we are working and addressing 380 companies. We have identified 380 companies that we believe are interesting for us. We take specific contact to reach out to them. The purpose is to get into exclusive dialogues with these companies without competition from the traditional acquisitional market. This is our strategy and currently 380 companies that we are working on and targeting currently. We are in bid discussions with four companies, and we have signed a letter of intent with additionally two companies. This is the status in terms of acquisitions. It's a normal status, I would say.
We are where we want to be. Moving over to the next slide 11. We acquired Rogaland Industri Automasjon, a Norwegian-based company in July, in the beginning of the third quarter. A company active with products for control and regulation of water systems and sewage plants. Yesterday, we acquired Vera Klippan AB, which is a producer of heavy-duty fiberglass pipes and cisterns in large dimensions. They have a unique production facility, which means that they can produce the fiberglass pipes in a never-ending length. Normally, pipes are produced in fixed lengths, but Vera Klippan has a production facility that can, as I said, produce in lengths of any size. The products are used to a large extent in water and also for chimneys and scrubbers. We are also happy to say that we are adding both Rogaland and Vera Klippan. They are included in our water segment.
As I mentioned to start off, we truly believe that the market for the contamination of water, soil, and air, and so on, is expected to increase as stricter environmental regulations are introduced back to the human driving forces of sustainability, efficiency, and safety. This is very much at the core of our focus. Moving over to the next page 12. In summary, profits are growing year-over-year. 37% up during the first three quarters of 2018. What we do, we provide niche technology solutions and services to the infrastructure sector. Strong underlying growth in this sector driven by urbanization, but also as we discussed today, improvements for increased sustainability, efficiency, and safety. The outlook for the coming quarters is unchanged.
We have a positive view on growing profit levels, profitability improvements in elevators installations, but also based on continued profitable growth in our products and services business area. On top of this, newly added acquisitions will contribute to with fine results. This is our ending slide in the presentation, and we open up for questions.
Thank you. If you have a question for the speakers, please press 01 on your telephone keypad now. If you would like to withdraw your question, that is 02 on your telephone keypad. Once again, if you do have any questions for the speakers, please press 01 on your telephone keypad now, and there will be a brief pause whilst any questions are being registered. Once again, as a reminder, it is 01 on your telephone keypad if you would like to ask a question. Our first question comes from the line of Marcus Welander, private investor. Please go ahead. Your line is now open.
Thank you. A few questions, if I may. First, on cash flow, it seems working capital increased quite a bit in the quarter, and it also increased quite a bit last quarter. What's driving this increase, and do you feel that you are on top of the working capital situation?
Yes. Really, we believe we have a good grip on this. As for a season, there is a build-up of inventories in the companies during the summer months to be ready for their installations activities. For example, now during the fall. There has also been an increase in work in progress, so to say, in the projects relating to the installation projects, meaning that we have worked on the projects but not been able to send the invoice. That has increased revenues, but also then increased our work in progress receivables, so to say. There is also some accounts receivables that has increased as well during this period because of a bigger activity in September compared to the quarters of the quarter two.
Yes, there has been an increase in the working capital, as we see, it is nothing really unusual for the type of companies we have and the season we're in. Of course, we monitor this to make sure that money will come in soon enough.
Understood. Thank you. Second question regarding the margin in tailored installations. As you suggested it's sort of on an upwards trend, but it's declined quarter-on-quarter. What's the reason for the decline, and should we sort of read anything into this?
No, not really. This quarter is a tricky quarter. You have July and August as summer holiday months, that the margins perhaps was a little bit lower this quarter than previous quarter is perhaps not alarming in itself. It's better to look at the trend compared to last year and also the trend from year to date, which is then a positive trend in the margins.
How high do you think the margin in tailored installations can go? Can we get back to previous heights? I think 11% is the sort of record high, or has the business changed structurally since the margin was 11%?
This is Jakob here. What we believe is that the normal level for more niched and tailored installation type of services would be around 10% or slightly below 10%. That is probably in the long term, what is a sustainable level. That is what we're aiming for.
Okay, great. Final question regarding the acquisition of Vera Klippan. If I understand things correctly, this is a manufacturing business which is maybe not quite in line with your strategy to focus on service. Can you talk a little bit about why you decided to acquire this business and get into this sort of manufacturing space?
Okay. It's correct that we started off in 2013, 2014, very much around technical services. However, we have over the past two years shifted focus more towards product-based company. This is nothing new, really. We do have a mix of product-based companies, services-based companies, and we believe that the mix that we do have is relevant to our customers and to the market. We are happy with all the companies that we have within the group currently. If we look forward, and this has been the case over the past year, definitely, but also during the past 18 months, we have had a more and more focus towards product-based companies and Vera Klippan, but also Rogaland Industri Automasjon. They are companies that more are on the product side of the market.
Maybe are there any synergies between, for example, Vera and the other companies? I think you indicated that in the press release, but maybe if you could be a little more specific. Do your other companies buy products from Vera Klippan, or what are the synergies?
Vera Klippan, that's correct. Our other companies, for instance, Polyproject Environment AB and Vera Klippan, they have similar customers, same type of customer segments. They offer slightly different types of products to the customer segment. By combining the offerings, we could provide new propositions to our customers. For instance for Vera Klippan's deliveries, we could also add on additional equipment, and so on, to increase the order volumes for Vera Klippan. We can do this by the supply from our other companies. That is one example. On the procurement side, Vera Klippan is the deliver product based off fiberglass. Some of our other companies also have product in fiberglass. On the procurement side of things, we can procure the fiberglass at a lower price point.
There are some synergies here, and once again, these synergies are what we say non-invasive, it's not a matter about forcing cooperation between companies, there are opportunities there that are obvious, and that the companies are able to pursue together. However, each single business remains independent. This is what we call non-invasive synergies.
May I add to your question about manufacturing, that it's not our aim, so to say, to buy manufacturing companies as such. It's to have their proprietary rights over their own products. That's the important thing. If they outsource production or have manufacturing in-house, that could be different from company to company. In this specific case, the manufacturing process is part of their unique offering. You could say that their proprietary rights is related to the manufacturing process, being able to produce very long pipes, for example. Otherwise, we are not striving for having huge manufacturing plants, because that only build balance sheets and the assets in the balance sheet. We try to avoid that in general speaking.
Great. This has been very helpful. Thank you for humoring me.
Thank you.
Thank you. Once again, ladies and gentlemen, if you do have any questions for the speakers, it's zero one on your telephone keypad. As we have no more questions registered, I now hand back to our speakers for any closing comments.
Okay. Well, we have nothing more to add than say thank you for listening, everybody. See you in three months when we issue our year-end report on the 12th of February next year. Thank you.
This now concludes our conference call. Thank you all for attending. Participants, you may now disconnect your line.