Hi, and welcome to today's webcast with Sdiptech. Today we have the CEO, Jakob Holm, and the CFO, Bengt Lejdström, with us. My name is Martin Westerlund, and I work for Finwire. After the presentation, there will be a Q&A session. If you have any questions for Jakob and Bengt, please visit finwire.tv and click on this webcast. With that said, I'll hand over the word to you, Jakob and Bengt. Please go ahead.
Thank you very much, and welcome everybody to Sdiptech's Report for the Second Quarter. My name is Jakob Holm, CEO of Sdiptech, and as always, with me, I have Bengt Lejdström, our CFO. Today we will do, of course, a walkthrough of the second quarter, important events, and then the financial development, and finally, as always, an outlook for the future. Sdiptech, we are, as you know, an infrastructure technology group. Our main markets are in the Nordics and in the U.K . Recently, as you all know, we've also established ourselves in Italy and Netherlands in relation to the good underlying trends in those markets. We continue to grow our sales at SEK 3 billion over the past 12 months.
Our profitability margin continues to increase as it has done quarter- by- quarter over a long period now, and that we foresee that will continue. Very happy about that. That's very much related to that we focus on high margin positions. It also enables us to have a stronger competitive edge against competitors, of course, and a better sustainability in our profitability and also growth. That's really core of our strategies, and the profitability is increasing as a consequence. Our overall goal is, of course, to create value by increasing our profits every year. Our operating profit has an annual growth rate of 41% since 2017. That's really our focus.
In addition to high margin positions, the infrastructure sector really is characterized by long-term investment needs, positive trends related to more technology advancements related to more sustainable, efficient, and safe society, but also solid volume drivers, that more consumption of water, more consumption of energy, more transportation volumes increase, and so forth and so forth. Over foreseeable future, the growth trends are very positive in all our markets. Then move over to the second quarter important events. We are slightly down organically on net sales, and we really want to describe this carefully to you all. First of all, the demand continues to be strong, the reason for us being slightly down on net sales is not that the demand is going down.
On the contrary, the demand continues to increase. The majority of our business units are growing organically positive on both net sales. That's very important for everyone to bear in mind. We have a few business units that are temporarily down net sales, and that's really the contribution that translates into a negative organic growth number. One business here worth mentioning is our business GAH Refrigeration that delivers refrigeration units for transportation vehicles for the last mile transportation. A very good business with strong underlying growth drivers. The customers, grocery chains, are really placing a lot of orders to us.
For us to deliver the refrigeration units, there also needs to be a vehicle to put that refrigeration unit into. There is, as you all know, a lack of vehicle currently in the market for delivering new vehicles. We are building a backlog of orders, and eventually, when the vehicles start arriving to the market and to our customers, we will start to deliver upon that backlog. For the second quarter, that has been a quite significant down for that unit that also affects the entire group's numbers, but it is temporary.
The second unit worth mentioning is a unit for EV chargers, and there is a regulatory change in the market for the U.K. for the 1st of July. It implies a major hardware upgrade. For instance, the ability to remotely turn on and off, and also remotely take care of maintenance and so forth, that is a new requirement. There are number of additional requirements. The entire market is doing an upgrade now, and it is a challenge for all players to deliver on this. We have our material ready, but the market is a bit hesitant at the moment to place orders since they know that there is a shift.
We expect that hesitancy to continue also in July and in August, and then hopefully after that the market will go back to normal with the excellent growth that is underlying implicit in this unit for electric vehicle for us. Anyway, there's no change in demand for what we're seeing, and we are expecting a catch up in the future. The margin expansion has continued for the quarter 18.9%, up 0.8 percentage units. As always, our strategy to focus on high margin positions in our acquisitions, that really drives, that's one important part that drives the profitability improvement.
Over a number of quarters also, organic growth has really driven the improved margin as well, although this quarter, the increase in prices has temporarily of course hit our profitability. What is really improving the margin in this quarter are the acquisitions. The prices for material continues to increase even since the first quarter, and we are continuously working on our price revisions with our customers. For the majority of our units, it's possible to do it rather swiftly. The customers, they really want our products and need our products for critical needs in the infrastructure sector. We have a good dialogue and the ability to raise the prices.
Of course, we have quite a few customers where we have long-term contracts, where the prices are, the mechanisms to increase the prices are more regulated into contracts. Those kind of contracts, those kind of customers, of course, the price increases come with a delay. All in all, we are doing all we can, and we're quite effective, but some of the contracts they are over longer term create a delay. Eventually, we are comfortable that we will achieve a full compensation for the price increases.
As I said, the products are really important for our customers, and normally our products are also a very small share of wallet for our customers, so they have no problems accepting higher price for such important products. Our cash flow continues to be strong. That's a very important message as well. We work with our cash flow very actively, and it is at 87%. It could have actually been even better, since we have built up stock of raw material to really, in a more proactive way, be able to deliver to our customers, given the shortages of components and raw materials. But nevertheless, despite that, we have a strong cash flow generation, which is very important message to also deliver to everyone.
The final message, our acquisition pipeline is stronger than ever, and that is a result of our focus on new markets, Italy and Netherlands, and we have been developing these markets over quite some time actually. I think all of you that know Sdiptech, we focus on quality in our acquisitions. We're not a volume type of acquirer, but we really focus on quality. We have done one acquisition in Italy, one acquisition in Netherlands, and that is a result of our work that we have done over a longer period of time. It is paying off. We've also expanded our resource efficiency business area into areas beyond water and energy.
Also resources related to this, for instance, the production of food, so the agriculture, the bioeconomy area, very important for everyone. With that said, we are expecting to exceed our acquisition target this year. Once again, we very much focus on quality. We focus on quality over quantity. I see that it's actually spelling mistake there. We continue to focus on quality, as you all know. This is just a graph summarizing what we actually said. SEK 125 million we've delivered so far this year, and our previous goal was at SEK 90 million acquired EBIT. We raised that goal to SEK 120 million-SEK 150 million last year. We delivered SEK 158 million.
We are still with a target of SEK 100 million-SEK 150 million, and we believe that we are in a good position to exceed that for this year. Finally, two slides just introducing our recent acquisitions, Resource Data Management, a Scottish company, a fantastic company that provides the control of equipment in buildings to optimize the energy consumption. The most important customers are grocery chains in the U.K., but also in Asia and in the USA. That's a very interesting addition, adding some new geographies for our companies and other companies that we have, can really benefit from this.
We are more and more becoming a coherent group of companies and RDM is a good example there. One important UN Sustainable Development Goal that we are addressing with this company is of course to reduce the energy consumption, which is extremely important. The second acquisition, e-l-m Kragelund, our first acquisition in Denmark, and they are a highly innovative company that develops attachments for forklifts and to improve safety, to enable forklifts to do very complex type of lifts, but still do it with a good safety and security for everyone involved. Leading company, very interesting companies. We're really happy to also include that into our group.
With that, I hand over to Bengt to walk us through the financial development.
Yeah. Thank you, Jakob. Yeah, we will start with having a look at our sales in the group. As you can see on the left side of this slide that we have increased sales on a last 12 months basis compared to a year ago with 24%. It's slightly less than what was the average up to that point. A year ago was 26%. As you can see here, the compound growth over the years since 2017, but still a very good development, we think. Perhaps you can remember that we acquired Rolec, our EV charging unit in U.K. in first half last year, which of course made a real jump in the figures, then.
With a 24% increase on a 12 months basis since last year, they are very happy with the progress. Our margins have increased slowly and steadily. A big part of that is of course coming from our change of the mix of businesses that we have in our group, divesting low-margin businesses within the Property Technical Services business and acquiring product-based businesses instead. Slowly increasing and now on a last 12 months basis of 19.1%. We have said that we think 20% is where we should be, so that's what we're heading at. Looking on the right side of the chart, you see our sales split by countries. U.K. is of course our biggest geography. We have 11 companies there right now, 11 business units.
They are quite big, most of them. Almost half of the group turnover comes from customers then in the U.K., because this is what these figures are representing. The black slice here with 12% for other countries, meaning exports really out of our own geographies are also slowly increasing as we acquire more and more product-based companies. Right now, the sales of products is about 60% of the total group turnover, and it has been slowly increasing from being a bit lower, less than 60% over the year, but now it's above 60%. It's increasing and the share of installation business is being reduced instead there. Service business is quite stable.
If you want to have a split, the split between these different categories, you can look in our report towards the end notes. Roughly the split is 60% products, a bit less than 20% on installation, and services each. Going to the next slide where we look at our profits. Please talk about change.
Okay. It seems like Bengt's connection is cracking up there. Bengt, could you try to redial in once again? Because it's very difficult to hear what you're saying, actually.
Okay. That was also a bit dip. Do you hear me now or? But I will then redial. Please, if you, Jakob, can continue.
Yeah. We'll continue. Sure.
Yeah.
Okay. All right. Okay. Moving then over to the development of our EBITDA, our profits, operating profit. Our sales has increased 27% in the quarter, and excluding the currency effects, the organic growth rate was -2%. Of course, we're not happy about that in terms of sales. Moving over to our profits that translated into -12%. One aspect, of course, to the development, negative development of the profits is of course that the sales were down. As we discussed earlier, the majority of our businesses are growing organically positively, and then we have a few business units that are temporarily down due to some obstacles. That's one aspect also affecting then of course the profits.
Of course, the other aspect affecting the profits are the increase in procurement prices that has increased since the first quarter. That we, as we discussed, we are discussing with all our customers to be compensated for that, and we are comfortable to achieve it. Exactly when that will happen, we don't want to promise anything, but we are comfortable, and the work is going in the right direction. Our profits are then have grown 34% over the past 12 months, which is of course in line with our targets. Having then looked at the business area Resource Efficiency, a very positive development in that area.
Of course, we have the unit for electric vehicle chargers. We've already discussed that. That of course has had some impact for also this business area. Overall, good development for the new acquisitions as well, Agrosistemi and IDE. That's important. Of course, it's important to have new acquisitions that deliver in a good way. Agrosistemi and IDE have definitely done that. Organically, in general, a good profit development in most units, but then the same thing there. The pattern is the same, that there are some units that have not been able to, in a quick way, be compensated for the high prices. Eventually, we are comfortable that it will, that we will achieve it.
I'll continue until Bengt.
Yeah. I don't know if you can hear me now, so.
Yes. Now we can hear you.
Yeah, looking at the Special Infrastructure Solutions then, just as a reminder that we since Q3 last year have included the two remaining businesses from the Property Technical Services business area that we have that I listed those companies from. Those two units are now in Special Infrastructure Solutions, and all the numbers you see here have been computed pro forma, of course. The quarter was strong for this business area with an increase 25%.
Bengt, I think it's too poor quality, so I will take over.
Okay. All right.
You have to think.
That's better.
I don't know what's wrong. Just, I will continue.
Yeah.
What I think Bengt said that we have merged the former Property Technical Services area with SIS, this, the Special Infrastructure Solutions. The two remaining businesses that are now part of Special Infrastructure Solutions. I think we've been through the important aspects. The cooling refrigeration business, we've talked about that, the difficulties in delivering the products since there's a lack of vehicles. Eventually, that will, of course, pick up. The demand is there. Previously, we had some challenges in a business unit that provided automation of container ports, but that has been resumed now. It was the.
To start with, it was challenging since the customers, the container ports really focused on operations, provided the very heavy pressure to get the container transportation volume. They focused more on operations than development projects. On top of that, there was also restrictions in China with regards to the pandemic in the beginning of the year. There were a number of things that was challenging for that business, but things are back on track now, very positive. Of course, the demand there is significant, so it's a very interesting business unit. Yes, I don't think I need to add anything else really. The pattern's really the same in terms of increasing prices, and that we are comfortable that we will achieve it.
Now Bengt, have you improved your quality? I don't know if this is.
Yeah, I'm not sure.
Try to speak loud. Perhaps the mic needs you to, you know, be very consistent in your voice.
Hopefully you can bear with my connection here then for the additional metrics. As you can see on this slide, we're showing our cash conversion, our cash flow from our operations, including any change in working capital. That was in the quarter 87% compared with the profit, which is an increase dramatically from last year when we were building even more inventories. We are still building inventory, as Jakob were mentioning before, I think, and but still not at the same extent now. But it's good to have the raw material in stock in case there will be any disruptions in the supply chains going forward. Looking on the last 12 months, we're at 85%, so it's quite stable cash conversion right now.
The earnings per share was very good, SEK 3.21 per share. Part of that increase from last year is due to a more, you could call it bookkeeping exercise that we need to do according to IFRS, that we have increased our interest rate used for doing the discounted calculations of the earn-out debts. It's a bit complicated, but in short summary, it means that since we need to increase that interest rate to mirror what's going on in society from 2 - 3 percentage points, means a bit lower earn-out debts than that reduction that then becomes income in this quarter. That affects a bit, but the underlying reasons are, of course, a strong development compared to last year.
Okay, you're cracking up again now, Bengt.
Yeah. Yeah. This is not good.
Yeah. I think what Bengt was explaining was that the earnings per share have one effect there is that the interest rate the theoretical interest rate used for evaluating the contingent consideration the earn-out debts in the future has increased that interest rate. Then of course with the discounted way of calculating the current value with a higher interest rate the value of the contingent consideration goes down and that the reduction then also then goes over the P&L as a positive effect. So that was one item that has added to the EPS. Are you still with us, Bengt? No. Okay. Then we'll-
Yeah, I think it's poor.
Okay.
Poor connection.
Yeah, okay. Try to just speak clearly without moving. Hopefully, it will go well.
Yeah. Well, I think it's the Wi-Fi here. Now looking at on our debt leverage, slowly increasing the net debt- to- EBITDA, that's the most important number, 1.6x, a bit less than 1.6x now. We have said that our target is to stay below 2.5x. This debt that we always need to pay to figure on this slide, the total net debt is including then all this earn-out debt, and most of that is depending on the development of the profits in the group. It's contingent considerations, they're called, and conditional on that the companies are increasing their profits in order for the pa-
Okay. Well, he's cracking up again there. I think the important message here is that the net financial debt, our target there is to be below 2.5x. We have a good financial position to continue with our acquisitions, also supported by good positive cash flow. The net debt, the total net debt that is at 3.64x, that also includes the Contingent consideration, the earn-out levels. Important to have in mind is that those debts are depending on that there's actually profit growth for those debts to be paid out. That the debts are sized for according to future profits that are higher level than we have today. That number is a bit difficult to understand.
Therefore we very much focus on net financial debt, which is really those type of debts that we have to pay regardless of the development. The contingent considerations, they will shrink if the profits don't increase according to agreements. That's perhaps a bit little bit complicated, but I think you understand the concept. All right. We are coming over to our final slide, the outlook for the future. Despite some negative numbers on the organic growth, we are very confident about the future. The demand is very solid. Infrastructure is always needed. We have unchanged view regarding that. The order books are strong and good.
What we're doing actually now, the demand is there, but to some extent we cannot deliver, so we're building up a backlog. We will catch up on delays as soon as possible, of course. For the EV chargers, I think we've already discussed that, but the entire market is affected. There is a discussion related to dispensation about the new requirements that could be a positive thing, but it doesn't really help on the demand side because customers are still hesitant because they want to wait to the new version, which is really natural. There is some hesitation in the market.
We expect it to continue in July and August, but then eventually, we will see a catch-up, and because the demand is there, as we all know, in the chargers for electric vehicles. The profitability we expect to continue. The acquisitions will add on a positive side. On the organic side, on our comparable units, as I said, we expect a full compensation eventually. That will also add on the positive side. Of course, it's very difficult to say exactly when it will happen. Overall, we feel we are confident that the group will establish its profitability around 20%.
We've also discussed that acquisitions, we are in a good position, and we expect ourselves to exceed the target this year, and the financial position is good, as we said. We will focus on quality over quantity. There's a typo there. Okay. With that, we open up for questions.
Thank you very much for that presentation, and we'll jump straight into the questions. What is the feedback you get from your customers when talking about price increases?
Okay. Well, our customers, they really understand. I mean, everyone is aware of what's going on. We are all living in the same world. No customer is surprised, and every customer really understands. The products that we provide to our customers, they are critical. As I said, most likely, often also very small share of wallet. The customers, they accept to pay a higher price. It's not really a big deal. It's more when we have contracted over longer period. The customers, they understand the situation, but they say, "We have a contract, so you'll have to wait until the contract expires." Some of these customers, we are actually able to increase the price anyway because we have a good dialogue.
Some customers, they say, "No, we don't want to raise now. We have to wait for the contract," which is fully understandable. The dialogue is very good and positive and constructive.
Perfect. Thank you very much. We'll take the next question. Have the valuation multiples of private companies starting to come down as well?
We do not see that in such a clear way. I know that some of our colleagues in the market are saying that they experience that. We cannot say that we experience it. I don't know. Perhaps we're looking at different targets. The really high-quality targets that we look at perhaps are different. I don't know. Our view on this is really that there has been a lot of capital in the marketplace, for many reasons, as we all know. That capital needs to more or less vanish before the multiples will go down. Because an owner of a company doesn't suddenly accept a lower price just because, you know, something's happening on the stock market. There's no connection. What really drives this is the competition.
When there's less capital out in the marketplace, the competition will go down, and then eventually the prices will go down. If we look at the financial crisis 2007-2008, it took about a year for the prices to come down. That's probably the same type of pattern that we will see here.
Okay, thank you very much. We'll take the next question. Do you see any risk to your current inventory of older EV products?
No, we do not see a big risk there. One important aspect there is that we can upgrade the previous products with the new hardware, the new controlling unit so that it can be upgraded. There are other markets where we can export this product. The requirements are very specific for the U.K. market. They are not applicable to other markets, Europe, for instance. We have multiple options there.
All right, thank you. Next question. Have you seen any indications of weakening demand across your businesses?
No, the demand is solid. As we're saying, water consumption continues to increase, energy consumption continues to increase, transportation volumes continue to increase, and so forth, but the infrastructure assets are not being developed at the same pace. It's actually a growing gap between demand and supply. That is really the case. That's what we're experiencing.
Thank you for that answer. We'll take the next question. You mentioned that Certus showed a strong quarter. Is it now back to the kind of margin levels you highlighted at the time of the acquisition?
Yes, it is back where they should be. Yes.
Okay. Thank you very much. That was all the questions that we got. A big thanks to you, Jakob and Bengt, for presenting today. A big thanks to all of you who followed along for this webcast. I hope you have a great rest of the day. Thank you, and goodbye.
Thank you for listening. Bye-bye.
Thank you.