Welcome to Sdiptech Q3 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions- and- answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO Anders Mattson and CFO Bengt Lejdström. Please go ahead.
Hi everybody, and welcome to our Q3 presentation and Q&A. I am Anders Mattson, CEO of Sdiptech, and I will be presenting the result together with CFO Bengt Lejdström here today. I will start with the highlights of the quarter before we go into the more general content with the financial results. In the quarter, we have implemented a streamlined portfolio, and Sdiptech will become a more coherent and better aligned group going forward. Until today, we have consisted of 41 companies in our four business areas. We have historically been growing our adjusted EBITDA at a good level, but we have at the same time been quite volatile. Our portfolio has partially been based on installation companies, companies with exposure to cyclical end markets like construction, and quite a few companies with a margin around 10% in the group.
These companies were usually or mostly acquired before our strategic shift in Q3. If we look at the financials here for this total portfolio, in Q3, we had approximately 19% in adjusted EBITDA margin and 12% return on capital employed. If we look in the middle, what have we done? We have assessed based on our key strategic priorities. We prefer product-based companies. We like markets with strong underlying growth drivers, and we would like to see a clear niche, which is usually protected in a good way. That is also a reason why we use margins in many of our business units. Based on this assessment, we have made the decision to divest 11 companies from the group. We have already started the process of finding new homes to these companies, and we have good progress with several of the divestments so far.
As these 11 companies only stand for roughly 3% of the year-to-date adjusted EBITDA, the P&L effect is minor. On the balance sheet, the result will be a write-down of SEK 500 million in goodwill and other intangible assets. Bengt will come back to this later in the presentation. If we look to the right here, from today and going forward, we will consist of 30 companies and a better aligned portfolio. We believe we will be able to more proactively drive organic growth with this portfolio. From our point of view, it's also a better allocation of capital towards our strategic priorities going forward. Financially, in the quarter, as I said, it's a minor effect. Adjusted EBITDA will be reduced by SEK 7 million from SEK 242 million - 235 million. Our adjusted EBITDA margin will go up from 19.4%- 21.3%.
Return on capital employed will increase from 12% to roughly 13%. In the presentation going forward now, I will present numbers according to the core portfolio. Summary of the quarter from a financial perspective: net sales increased with 9%. That was 4.5% organic growth and roughly 9% due to acquisition. We were glad to see solid demand from all our business areas. It was positive to see a slow recovery from some larger business units where orders have been pushed forward in the year. From Q1 - Q2 and now in Q3, we finally got some sales realized. Adjusted EBITDA increased with 9%, 2.4% organic, and roughly acquisitions. The increase in sales made the EBITDA grow as well. It's not only because of cost adjustment. Year to date, we're still behind last year's numbers, but positive with the organic growth in the quarter.
We have also been able to maintain the margin of 21.3% in the quarter, which has been quite challenging due to tough market conditions, both on price and also actually to getting the customer to commit to the orders. We had a strong cash flow generation in the quarter as well of 94%, which resulted in SEK 255 million in cash. That was primarily a result of improved inventory levels from a high level in the last quarter. If we're going into the net sales, the net sales increased with 9% to SEK 1,102 million. As I said, it was a good demand, solid demand from all our business areas. The 4.5% organic growth is something we are, of course, satisfied with in the quarter.
As I also talked about previous quarters, we have experienced a slow first half of the year, especially from some larger business units in the group. It's a positive sign that I mentioned as well that we have been able to deliver and recognize sales in the quarter. We have also had a strong contribution from acquisitions. Some of the acquisitions are influenced by strong growth drivers linked to security around the data center as one example. That is in our smallest business area, safety and security. In the graph to the right, we have separated the core portfolio since 2023. From this date, you can see we have achieved a CAGR of 13% in sales growth. If we're looking at the sales split, the sales split of the portfolio looks now a little bit different.
After the separation of the core, Sweden has decreased in size, and now it's only between 5% and 6% in total sales from the portfolio. The U.K. is still our biggest market. We believe we are successful in the U.K. We like the trend with the long-term investments in infrastructure assets. Other Europe is now roughly at 20%. This is a geographic area we foresee to continue to grow in. If you look to the right, turnover by type, proprietary products is the dominant type of revenue for us as a group. Installation has been reduced as a result of the core portfolio. The installation and service that you still hear, you still see now is primarily on our own products. We have several companies with a strong service offering that enables stability in the earnings.
That's usually both service on hardware, software, and manual labor hours as well, primarily on our own products then. Coming into the adjusted EBITDA, adjusted EBITDA increased by 9% to SEK 235 million. That is for us a stable profit growth with 2.4% organic growth. We also had a strong contribution from acquisition with 10%. It's coming primarily from companies within safety and security and also from companies within energy and electrification. The trend around security for data center has been driving this acquisition quite good in the quarter. The margin at 21.3%, we have been able to maintain from last year. As I mentioned before, there has been a price pressure in the market. Being able to maintain this margin is a result of good cost control, both from activities within purchasing, but also from overall overhead cost development.
If you look at the diagram to the right, we see a stable and high level in adjusted EBITDA in percentage since 2023. If you also then look at the CAGR, the CAGR of the EBITDA is at 11%. We know we can do better than this. In this graph, it's affected by a slower pace of acquisition since the last one and a half years. It's also a weaker, as we know, organic growth since the beginning of 2024. Looking at the development in our four business areas, I think it's important to mention that we believe our four business areas serve us well as a group. They are broad enough to enable good M&A opportunities within each and every business area. They also align our focus to the markets with strong underlying growth drivers, which is very important for the long-term development for us as a group.
In Q3, all four business areas had solid demands. It's also positive to see that our smallest business area, safety and security, had a strong development in the quarter. If you look at supply chain and transportation, we have begun to recover in this one after a weak first half of the year. Several customers in this business area postponed their orders, actually from Q2 during the summer into Q3 and some into Q4. In Q3, we released some sales, and it was also a good scalability, which led to margin improvements in the business area. Safety and security, as I already mentioned, had a strong quarter. It was several smaller units benefiting from favorable market trends. The one I already mentioned around data center, but also around emission control, pollution control, which is a strong area for us. New acquired companies in this business area also affected positively.
Within energy and electrification, performance was mixed. A few units were driven by continued strong demand from energy efficiency, while some units were still affected from some very tough comparison from last year. That was from Q1, Q2, and also now in Q3. In water and bioeconomy, several units performed well, although margins were impacted in this business area by some cost pressure. We are working to control, but we also need to be balanced to foresee future opportunities and future growth in regards to our cost base. With that said, I hand over to you, Bengt.
Thank you, Anders. Yeah, let's have a little bit deeper look into the cash flow and cash conversion for the whole group. As Anders was mentioning, we had a very good cash conversion of 94%.
Much of that coming from inventories that were built up during the summer for seasonal sales that have started now and will continue into Q4. Improved the whole situation with inventory levels. We also saw some lower tax payments compared to last year. All in all, a good quarter. As you can see there on the chart, typically we are between 70% - 90% in cash conversion. That's from operations and from working capital ups and downs. We're now on the last 12-month basis right in the middle at 81%, comparable with last year's 83%. We also start to show in our reports now the free cash flow per share. We haven't reported that for a very long time, but we report it now. We had a very good free cash flow.
That means all cash coming in from the business and also after the working capital adjustments, but then deducting the amortization of different leasing contracts as well as deducting the capital expenditures for different types of investments in the companies. Really, the only thing not included is when we acquire companies or pay earnout debts to already acquired companies. That cash flow was very good. Apart from the good cash flow from the operations, we saw a lower CapEx level in this quarter, as we have done also for the full year. We work very closely with the companies, of course, to decide what type of investments they should do. We do that by looking at a classical DuPont chart, you could say, where we look at both their EBITDA margins and their capital turnover and see what kind of return on capital employed they have.
From that, decide what's most prioritized. Also, the free cash flow for the last 12 months, as you see here at the last bullet, is also very strong, coming then both from the operations and from lower capital expenditures. Looking then at some additional metrics, we have the profit after tax, of course, an important measure. This quarter, it's a bit affected quite heavily, actually, by this write-down of goodwill. It's all of SEK 500 million, this write-down of goodwill and other immaterial assets. When we moved these companies that will be divested out of the business areas, we could then make a full impairment test of their values. As you know, we do our impairment tests on goodwill, etc., based on our business areas because they are our cash-generating units. All our four business areas have been able to defend very well the values that are in there.
There is no risk for write-downs of the business areas. When we subtract out these specific companies, we have been able then to look at them individually and affected in a total write-down of SEK 500 million. If we exclude that more bookkeeping exercise, it's not cash-generating anything, not affecting the cash flow, then we see that the profit after tax was a little bit low. That difference is mainly because of the currency effects. We had SEK 14 million of currency loss in the quarter. As you could see and hear from Anders previously, it affects both top line and profit, of course, this 4% - 5% all in all FX effect. In our finance net, it affects us with SEK 14 million in the quarter. That also affects us on the last 12 months.
In total, the finance net is affected with SEK 50 million, most of that coming from currency effects. As you saw on the chart on our distribution of sales, that currency effect could, of course, be quite substantial as the Swedish currency becomes stronger, as we have more than 90% of our revenues ticking in from other currencies. Another measure, then taking that profit after tax and take it per ordinary share. After the dilution, you see a very hefty minus in the quarter, - SEK 11.14 per share. If we then exclude this write-down, it's a little bit more than SEK 2 per share. It's of the same reasons as I just explained. That also goes for the last 12 months compared with last year.
Taking a look at the leverage, we saw a quite big increase in the financial debt leverage compared with last year and also compared with the year-end last year. That's because we have paid out earnout debts. These earnouts have been provided for in the balance sheet ever since we acquired the companies. The payout of earnouts does not affect the net debt in total, the bottom line, but it affects the financial net debt. We have paid out about SEK 150 million second quarter and almost SEK 400 million in the year to date. That's, of course, a lot of money going out, but it's going out. Companies have performed very well since we acquired them. It's a good thing to pay earnouts.
The total net debt compared with the adjusted EBITDA has decreased since the new year, since we haven't made so much acquisitions, but it increased from last year's September because we have acquired SEK 85 million of profit in the last 12 months. That affects the balance sheet. Since the organic growth hasn't been top-notch during that period, that affects the profit and results in a slight increase in the net debt leverage. As the last financial metric here presented, we look at the return on capital employed, the ROCE. As Anders mentioned, it was 12% now. It's counted as, of course, on the average capital employed for the last four months and then compared with the EBITDA profit we have had. That decreased because we have increased the capital employed from the acquisitions. The organic growth, as I said, the last 12 months have been slightly negative.
If we just look at the outgoing balance of capital employed after the write-downs of goodwill, we are at almost 13%. If we only look at the core businesses taking their capital employed and their profits, then we're at 13.5% now. As we divest these companies one by one, the capital employed is reduced and this ROCE will increase slowly but steadily. If we look upon the operational return on capital employed, that is the average from our operating units, we're at 51%, which is, of course, very good, we believe in. Okay, with that, I'm back to Anders.
Okay, thank you, Bengt. Coming into acquisitions, which is a very important aspect of our business model. Year to date, we have acquired SEK 40 million in EBITDA. We hope to close one small deal before year-end. We have some ongoing discussions that are quite far in the process.
That's the aim for the year. I think it's important to mention our guiding principles here in regards to M&A. Regarding the pipeline, we continue to build a pipeline to meet the companies to come to the discussion about the final acquisitions. We do that, and we have a strong, solid pipeline in place, continuously building that one. In regard to valuation, we are disciplined here. We know that it's easy to go away in valuation. During this quarter, we have stepped away from two deals that I was part of as well due to the valuation going too high for us. On the leverage side, as we have said, our aim is to reduce the leverage in the future. That, together with our discipline in valuation, is affecting as well the numbers of acquisition and the number of EBIT we have done so far in the year.
I can also add here that we have started to look into Germany. We did it already last quarter, but it's good progress and a lot of exciting companies in that region for us now and also for the future, we believe. A last slide before we go into the Q&A, a little bit of the takeaways from the quarter from us. I think the solid underlying demand is positive. A majority of our companies had a stable demand in Q3. It is still uncertainty out there in the market, and the condition for many of the businesses in Q4 is unstable. We see that 2026 is a positive sign for us, but it's still uncertain. That's what we see right now. We don't want to say anything more about 2026 than that here today.
On the second bullet here on our strategic actions for the long-term value creation, we have taken some very important steps in the quarter to align our portfolio. We have been talking about that for quite some time, and I think it's good for us, for Sdiptech, to finally have done this decision now going forward. Many of the companies we will divest, we have ongoing discussions with and progress in a good way. We have not set any strict deadline when it needs to happen, the divestment, but both from our perspective, from the company's perspective, we would like to be efficient and fast in the process. That's what we are driving at. During the autumn as well, we have looked into our strategy, and we have made some adjustments, and we will present that on a Capital Markets Day in the end of November.
On the last note then, the acquisition pipeline, it is a solid pipeline that we have. Discussions ongoing, but we keep a strong discipline in our valuation and also around our investment criteria, especially with our aim to decreasing the leverage over time in the future. That was, I think, everything from us as a presenter, and I think we can open up for our Q&A session as well now.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Max Bacco from SEB. Please go ahead.
Thank you, operator, and good afternoon, Anders and Bengt. Well done in the quarter. Three questions from my side, three, four questions. Perhaps starting with the cash flow, as you said, very strong here in the quarter, partly due to lower tax, but also lower CapEx and then quite neutral impact from networking capital. The first question on cash flow, I think you mentioned this, Bengt, but here in the end of 2025, in Q4, do you see potential for further support from networking capital in terms of the cash flow? What's your thoughts on that if we start with that one?
Exactly, and typically Q4 could be quite good from a working capital perspective since we have some seasonal-oriented companies. There is no moving equipment and heat work and so on. They have been building stocks during the summer and starting now to sell it and turn it into accounts receivables, of course, but then also get the cash in from those invoices. Last year it was actually above 100% the cash generation. It's not that high this year, but still Q4 is typically good for working capital.
Okay, sounds promising. You actually touch upon this also during the presentation that in the quarter CapEx was a bit lower and that you have a very strict process with the subsidiaries when deciding how to allocate capital. Perhaps thinking a bit more long-term than just next quarter, but historically Sdiptech has been at some 4% of sales in terms of CapEx. Do you see a potential to reduce that number going ahead and perhaps allocate more into acquisitions instead and deleveraging? What's your thoughts on that going forward?
Yeah, I mean, it's typically perhaps difficult to say the exact number for the future, but I think if we have been sometimes around 4 and even above, I think we're more around of sales now in CapEx spending. As I said, it's always depending on the actual situation and what's most profitable for that company, for example. We have tightened up the process quite a bit.
Okay.
I can add to that as well. I think what Bengt said there, it's important for us to see the CapEx and the need for the total portfolio and to prioritize in the coming years in a better way. That's something we have looked into ourselves in our strategic work as well.
Okay, sounds good. Changing topic, as you have explained yourself, quite a lot of things going on right now in Sdiptech. Everything from improvement measures in several core subsidiaries, you still have an active M&A pipeline, you have ambitions to divest several companies, and I guess you're preparing as well for a Capital Markets Day here in the end of November. Just curious how you allocate responsibilities internally, and do you consider yourself to be able to execute on all parts without losing momentum or sacrificing quality? What's your thoughts on that?
Yeah, I think from I agree, it's a lot on the agenda, but I think we have structured it quite good. The M&A team is not responsible for the divestment. They are focusing on building the pipeline and meeting and executing on the M&A side. We have other internal individuals responsible for the divestment, and it's going quite good, actually. We are not going on big, broad processes. We are identifying smart, we think, key potential buyers to the businesses, and we drive that process quite efficiently. From the other perspective, we are still working on establishing the new business area organization. In August, Daniel started as the new Head of Supply Chain and Transportation, and we are quite far in the process to recruit somebody in the U.K. as well for Energy and Electrification.
I think that will, of course, be very important going forward to have that stable organization in the business area side as well. So far, it feels good on that side.
Okay, perfect. One final question, turning a bit more short-term again. If it's possible, if you could help us, how would you think about Q4 here, the next quarter, in terms of comparable numbers, both for core and non-core? At first glance, it looks like non-core or other operations seem to have a quite weak Q4 last year, I guess with some seasonality into it as well, whereas core had a more, it looks like, more decent quarter Q4 last year. Do you share that view on things?
Yeah, yeah, I can definitely, it's correct. In our situation, we look at the divestment process. It might be that some of the companies might be divested now during Q4, and of course, it's going to affect that comparable numbers then. From the core, I think Bengt was touching upon that as well, that it's important that our companies with a bigger seasonal effect deliver now. It's a little bit, as we said, it's a little bit unsecure at the moment. We have some more slight negative, so to say, but overall, it's a positive sign for the future. Right now, for Q4, we have said not to guide anything more than this at the moment.
Okay, understood. That was all from me. Thank you very much for a good presentation and answering all the questions. Have a nice weekend when we get there.
Thank you, Max.
Thank you.
The next question comes from Simon Jönsson from ABG Sundal Collier. Please go ahead.
Hello, and good afternoon, everyone. First, just want to say it's a nice addition with the free cash flow per share KPI. Things like that are appreciated. I also have a question, like Max, on the acquisition pace. It sounds like you expect maybe one more smaller acquisition this year. It sounds like you remain quite active with new deals. I just wonder how you think about new acquisitions versus your preferred gearing levels, sort of what you are comfortable with, and where you think your limits might be in terms of gearing and how much you can do on the acquisition side in near term. I guess that's maybe not Q4, but in coming quarters or so. Anything on that would be helpful, how you're thinking?
Yeah, so I think on the first perspective of this, it's important to be active. We prefer to say no to deals than not having the deals and to not sit at the table. We are, yes, definitely building the pipeline and meeting the customer and trying to get to the deal, so to say. Regarding the exact numbers, we will touch upon that. We have discussed that internally in regards to our Capital Markets Day that we will come up with targets, I think around some potentially new financial targets there. Right now, we are at 3.2, as Bengt showed you. I think we would like to go down from there and not to go up. That's the balance. We still would like to acquire those value companies that are out there when we can get them at a good valuation. Still, ambition is to drive down leverage.
We don't want to make it too fast and not make any stupid decisions when we have the good targets out there.
All right, good answer. Thanks for that. I just have a follow-up on the margins on the segment, specifically on water and bio. You commented briefly that margins in that segment were impacted by cost pressures. Could you maybe elaborate a bit more specifically due to the margin decline year- over- year and how we should expect those pressures going forward?
Yeah, we have a company which is having a lot of big workforce. From a salary perspective, salary increased quite significantly in the beginning of the year, especially in the U.K. We are having some longer contracts with insurance customers, which is very hard to adjust for those kinds of compensation or salary compensations. Therefore, it's been a tough year for that company specifically in the U.K. That's really the majority. In other companies, we have been taking some decisions to build up a little bit more because we need that to be able to deliver for a possible upside in the coming quarters. They look good from a revenue side in projects and orders.
All right, thanks for that. That's all for me.
The next question comes from Martin Wahlström from Redeye. Please go ahead.
Yes, hello, thank you for taking my question. The first one is related to the dynamic you say where you postpone orders from H1 to H2. Could you give any more color on the split between kind of what lands in Q3 and what lands in Q4?
I think we have a good, let's say, part of that was actually now coming into Q3. It's still some of those orders. I'm thinking specifically of three companies in the group. They have been promised orders. It didn't come in Q3. Potentially it will come in Q4. The good thing when we have the U.K. companies is that they have the budget year actually end of March 2026. It's still on the right side in the budget, so to say, for some of the companies. It's difficult to say specifically how much it came in Q3 and how much is going to be realized in Q4. Q4 is more about what I think we answered before. The seasonality in some. The winter needs to come and we need to be able to deliver for the season or in season as well.
I see. One final question is related to if you could give some more color on the distribution in your acquisition pipeline when it comes to the split between business areas and geographies going forward.
From a business area perspective, it's, let's say, it's equally among the four business areas. We have had some good discussions within supply chain, but also in safety and security in the recent quarter. I think that's good. It's important that we work with all four business areas in acquisitions. From geography, it's actually nothing special there. It's our main geographies. It's the U.K., it's the Nordics, it's Italy as well. As I said as well, we are going into Germany. We have some good discussions with German or Dutch as well companies. The Dutch countries, it's so that's new and fresh into the pipeline, but nothing more or more significant than other geographies at the moment.
Okay, great. That was all I had. Thank you.
The next question comes from Linus Alentun from Nordea. Please go ahead.
Yes, hi. Hi and good afternoon. Just a quick couple of questions here from me. Starting off in water and bio, what would you say is a normalized margin here once we see a rebound?
I could perhaps step in there. Yeah, we have seen typically they have been around 24%- 25%. As the companies we now count as the core companies in that business area, now it was 21% in this quarter for the reasons that Anders mentioned. We're working to get it up there again. Whether it will be 23% or 24% or 25%, that's of course still to be seen because there are many different unique situations to take care of. At least we're working to improve from the current 21%. That much we can say.
Okay. On 26% here, you mentioned in the report that that is when you see a broader recovery. What makes you confident in that? Is there any indicator you've seen turning more positive?
No, I think it's the discussion with the companies. We are in a budget process as well, and we've been asking or we are in our discussions with the companies. It is a positive momentum. Areas or business units and orders, and they are looking into projects for next year and new potential customers. No, it's from that perspective, talking to the companies and seeing there what they see for the orders and for the potential in the coming year.
Okay, super. That's super clear. Just one last question here. If I remember correctly, you had some swaps here that are contributing negatively in the net financials. What's the timeline? When will they stop affecting here?
Yeah, we have two types of hedging arrangements. One is for interest, and those interest swaps are right now negative. They were positive before when the interest rates were higher. Right now, we pay an extra 0.2% or so on the debt, but they will be closed from the end of next year. It's one, two years, you could say. It's not a very big downside, but still we pay about 20 basis points more than we should because of those hedging. They have been giving a good return because they were better before. The other side, we have hedging arrangements on currencies, and there we try to hedge our currency exposure in the balance sheet to some extent.
We're still net asset positive, which means that when, for example, British pound sterling is weakening towards the SEK, all in all, we get then a cost in the P&L, but not as much as we would if we hadn't those FX swaps and hedges.
Okay, super. 20 basis points there. Perfect. Thanks for taking my questions.
Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time. I hand the conference back to the speakers for any written questions or closing comments.
I could kick off then with the questions. We have received three questions in the chat here. I think one we have already answered. That was regarding the EBITDA margin in the water and bioeconomy business area. The second question was that some of the companies we're now intending to divest among the other companies, they are quite well-performing companies with good margins and product-based to some extent. Why divesting such companies?
Yeah, I think I can add to that question. What I said, what we look for in the companies we would like to buy in our strategic priorities is around three things. We would like to have strong companies that actually have their own products. They sell and they make service to them. We also want to have not cyclical end markets. It has been a challenge with some of the companies which are very cyclical and working. Trying to practically work with organic growth is quite difficult if you don't have the mindset that that's what it is with those companies. The third thing is around the niche. If you have the niche, you can protect it and you can drive growth from that niche. All of these companies that we're giving examples of here, they have some aspect or they're not meeting that criteria.
It's been, for us, challenging. We would like to allocate that money into more of our prioritized businesses and future businesses. We believe many of these businesses, as we said, it's not because they are performing financially bad. It's more that to allocate that capital to something that we believe in the future is better according to us.
Thank you, Anders. The last written question, as I see, is regarding the write-down. If that was a one-off or could there potentially continue to be more write-downs in Q4 and also next year? What we have done now is, to the best of our knowledge, as it's typically called, and also to write down the value. We don't foresee that we need to do any more write-downs. Of course, it's depending on how much money, how high considerations we will get for the companies once we divest. We believe at least that the value of these companies represents their market value and potential consideration that we will get. It shouldn't be any major at least. It could go both ways. We could both have some profits or we could have some smaller losses when we divest, but it shouldn't really be any big numbers.
No write-down or goodwill as such because of any impairment. I think that was all of the written questions. Back to you, Anders.
Thank you for the written question and the asked question. Thank you all for listening in. We are looking forward, and hopefully, we will meet some of you at the Capital Market Days in November, which will be held here in Stockholm. We are looking forward to that. With that, thank you, everybody. Good to be here.