Good afternoon. [Foreign language] God eftermiddag. A big welcome to all of you here in Wallenbergsalen, and also a big welcome to you who are watching online. As you know, this is Sdiptech's Capital Markets Day 2025. I'm Linda Nyberg, and I will be your host today. I'm really looking forward to this because last time I was hosting a Capital Markets Day for Sdiptech was 2021. For those of you who remember, that was during the pandemic. I did not have the pleasure to meet all of you in person. I think this is great to see so many of you here as well present. We're going to jump straight into today's agenda, and I hope it comes here that I'm doing the right thing now. Here also you have the speakers, of course, of today.
We will start with the CEO, Sdiptech's CEO, and there will be an update on the business strategy, of course, and also just look at the new financial targets that were announced earlier today. Maybe some of you have seen that already. After Anders, we will go deeper in the business, and we will listen to the four business areas and the heads of those. We will continue with, as you can see, also Michael Lund from e-l-m, e-l-m in Swedish, which is one of the business units. We will talk about their journey and also the partnership with Sdiptech and how the development, the long-term development, is supported because of that partnership. We will also shift focus later, and we will listen to the head of M&A, Peter Helsings, who will also then, of course, talk about the acquisitions.
We will see the new framework and what the future looks like with the M&A perspective. First of all, we're going to get the financial overview from the CEO. I have to say something because we're in Wallenbergsalen, and that's the air hostess information. You know what I'm going to say now. We have two exits in the back. For those of you who are not aware of that, there's a powdering room, as we say in English, [Foreign language] damerna och herrarna. You've probably seen it just by the stairs when you enter the room. There's a meeting point. We're in Sweden. In case of emergency, God forbidden, we will meet at 7-Eleven. Everybody knows where that is, right? The closest. We're not going to meet Sarah. Sorry for the joke. I think now Anders Mattson, are you ready?
The CEO of Sdiptech. Give him a warm hand.
Okay, now we can hear better. Perfect. Yes, I also would like to take the opportunity to Welcome you to our Capital Markets Day. Great to see all of you here and also the one on the webcast. Thank you all for taking the time to listen to us today. I am then Anders Mattson, CEO of Sdiptech since June this year. I started my—I came into Sdiptech in 2018. I have been here over seven years now, and I've gained a lot of experience working with some fantastic companies and also some very interesting entrepreneurs over the years. Today, I'm very glad to be leading Sdiptech now for the future. I would like to start to present my management team that you will meet later today.
You will be listening to the heads of the business area, the four: Daniel Unge, Roger Wood, Amanda Berninger , and Sarah Ström. Later, you will also then listen to our Head of M&A, Peter Helsings, and our CFO, Bengt Lejdström. We have two people today that will not be on stage, and that is our Head of IR and Communication. That is My Lundberg . She is on parental leave. We also have Peter Stegersjö , Head of Strategy and Corporate Development. He is the one responsible for all the divestment at the moment, and he will not present here today. I am glad to demonstrate the very strong team that now we will be leading Sdiptech together with me for the coming years. Let me begin with a brief overview of Sdiptech as a foundation for today's presentation.
Sdiptech acquired, developed, and created a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 30 companies in the group and are divided into four business areas: supply chain and transportation, energy and electrification, water and bioeconomy, and safety and security. The numbers you can see here on the slide, they are excluding central cost and goodwill to show the operational performance of our entities. I just would like to highlight two KPIs. That's the margin, the average adjusted EBITDA margin of 23.6%, and also the return on capital employed, the average of 46%. These KPIs demonstrate that we have a very strong group of companies in the group and also that we have some strong niches that we are positioned within. You will hear more about the different business areas later today from the heads of the business areas.
U.K. is our biggest market with roughly 50% of the sale. The remaining 50% is distributed among other European countries and 5% into the U.S.. We operate in a decentralized model, and it's very important that the day-to-day mandate responsibilities are with the local companies. Our market, we have a modern view of looking and defining at infrastructure that goes beyond the classic definition of roads, tunnels, and utilities. Our selected infrastructure segments are broad enough to enable a lot of M&A opportunities for the future, but they also create a focus for us as a group. The most important aspect of our segment is that we see clear structural growth trends for the future. We know that European transportation, water, and energy systems are old, and they require a lot of upgrades, digital upgrades as well, replacement and modernization.
We also have a growing population, especially around urban areas, and that is demanding that we need to expand all of these systems as well. Finally, we have stricter regulations and also sustainability demands, so we need to invest to meet up to those requirements. All of these mega trends that we say are creating a very good platform for us going into the future. Before I talk about areas we would like to improve that we have talked a lot about in our strategic now planning over the last couple of months, I would like to show you or discuss a little bit about our strong foundation. We have a strong track record of EBITDA growth. We have been growing CAGR 26% since 2019. We are positioned well with our current portfolio within the attractive infrastructure segments I just mentioned.
Since 2018, we have acquired a very strong group of companies that will be the basis for our organic growth going in now to the future. Our internal M&A capabilities are strong. We have built up over many years a strong pipeline that we constantly execute on at the moment. Our decentralized model is in place, is working, and we have very strong leaders in several of our business units out there. Also, on a more soft aspect, many entrepreneurs say that Sdiptech demonstrates trust and belief that they really like the companies, that they would like to do something good with the companies. I think that's very important because we know it's more than just financial metrics when you're going to acquire family businesses that need to be sold or need to, but will be sold.
Having described our strong foundation, we still have a number of challenges that we have addressed. We have had several companies in our portfolio that have not met up to our investment criteria. The investment criteria are proprietary products, EBIT margin above 15%, and exposure to non-cyclical end markets. We have also had volatile growth for many years, which has led to challenges to drive sustainable and long-term organic growth with the core portfolio. We have focused on a little bit too much, we believe, on growing the EBITDA and not on total return. A decentralized model does not mean that you cannot be active and support your companies out there. We feel that we have been a little bit too hands-off with many of the companies in the group.
We also have had a negative organic EBITDA development over the last one and a half year, and that's, of course, something we would like to address. What are we doing then? How have we addressed this? We have assessed our portfolio, and we have decided to divest 11 companies from the group. This is an ongoing process, and actually, as of yesterday, we have signed one of the 11 to be sold within the near term. We have also strengthened our business area organization. We felt ourselves we wanted more expertise and experience, so we have recruited new people, and we are also recruiting one more in the U.K. that's to come.
During the autumn, we have also created a strategic review together with the management team, sorry, to clarify how we're going to ensure the long-term growth for the companies and also increase the focus on return on capital employed going forward. Based on the strategic work, we have defined new financial targets for the group. Firstly, we have moved away from a separate M&A and organic growth target, and now we are targeting a total growth instead. The target is to achieve 15% growth per year until 2030, which will result in a doubling of the EBITDA over the five-year period. Secondly, we have decided to increase our focus on return on capital employed, and we are targeting to reach about 15%.
To be able to improve the return on capital employed, we need to improve the focus on cash flow in our current portfolio, but we also need to be very disciplined in the future M&A opportunities. On leverage, we also have a new updated leverage target, and the target is to be below three in total net debt divided by EBITDA, and we have stepped away from a separate or a financial external net debt target. In summary, we believe the new target gives us the right focus and the balance between growth and return on capital employed, and also keeping a healthy balance sheet in place for the long term.
To reach the new financial target, we have defined four strategic pillars to focus on, and they are enhanced portfolio management, proactive ownership, disciplined and return-focused M&A, and also a class of strategy to accelerate both the organic and also the M&A growth. I will go through now the different pillars so you will understand a little bit more about the content. The first pillar is about portfolio management. We have decided not to treat all the companies the same in the portfolio, and we need to become more prudent on how we invest and where we invest for the future. The first step has already been taken, and that was to assess the strategic fit of the companies, and we decided to divest 11 companies from the group. Again, to repeat, it's companies without proprietary products, EBIT margin around 10%, and also exposure, high exposure to cyclical end markets.
Secondly, we have defined companies as strengthen, accelerate, and harvest. If the external market conditions are good, but we do not have the right products in place, or we do not have a great leadership team in place, we need to fix that. We need to invest smart to change that position, and we should not focus on anything else. This position we call strengthen. If the external market conditions are good, and we also have the right products and the right services in place, and a great management team, we should dare to invest for growth, and this we call accelerate. The last one, if the market conditions are not so good, it is a lower growth projection, but we have strong products and a strong management team in place, we do not need to invest. We should try to harvest this position instead.
If you see to the right, you can see that the majority of our companies, they are in the accelerate quadrant. By this framework, we will be able to prioritize investment towards these companies going forward. The next one is to become more of a proactive owner. Proactive for us means that we would like to guide and take more active decisions with our companies. We will implement return on capital employed as a key metric to work with our companies, and to do that, we're going to implement a strategic framework, the classic DuPont analysis. If you want to grow your return, you can work on your EBIT margin perspective, but you can equally important work on your capital efficiency side to increase total return.
We will also, which is very important, tie incentives towards return on capital employed instead of just, for example, grow your EBIT every year. We do not see that this more active approach interferes with our decentralized model. Actually, I think this will guide the local leaders to make better decisions day to day, and they will also be aligned with our target as a group. If any support is needed to accelerate any development, we are there to support and come with active initiatives as well. That could be about pricing opportunities. We cannot require each and every MD out there to know exactly how you're excellent in your pricing. We can come there and support. We can support with add-on acquisition, and of course, we can also support from a working capital perspective. How can you improve your safety stock, for example?
We don't do it all the time, but select initiatives where it makes sense. The other very important growth drive for us is M&A. PT will talk more about our approach to M&A, but I would like to highlight some specific areas which are very important for us. Our M&A capabilities are strong. We have a central team in place that is supporting the business areas, each business area, but also the geographies. With improved experience and expertise from our business areas, we believe we can strengthen this position together with the central team. The second one is that we have to be disciplined in our evaluation to improve our return on capital employed, as I already mentioned, and we have shifted focus to only look at EBITDA multiples to look more for returns, and we're looking for IRR returns on each and every acquisition.
The target is to reach 20% IRR for every acquisition we will do. We also need to open up new geographies to support our M&A growth. We can do that by central initiatives like we talked about entering Germany centrally, but we could also do it from an individual company perspective. We get a great opportunity to move into a new geography. Do not hesitate. Do that if it makes sense. The last pillar is clusters. Cluster is a connected group of companies that benefit from supporting each other. It has nothing to do with forced synergies from us as owners. With a more coherent portfolio, we see clear evidence of collaboration opportunities in the group. Collaboration usually comes from the customer or customers, the companies themselves. It could be about opening up doors to customers, could be talking about great suppliers.
We actually have examples where they can cooperate in R&D activities as well. The benefit from cluster thinking is clear even from an M&A perspective. If we know the markets, we know the player in the market, it is more easily for us to identify those great targets that we would like to acquire. It is another strong benefit as well, and that is about sector expertise. If we know about the sector, we will most probably become a better owner. We also can come with an attractive offer to some of the companies. You can join our group. We have this cluster. This is what we bring to the table as well. In the future, if we grow a cluster big enough, we can easily then, let's say, create a subsegment within one of the business areas.
You will hear examples from this from our business areas as well later today. The journey to achieve our financial targets will include a number of milestones under the way. For 2025, we have now defined our strategy going forward, and we will also enter now with a core portfolio after the divestment will be done. Next year, we will enter with a healthy balance sheet in 2026. We have a new team in place, and we will start to ramp up our growth. That is also for the M&A growth, of course. From 2027, we will be performing at full potential, as we call it. To be able to double the company in five years, we need to increase the growth from 2027 - 2030 to be able to reach those 15% over five years.
Just to summarize our financial targets again, our target is to grow adjusted EBITDA by 15% per year. The organic growth will come from our strong, attractive segments that are going to grow more than GDP in Europe, which we all know is going to be, or the forecast is going to be quite moderate for next year. Our proactive ownership model is going to generate more organic growth. On top of that, we have our M&A growth that is going to be critical to reach the 15%. We will improve our return on capital employed to about 15%, and we need to focus more on capital efficiency and to be disciplined in our M&As. Our leverage should come down below three. Some last words from me, key takeaways from this introduction here today.
Sdiptech has a strong position within our key infrastructure segments, and we see clear trends that this segment is going to grow for a long time. We have a strong core portfolio. You will be hearing some examples of that today, but that's the portfolio we're going to drive forward organically. Our growth agenda will be built on proactive ownership and also disciplined M&A, focusing on IRR for each and every acquisition going forward. Financial targets focusing on the total growth target, improving the return on capital employed, and have the total leverage below three. That was all from my presentation.
Thank you, Anders. A big hand. Thank you. We actually, I have questions, former journalist, but you know in the chat, for those of you online, there's a chat function, so you can get your questions in there and they can ask you later.
I'll start with a question now, and guys, if you have a question by the end of the day, save them. You talked about a decentralized model, and then you also mentioned that we're going to be more hands-on. Can you explain that a little bit further? What do you mean by that?
Yep. I think the essence in a decentralized model is that you have strong local leaders that not only dare, but they believe that they have the mandate and they believe they make the right decisions every day. That's extremely important that they have that belief and they dare to do that. We think from an owner perspective that we can be much more clear on the strategic or financial targets for the year. Each company knows where we would like to develop the company from an owner perspective.
That for us does not interfere with the decentralized model. I also mentioned it before, and specific selective initiatives like pricing, we definitely can support the companies to accelerate some of the development that we see from our perspective.
I know there will be more questions, Anders. Thank you for now. Thank you. Warm hand. Thank you. Anders, as we said, for those of you here, you actually have microphones, as you can see, next to the chairs. Have you seen that? Have you been in Wallenbergsalen before? It is excellent for the Q&A by the end of the session. Now we are going to go through the four business areas. First, we have one who is going to start. Sarah, you will be first, but we later have also Roger Wood, Amanda Benninger, of course, and Daniel Unge. Sarah, please, the stage is yours.
Thank you, Linda. Hope you can hear me. Yes. Yeah, it works. Good afternoon, everyone. My name is Sarah. I'm Head of Business Area Water and Bioeconomy. I've been with Sdiptech just over three years, and I've spent most of that time with the companies in this segment. I will give you an update of the segment, how it looks, also the landscape and how we see the market drivers. At the end, I will give an example of one of the four strategic pillars Anders was referring to about clusters. This is the water and bioeconomy area as it looks today. It focuses on technologies and systems within water, waste, and bio-based solutions. We are currently nine companies in the area spread over five countries.
The companies in the group of water and bioeconomy, they are a mix of products, services, and aftermarket offerings, and they generate on an average EBITDA margin of 25%. The returns are in general good, achieving 110% return on capital employed. This is an area I'm very passionate about, not only because it holds business opportunities, but also because water is an essential part of life and our society. It is well known the demand for water is growing, and it is expected that by 2030, the available resources in water will exceed the demand by 40%. This is driven by private consumption, agriculture, but of course, new industries and existing ones, like the semiconductor manufacturing, data centers, power generation, and pharmaceuticals. All of those businesses rely on a high-quality water supply. At the same time, water has become a scarce resource.
Only 27% of the surface water in Europe is achieving a good chemical status, and this is actually a reduction from 33% a few years earlier. Pollution, climate change, and aging infrastructure generating leakages up to 50% are all areas affecting the amount of fresh water available. There is a need for investments, and these investments are also driven by regulatory measures in the European Union. Water has been high on the European agenda for a long time, and this year this has reinforced even more with the launch of a new water resilience strategy. This strategy has two components, one being to reinforce existing laws and regulations, and the other part is to drive investments and stimulate both private and public investments in the area.
On the right-hand side, you see an example of an urban water cycle, and we see that the companies in the water and bioeconomy segment are well positioned in this area from collection, distribution, to treatment and use, all the way to wastewater treatment and discharge and recycling. I will give you two examples of what the companies within this area are currently doing. One is the group of four companies to the right-hand side offering chemicals and products in the water treatment area. It's Pure Water Scandinavia, WTP in the U.K., WaterTech of Sweden, and Kemi-tech in Denmark. They offer solutions for water treatments to primarily hospitals and industries, and this market is driven by the need to protect the equipment and also reduce the amount of water.
Another interesting area is the area of data and analytics, and in this area, we have one of the newest acquisitions we have done, and that is Wintex in Denmark. They are offering high-quality soil sampling equipment for the agriculture industry, and this is a growing area as agriculture is seen as one of the drivers for increased pollution affecting the water cycle. We are, of course, looking after more companies in this area, and Europe is a good area to look. It's seen as the industry leader in water management, with 40% of the patents being placed in Europe. The area in Europe consists of about 80,000 companies, and hopefully a few of them will be part of the water and bioeconomy segment going forward.
I will also give an example on how we work with the companies when they are in the group, and I will refer to the fourth pillar that Anders was talking about being part of one of our strategic areas going forward. In the water and bioeconomy area, this is in particular important because many of the companies in this area are quite local. Sludge is treated locally, and water management is also based on local solutions. We see there is a great value in adding those companies together, share best practice, and collaborate in areas like R&D, sourcing, and pricing. Two of the companies in this cluster have taken this collaboration even further. That's WaterTech of Sweden and Kemi-tech in Denmark.
Twelve of the products currently being sold by WaterTech of Sweden in Sweden are being produced in Kemi-tech in Denmark, and this has resulted in a cost improvement by 5% in production and administration. This collaboration is expected to grow even further in 2026 and to see opportunities in both markets. The water treatment cluster is also a particularly interesting cluster to look for more acquisition targets, and we have a list of approximately 10 companies that we're currently looking at complementing this cluster going forward. Another example has emerged in the wastewater treatment area, where we have Auger, specialized in water mains and drainage solutions, and Topas, manufacturing water treatment solutions in Sweden. They are currently exploring an opportunity in the U.K. where there is a need to update aging infrastructure, also driven by regulatory demands.
They are currently looking at seeing if the Swedish products can be applicable on the U.K. market, and it's expected to make a pilot in 2026. Working in clusters for us is not only an opportunity to improve profitability and strengthen the local market positions, but it's also an opportunity to find new companies and develop the area going forward. To summarize the water and bioeconomy area, we see this as an attractive segment based on the urgent need for water and wastewater solutions going forward. In 2025, we have been focusing on establishing clusters and collaboration and strengthening the business areas and business units we have in the area with local expertise and strengthened local market positions.
Going forward, there will be an increased focus on M&A and to find new niche companies that are adding to the urban water cycles and solve the challenge of water. By that, thank you for listening to this area and welcome Roger Wood, who will present another interesting area for the future, energy and electrification.
Thank you, Sarah. Good afternoon, everyone. I'm Roger Wood. I'm Sdiptech's feet on the ground in the U.K., having joined three and a half years ago as U.K. M&A director and currently acting as Head of Energy and Electrification. Energy and electrification is technologies, products for efficient generation, transmission, and consumption of energy. The business area contains six niche high-margin companies together, comprising about a quarter of group revenue and profit.
In recent years, the business area has been characterized by some variation in individual company performance, which has limited overall segment growth to around 3%. However, it has continued to deliver robust and significant margins. The outlook for the business area is particularly positive. All of the businesses are operating in high-growth segments, and there's significant international growth opportunities. Anders talked earlier about the higher-level macro drivers for the infrastructure sector as a whole. There are a number of these particularly at play in energy and electrification, underpinning the long-term attractiveness of the sector. We've got the ongoing upgrade to high-voltage infrastructure linked to the transition to greener energy sources. This is obviously a function of climate change, but the rate of change is driven by government legislation. This transition brings some challenges, but also opportunities. The greener sources of energy are geographically dispersed and intrinsically intermittent in nature.
This means lower scheduling accuracy and increasing demand for energy storage systems, load balancing tools, and infrastructure for cross-border energy transmission. We've got rapidly increasing consumption in energy, driven by the obvious data centers, electric vehicles, climate change, urbanization. If you combine this increased consumption with the unstable geopolitical environment and the fact that gas still remains a significant proportion of power generation, this means high energy prices. Commercial behavior is very much driven by the desire to save money rather than react to government legislation, and this is resulting in significant demand for products that reduce energy costs, so products and solutions that deliver energy efficiency. We focus more on the distribution and consumption end of the spectrum, as you'll see with where our portfolio sits, largely because this is the lower capital intensive end of the market.
Within distribution and consumption, we see some particular opportunities: energy management systems, sensors, storage, temporary power, and of course, EV charging. All of these segments are forecast to grow significantly in the coming years. Within generation and transmission, we see some selective opportunities around power efficiency and quality. I'd now like to talk in detail about one of the companies in the portfolio, Resource Data Management. This is a great example of the proactive portfolio engagement that Anders talked about through our shareholder transition strategy. We acquired RDM in 2022. It has a global footprint, headquartered in the U.K., sales office in the U.S., manufacturing and sales in Asia, and strong distribution in Australia and New Zealand. RDM provides technology, products, and software to control refrigeration, heating, ventilation, and is fully integrated with building management systems.
This product suite has enabled its customers, or lots of its customers, to save over 30% on its energy costs at the same time as maintaining regulatory compliance. RDM has a strong presence in retail and fast food sectors, hospitality and leisure, fuel retail, smart buildings, and cold chain. Cold chain is particularly interesting. This is an area that we see significant potential for cross-business area collaboration and potential clustering. Shareholder transition. When we acquired the business, there was a broad management structure, but as is typical of an entrepreneurial business, one shareholder managing director controlling all aspects of the business. The structure was fine for where the business was at, but meant there was a number of bottlenecks for future growth. One example of this being that the finance function was outsourced. This meant perfectly adequate financial reporting.
However, in terms of actual financial data for day-to-day running the business, that was a little bit more lacking. Post-acquisition, we introduced a more formal board structure. This meant more regular and broader commercial discussions and a greater focus on long-term strategy. The owner was cognizant of the need to develop the business for the future, so he was happy to work with us for the recruitment of an experienced MD, who is now in place, and he has been incentivized and empowered to drive the business forward for the future in the next five years. Whilst the work is, this recruitment now is ongoing with more functional expertise being brought into the business, heads of supply chain, technical, and an in-house finance function.
is also an ongoing development of the sales structure with the help of an external consultant, and we are recruiting a new general manager for the U.S. market. Whilst the work is not complete, improvements in the organizational structure combined with these expert functional heads are enabling the business to deliver efficiently on operational priorities. I would like to finish by summarizing how we see the energy and electrification segment going forward. A very positive outlook with increasing global energy demand and a fundamental shift in how energy is being produced and delivered, and also a clear focus on high-growth subsegments. There will be more proactive engagement to focus on operational strategies that will deliver more stable performance and work towards more efficient working capital. A number of the businesses in the segment are facing significant international growth opportunities and will look to support these with targeted investment.
Finally, through intelligent M&A, we'll look to identify products and technologies that we can add to our existing distribution channels and create some clustering around end customer needs and requirements. Very exciting times for the segment. Thank you for listening. I hope you found it interesting. Now I'd like to hand you over to Amanda Berninger .
Thank you, Roger. My name is Amanda, and I head the Safety and Security business area. I joined Sdiptech in 2022. In this business area, Safety and Security, we acquire high-quality companies that contribute to a more safe society. That can be both hardware as well as software products and services that somehow protect critical infrastructure, physical assets, but also data, digital assets, us ourselves, the people, and also the environment that we live in. Today, we are seven business units in this segment, all market leaders within their respective niches.
We generate the majority of the sales outside the company's domestic markets, which is enabled by, for example, strong distribution networks. This has resulted in double-digit growth, high margins, 30% EBIT margin, and a high return on capital employed of 155%. The current portfolio of the seven companies that we have serves four key subsegments: cybersecurity, perimeter security, fire safety, and clean air. These are all subsegments where we see a good underlying growth and where we think that we can find and attract more high-quality companies. In addition to that, there are also other adjacent safety and security areas that we will explore, but this is the main focus for us at the moment, these four. Anders mentioned in the beginning how the modern definition of infrastructure ties really nicely to all our business areas. That is true also for safety and security.
What makes safety and security a bit special is that it spans across all the business areas. When we see underlying growth in any of the verticals, that means that there are more assets to protect. In addition, we live, unfortunately, in a geopolitically uncertain world, economic instability, which has led to a sharp increase in threats, digital as well as physical. As we see the threat level intensifying and escalating, we also see more regulatory compliance, more regulatory control and loss. There are a number of examples of recent acts that have been launched that means, or that as a result, we need more protective solutions.
To give you a little bit more example of the type of companies we have in the group, in perimeter security, for example, we have a company that offers security gates and other types of structural bollards, blockers to mitigate vehicle intrusion outside, for example, a data center that holds a lot of high-value assets, of course, but also airports with a lot of assets and also people. In fire safety, we have advanced solutions for detecting fire in metros, escalators, tunnels, complex buildings, and also specialty alarm systems to evacuate people in case of a fire. The fourth segment, clean air, we have our newest acquisition, Dado Lab, which detects and measures emissions in the outside air that we breathe, and specifically fine particles. Fine particles is the most deadly type of air pollution.
Out of the 8 million people per year that die from air pollution, 90% of those have been exposed to too much of fine particles. We also have a couple of other companies in the clean air segment that focus on indoor clean air solutions. That is primarily to detect workers, for example, in a hospital or in a laboratory that can be exposed to too much of dangerous gases. I thought I'd tell you a little bit more about one of these companies where we've done a great journey. Temperature Electronics TEL is a U.K.-based company that's been around for 50 years. We acquired the company in 2022. They make airflow controls and monitors. They work really closely with the fume cupboard manufacturers to develop the airflow monitors to make sure that they meet the regulatory standards.
When you optimize the airflow inside the fume cupboard, you do not just make sure that the workers are always safe, of course, but also you can reduce a lot of energy consumption. Up to 85% of the energy consumed can be saved. That saves, of course, costs for the customers as well as it preserves our environment. At TEL, we acquired them in 2022, and since then, we have done an impressive journey. We have grown the profits by 12% per year, while at the same time increasing return on capital employed to above 200%. We have been able to do that by having a strong local leadership in place. We have applied our proactive ownership with clear targets and strategic support, but we have a really good team in place, a management team. There are also a couple of other prerequisites that have enabled this journey.
For example, we own the designs, the IP, and then we outsource everything that is not core. We have also been able to scale through strong distribution partners outside of the U.K., distributors that we have good relationships with and that are loyal to our products. Thanks to the fact that we can save the customers a lot of money, we have also been able to apply a value-based selling approach. A great example, again, of a company where we have applied our proactive ownership with strong decentralized leaders. Looking ahead, we, of course, need to continue the journey that we are on with TEL. We have just started that, but we also need to replicate this with other companies in the portfolio and in the group to continue to grow while maintaining capital efficiency.
In the safety and security segment, we have a couple of companies that have not just hardware offerings, but also attractive software offerings, recurring services, and maintenance offerings where we can take the opportunity to explore and drive these types of high profit and capital-efficient sales. Lastly, we see a lot of good underlying growth in, for example, the four key subsegments that I mentioned, but also other adjacent segments. There are a lot of interesting companies for us to acquire there. To summarize, we are a high-quality portfolio, high-quality companies, high profit, high cash conversion, and we have an interesting journey to continue with. We have just started, a lot of potential going forward. Thank you. With that, I hand over to Daniel.
Thank you, Amanda. I am Daniel Unge. I am head of supply chain and transportation business area.
The business area, supply chain transportation, consists of eight companies, which in total has a revenue of SEK 2.1 billion and a combined EBITDA of 443. It is categorized by stable growth and also diversified exposure to several growing segments. The growth has been on EBITDA level 32% since Q3 2023. If we look at the business area, we have four clear subsegments, the first one being the intra-hub logistics, where we mean that we move products and goods within a factory or a warehouse. We have the hub-to-hub, which means moving in between hubs, so between a warehouse and a factory, for example. We also include maintenance of roads, for example, in that as well to facilitate easy transportation between the hubs. We have the rail and marine segment, where we mean moving goods using trains or ships.
Last but not least, the fourth segment, last-mile distribution. They all have common market drivers, but still they have unique special needs and also end customers as well. If we look at the market drivers, the first one being quite clear, e-commerce and cold chain exposure or expansion, sorry. We have the second driver being the regionalization of production, but also resilient supply chain. By that, we mean that factories moving back from the Far East, for example, and also not being dependent so much on building up supply chains in Europe, for example. The last driver is regulatory demands, where especially in sustainability, where we have zero-emission cities coming in, for example, that shifts the behavior and how we transport goods within cities. These are all coming into play.
If I just go back one second and mention the company GAH here in last-mile distribution, they are a company that are part of what both Sarah and my colleague Amanda and even Roger and Anders also mentioned, the clusters. Here we have formed a cluster that we call the cold chain cluster. This company is part of that. What they do is that they supply refrigeration units to trucks that ship food to supermarkets and other warehouses, etc., within the cold chain. They have niche products, and they are a niche leader within the segment or cluster, and they also are really, really strong in the U.K. They have several blue-chip customers that have recurring contracts, also with service and aftermarket sales as well. The subsegment is experiencing, like I said before, but not in sustainability. They see regulatory demands coming in in the temperature control.
It is getting more and more important to make sure and to be able to report and promise that you have kept the temperature through the entire cold chain. This has increased and is still increasing as an important factor. When we acquired GAH back in 2020, it has been a fantastic journey. I was not here. I joined Sdiptech back in August, but most of the colleagues were here, especially you two, of course. You have been here the longest, maybe, in the room, but they have done a fantastic journey with this company. They initiated, let's call it, value creation initiatives and selected a few that really would bring value to this company and also then to Sdiptech. What they did was they put a strong management team in place, of course. Together with that strong leadership and the proactive ownership of Sdiptech, they created something very good.
They worked on pricing as one lever, where they, instead of maybe just raising prices every year 2%-3%, looked at the data and used data-driven pricing to be able to have a diverse pricing strategy for them, which was really beneficial. That led to great impact. Secondly, they also worked on looking at the service and aftermarket. Since we buy and acquire product companies, usually there is a service and aftermarket sales as well with these companies. They managed to grow this by 30%. Last but not least, with the help of Sdiptech, together with GAH, they also managed to enter new markets and also new segments. By new markets, we mean new countries, like Canada, for example, they have entered during these years and other markets as well in Europe and outside of Europe. The other example is that they also found new segments.
Thanks to, or due to COVID, I think you all know about vaccine transportation. They also require a strict cold chain transport as well. The pharmaceutical segment has grown tremendously from almost zero up to 20% of the revenue today. GAH is a fairly big company, one of the biggest ones we have in the group. It has a really good impact. GAH are also, of course, continuously looking at new markets and segments as well. This is something that we should not forget. We do not stop here. This is the beginning. Going forward for the business area, we would like to enhance the value creation. You saw one example. There are, of course, more, but there is also more to do with all the business units that we have.
Through our proactive ownership that Anders mentioned earlier, we can help the companies to grow even further. We want to continue to invest in growth levers, specific growth levers to facilitate organic growth, but still maintain a capital-efficient approach. Thirdly, we would like to strengthen the market cluster formation and also focus our M&A activities in the most attractive niches. Thank you very much.
Daniel, thank you very much. I can see the questions in the chat already, actually, but one from me, because I mean, with your experience also from different areas, business areas, and the models also you have experience of, what would you say would be the key areas now for you to improve given that?
I think that all companies are unique. That, of course, has to be taken into account. There are a couple of generic ones.
I mentioned maybe two of them, but pricing is definitely one that is very often overlooked and just automatically happens each year. That is something where we can be smarter. I think also, since we are acquiring product companies, it is important to have a look at also the aftermarket and service sales, as these are margin contributions. Contribution from that is really good as well. Those would be the top ones.
Thank you so much. Warm hand. Thank you. Thank you, Daniel. It is time now for me to present our next speaker. I think he is used to it that people say Michael e-l-m instead of Michael Lund, right? Welcome up, Michael Lund from e-l-m, Managing Director.
Thank you very much. My name is Michael, and I work as CEO for the attachment company for forklift trucks. We are a manufacturing company with the base in Denmark.
Our company, since our foundation in 1967, has aimed for perfection in whatever it comes to the way we produce, how we design, or how we promote our solutions to our European customers. That has been a key part of the reason that we today have grown our team to 200 people, mainly based at our two different plants, one plant in Denmark and one plant in the eastern part of Slovakia. Since 2022, we have been owned by Sdiptech, and today we are part of the business area, supply chain, and transportation. As I said just before, the majority of our colleagues work from the two different plants that we do have. In addition to that, we have an extended sales team based locally in all our key markets, able to support all our customers with local support.
In addition to that, we have, over the past decades, been working hard to establish a close collaboration with all the OEM partners within our industry, the manufacturers of forklift trucks. That is one of the key reasons that we have been able to grow our business and one of the key reasons that we believe that we will also, in the coming years, be able to grow our business. Our products, what we do. Ever since the foundation of our company 56 years ago, our mission has remained the same: develop the perfect attachment to ensure an efficient and safe internal logistic and handling solution. Today, we have a very broad range of different products.
To highlight a few of them, fork positioners that you use to move euro pallets, rotators in many different variations and in many different capacities, clamps in many different variations and many different capacities for clamping steel, paper, white good clamps, etc. In addition, in the recent years, we have developed a new business area within our business, designing and producing customized solutions. Together with the forklift truck dealer and together with the end customer, we design and manufacture an attachment that fits perfectly to their handling need to ensure and unlock opportunity for a safe and efficient handling solution. Within the attachment business, there are two different types of attachments: hook-ons and integrated. The majority of our competitors have decided to focus on the hook-on attachments. Hook-on attachment is based on an ISO standardized framework.
It unlocks the following advantages: high flexibility because it's standardized, fast delivery because it's standardized, can be reused from one forklift truck model to another forklift truck model because it's standardized. However, we at e-l-m have decided to focus on the integrated attachment. Doing that, it gives us a more complicated internal value chain to master. We need to modify each and every single product that we produce to the specific forklift truck, to the specific forklift truck mast. We have decided to do that to unlock the following advantages: optimal visibility. I hope it's pretty clear, and this is real pictures. The more you can see, the faster you can operate. The more you can see, the more safe you can operate. We are not just providing our customers with bended, painted, welded steel. We support them with improved efficiency and improved safety.
In addition, the lifting capacity of the forklift truck will be increased. The turning radius will be lower, meaning that the racks in the warehouse can be closer together, and there is a lower noise level. Our standards. When you are a customer to e-l-m, we make very much focus on to make sure that all customers understand that, as I said before, we are not just a supplier of bended, welded, and painted steel. We supply all our customers with best in class when it comes to safety, quality, and sustainable production. Safety. Safety has been key to us since forever. That's why for so long it has been a critical part of our product development. With an e-l-m attachment, you will have the best visibility on the market and thereby safety. Quality. We don't aim to be the cheapest. We aim to be the best.
We build equipment that will last from the coldest part of Norway to the dustiest part of Saudi Arabia. Our products are designed with a significantly higher safety margin compared to the minimum requirements of the CE marking. Climate impact. Sustainability matters to us, and we know that it matters to many of our customers. Therefore, we have committed ourselves to measure our CO2 emissions and committed ourselves to reduce our CO2 emissions by 50% before the end of 2026 compared to the base year 2022. Our financials. We aim to be the best, the best within our niche. We do not aim for growth. We aim for sustainable growth, growth within our niche. We believe that is why we can achieve a significantly higher operating margin compared to all our competitors. Before Sdiptech took over our company, we had, I would say, a basic understanding of financial performance.
We worked hard for a year. Between Christmas and New Year, we checked our bank accounts, we emptied our bank accounts, and filled our pockets. After Sdiptech acquired our company, we got a more nuanced understanding of financial performance. Thanks to that, we believe that we now, today, perform at a better level. Based on this DuPont analysis, I will show you our development. In 2021, the year before Sdiptech took over, we had an EBIT margin around 10, a capital turnover just above 2.5, and a ROS just above 30. In 2022, our EBIT margin increased to 13%, capital turnover close to 3, and a ROS 35%. 2023, margins just below 20, capital turnover just above 3, ROS almost 60%. 2024, EBIT margin above 20%, capital turnover, a word that we didn't know were existing before 2022, almost at 3.3, and ROS 72. Our ownership.
We act independently, but of course, as a part of a group. Our success does not depend on our ownership, nor on the performance from the other companies within the Sdiptech group, since we operate independently. At the same time, we pay great attention to the group of companies that we now belong. We benefit from a stable, long-term owner with a clear financial target and with valuable strategic inputs. The group's portfolio of companies offers us great opportunities for learning. Our journey going ahead hand in hand with Sdiptech. We support the M&A team at Sdiptech, and we support the business areas. We actively seek for M&A activities when we do our daily operation. We are the boots on the ground for the M&A team at Sdiptech.
Companies that would fit into ours or companies that would fit into the investment principles to Sdiptech are shared with the M&A team at Sdiptech. Obviously, we have been able to improve our financial performance in recent years. Of course, we are very happy to share all our experience within our business area and actively take part to try to improve the financial performance for the other companies within the business area. This was my words, and I hope that you enjoyed a short lecture about attachments. Thank you for your time.
Thanks, Michael, tack, Mikael, for that from e-l-m. Actually, now it's time for the Head of M&A. Please welcome Peter Helsings. Give him a warm hand. Stay still.
Good afternoon, all. Anders talked about some changes that we wanted to implement, and that is also very true for M&A.
We want to leave behind a mindset of overly focusing on EBIT and EBIT growth and adopt a framework, more holistic view on value creation and cash flow generation. It's also important to not overpay, of course, as it is for many compounders, and not necessarily in terms of the multiples we pay, but more in relation to the cash flow we get. I will take you through this updated framework for M&A today. Before that, I'm Peter Helsings. I'm the head of M&A at Sdiptech. I joined the group in May, and before that, I was the head of M&A at Essity. When we think about changing the framework, it's, of course, important to not jeopardize what we do well. That is, of course, to buy great companies. Remember, more than 70% of our companies in the portfolio have a return on capital employed above 50%.
We have acquired fantastic companies over the years. Looking at the framework again, the in-house value creation is super important. That is one of the three pillars that we have when we think about M&A and value creation. In-house sourcing is about finding great companies first. Secondly, it is about having a great home for entrepreneurs. For us, it is super important to have a great package to bring to the table. It is not only about paying a good price. Thirdly, we need to be disciplined in terms of M&A execution. Anders talked about this, and it is very relevant, of course. We need to be disciplined in many ways. One thing is, of course, to be very disciplined in the way we manage the number of acquisitions we do and how fast we can run.
We have the ability to run fast, but we can never run faster than the engine. That is, of course, the organic cash flow generation. We also need to be disciplined in terms of the price we pay, of course, super important when you do acquisitions. Finally, we also need to be disciplined when it comes to the quality of the businesses we acquire. What do we look for? We have the European footprint, of course. We have our core markets in the U.K. and the Nordics and Italy. We also see M&A as a tool to move into new markets. We look at Germany, for instance, now. That could be a very promising area to enter. We look for niche players in well-defined segments and also supported by the cluster thinking.
We look for innovative players with high barriers of entry, and we look for companies in resilient markets with low cyclicality and underlying growth drivers. When it comes to the financials, we look for companies with an EBIT of between SEK 20 million and SEK 50 million. We look for companies with a proven track record, and we look for targets with a return on capital employed of above 50%. Finally, it is very important with finding situations where the founders and the entrepreneurs want to stay on board and continue to create value together. How do we do when we source the deals? I mentioned this is very important, and this is about finding great companies first. We do this in many ways. First of all, we have in-house capabilities. We have a dedicated team looking at roughly 500 companies per week.
We have a lot of collaboration throughout the group, through the business areas, but also with the portfolio companies to try to find good targets out there. This is further supported by the cluster thinking. We have an in-house proactive outreach team. This is everything from cold calling these companies, but also building long-term relationships. We all have that hat on us when we think about daily business. We think about businesses we can acquire. Building these long-term relationships is, of course, key, not only for bilateral deals, but also for structured deals where the competition is higher, of course. If you have a relationship already, you can get a head start. By working in this fashion over several years now, we have built up a fantastic asset in terms of a solid pipeline.
As you can see here, we have over 800 companies in this pipeline, and we are actively pursuing this. It is also well balanced between our segments, and it is also well balanced between our markets. Here you can see also Germany there, which is a potential new market for us. We believe that Germany can be a good fit for us. I will come on to why, but it is a very attractive market in many ways. It is a huge market, and it is also the biggest market for family-owned businesses in Europe. How do we win the deal? For us, it is important to provide a great home for entrepreneurs. That is key. We are not like many players out there. I should not mention any names, but there are players out there taking over businesses, restructuring heavily, changing the management, and then reselling the business after, say, five years.
We're not like an aggressive industrial player either, integrating the businesses beyond recognition. We offer something else. We're basically a long-term ownership. That's what we're in. We have a buy-and-hold philosophy. By that, we can create a lot of continuity for the businesses we acquire. We value the brand and the culture of the companies we acquire, and we think that the local identity that has normally been so important to building up the company in the past, that that also will be beneficial in the future value creation. We have our decentralized structure, of course, but we can get a lot of support for the businesses through the work with the business areas and the cluster thinking. We provide also opportunities to collaborate between the different portfolio companies. Finally, I talked about the importance of aligned incentives.
Here we have a toolbox that we can use, and one tool is, of course, to use earnouts. If they are structured well, they can be very efficient. Looking at an example here just to demonstrate how earnouts can work for us. Going back to GAH that Daniel talked about before, we acquired it in 2020, and it has been a very nice addition to the group. It is a busy slide, of course, but I will take you through it. Basically, the way we structured this deal, it was a SEK 26 million upfront payment and then a potential SEK 14 million in a full earnout situation. At the bottom of the slide here, you can see three different cases. First of all, bottom left, you have the business case from when we acquired the business in 2020. In the mid case there is the actual outcome.
The last case there is a fictive case based on where the company does not perform at all or is running at a flat growth in profits. Going through them one by one. Starting with the business case back in 2020, what we believed then was a profit growth of 7.5%. With that, the purchase price was SEK 33 million in total. SEK 26 million in day one payment and then another SEK 7 million in earnout. Here we had, as I said, 7.5% in profit growth with a cash conversion of 90%. That translated into an EBIT multiple of 7x for the first day and then a multiple of 5.2 x year four. The most important figure there is the internal rate of return, which was 24%. Very good returns. Looking at the mid section there, the outcome, very attractive.
We actually paid out the full earnout of the four years. Instead of paying SEK 33 million for this business, we paid SEK 40 million. This business also performed better in terms of cash flow generation. The cash conversion went up from 90% - 110%. You can see that, of course, the day one multiple goes up from 7x - 8.5 x. The year four multiple there was still 5.2. That is quite stable. Here you can see that even though we paid a higher price, the return went up from 24% - 28%. Super attractive returns. The final case there, I think it is important to have it in there because it demonstrates how we can protect from downside risk. In this example, we did not pay any earnout because the profit growth was only 0%.
We still have a 90% cash conversion in this example. The multiples day one was 5.5, and of course, it stays at 5.5 then year four. This is what's important. You still get the return we require, which is the 20% return. Even though the business did not perform, we got the returns that we want. When you look at all these three examples, you can see that the actual outcome was the most desired outcome. Even though we paid the highest multiple in that scenario, the return is the highest and the value creation is the highest. That is what it's all about, of course. Key takeaways, looking forward now in terms of M&A, what we focus on is the great capabilities we have in the in-house sourcing. It's about finding great companies first. We offer a great home for entrepreneurs.
It's about finding win-win solutions where we can create value together. Finally, being disciplined in terms of M&A execution. This is about finding projects with an internal rate of return of about 20%. In terms of leverage, always having a healthy balance sheet and a leverage below three times EBITDA. Thank you for listening.
Thank you, Peter, but we're not going to let you go. You mentioned it there. You came in May from Essity. Looking into the markets and your experience, I mean, working with the same thing, you mentioned the new markets. I know this is not in the script. Sorry, Peter, because I know you're good. No, but I think Essity had, when I was there, 72 markets operating on something like that.
If you look into what you just, if we look into what we just saw here, you were focusing a lot on Germany. Can you explain that a bit and also why are new markets now important for Sdiptech at this where you are right now? Why?
Yeah, I think it's not straightforward in a way. I mean, many compounders and other companies have struggled with Germany, but it's a huge market, a lot of family-owned businesses in Germany. So that's attractive for us. I think the model that we have, the model that I just described, fits very well in Germany. We're not only focusing on Germany. We can, if we through our cluster thinking, if we find other opportunities in other markets, then we can move into other markets as well. That's the way we reason at least.
I love the way you also said, taking notes there. I've heard you saying that before through the year. Super attractive.
What was that?
You said super attractive returns.
Yeah, yeah,
yeah. I hear you often say that.
That can't be bad, right?
We're looking forward to that and more of those. Thank you so much.
Thank you.
Give him a warm hand. Now we will talk to somebody you know, and he's been with the company for a while now. Let me introduce to Bengt Lejdström, our CFO. Big warm hand.
Thank you, Linda. Good afternoon. I'm Bengt Lejdström, the CFO of Sdiptech. Ever since joining Sdiptech in August 2018, I think it has been a really exciting journey. I look forward to continue with that together with all my right colleagues here.
Before I start my presentation, I should apologize a bit since having the Capital Markets Day today, we realized that it was Thanksgiving yesterday, which means that some people interested may have a long sleepover today. They can watch the full conference here on our webpage later on, as you can as well, if you want to see some parts again. It is Black Friday today, right? Perhaps today is the last day you can buy Sdiptech share at a discount. Let us see how it goes further. My colleagues have given you some insights in our operations and the way of working with M&A. I will try then to tie it back to what Anders mentioned about our targets by looking on some financial priorities.
I have divided the presentation then into the growth, the leverage, the returns, and then also the financial as the foundation for all of this. Let's start with the growth target. As Anders was mentioning, it's a total growth target. Previously, we had two: organic growth and acquired growth. Now it's one consolidated target. Of course, still, it's very important with organic growth. When we say that this way is crucial for our future, and is that just talking, or can we prove that we actually have it in our numbers in our companies? This chart to the left, each dot here showing a company that has been a part of the group since, actually, it's data ever since 2020, regardless if they have been part of the group since 2020 or not.
Of course, relating to data availability and also since it's CAGR on that left axis, it's also companies with a positive CAGR. We have one or two, every group has that, that temporarily has a negative organic growth, but we work to support them to get back on track. These are some very good examples then. All in all, if you want some statistics, for the core business units in 2023, we had a 14% organic growth, meaning excluding currency effects, and in 2024, it was 5%. That's better numbers for the core business than compared with the total group. What you also can see from this chart is that companies that we have in our sweet spot, we typically call it like that, the ones having a profit on around EUR 2 million-EUR 4 million EBIT have a very good growth as well.
We really do believe that we have great companies out there that can continue to deliver an organic growth, even though our target is a total growth. For those of you who worry that we will stop reporting on that, we will not. We will continue to report on organic growth, of course, both when it comes to sales and EBITDA, so you can follow up how things are doing. We think we have a very solid foundation for that part of our total growth target. The other part is then the acquired growth. Peter has mentioned how we worked with that and what's important for us with the returns. It comes some financial characteristics to these things when we talk specifically about the conditional debt or the earnouts, as we typically call them. It's an important part for us.
It minimizes the risk if something does not turn out as expected, but it also gives the seller an opportunity to really earn some good money if things turn out very well. I guess many of you understand the model, but just to give you an example then on the left here, that if we value a company to say SEK 100 million, for example, day one, we may agree then that we pay the entrepreneur SEK 90 million. We keep SEK 10 million as a potential consideration in the future if things turn out as expected as they are at the time of acquisition. Let's say we expect this company will grow 3%. All right. As long as they meet that requirement and have a growth journey of at least 3%, we will pay those SEK 10 million eventually after the earnout period is over.
If they did not succeed, of course, they do not get that money. That is the downside protection. It could be constructed in some different ways, basically. Of course, most entrepreneurs want something more than just this. They want to have the opportunity to earn more money, so they want an upside. For us, we have decided to have a little bit longer earnout periods than many of our colleagues. Typically, you have a two-year perhaps earnout, three-year at the maximum. We very often work with four- to five-year earnout periods. It has some advantages and some disadvantages, of course, as everything. The advantage is that we have the entrepreneur on our side and working, and we get to know the company. We can have a succession in an orderly manner and so on. The downside is perhaps the same thing.
We have the entrepreneur on board for five years, which means that some changes may take some longer time. When the entrepreneur eventually leaves after five years, we may have a gap to close there when it comes to some investments or so. We try to monitor this in a good way. If things turn out well and the company is earning more money than expected, more than the 3% in my example, then the additional, in this case, the up to SEK 25 million could be paid out. We are really happy and glad to pay out earnouts because that means that everything has succeeded in a very good way. To summarize, it is a good way for us to minimize the risk, to have a downside protection and give the seller an opportunity to earn more money.
It is also for us a way of funding the actual deal instead of paying more upfront to say that, you know, I will at least increase my business with 10%. I want a higher multiple day one and we pay that. We can push that payment further ahead. It is a kind of a cash-free debt. We do not pay an interest on it. It is an important source of funding that we push that payment forward. It has some implications for our books and bookkeeping, and I will come back to that. All in all, we have investigated this model and we will still continue to use earnouts as an effective tool for us. Looking at the other target, leverage. Previously, we have had a target about financial leverage, excluding these earnouts.
Since we are very much an acquisitive company, acquiring companies all the time, why not have also debts associated with that process also in our target? Our target now, the 3x to be below 3x is an all-in debt leverage. Everything that is interest, we pay interest on. Or as with the earnouts, as I say, we do not pay it, but we book it. All interest-bearing debt is included in this one, whether they are earnouts or leases or anything else. To the left here, you see the development of our leverage over the years since 2021 when this chart started. What has affected the curve? We have had a very aggressive M&A agenda sometimes. You see here in the first two years, 2021, 2022, leverage going up. Then again, we acquired perhaps 30% of our total earnings in a year.
We were at SEK 160+ million per year in acquired profit. Of course, that strengthened the leverage. We have also had some years with a bit slower organic growth, especially in 2022 and 2024, which then affects this curve as well. Through the years, we have done a couple of new issues of shares in order to bring the leverage down a bit. Three times since I joined, and on this chart, it is twice in 2021 and 2022. That brings the leverage down. That is not our plan or the strategy for us now to keep the target. I do not think that we will issue shares every now and then to make sure we stay below the three. That is definitely not in the plan. We are going to manage this with our own cash flow and operations.
As I said then, to drive the leverage a little further down, as you see, we are a little tiny above the 3.0. Work with the organic growth, make sure the organic growth results in good cash flow, and then be selective, as Peter was saying, when we acquire new companies. That will make us really reach our target. Of course, from time to time, if we make a bigger investment, a larger acquisition, temporarily, that can make the leverage go up a bit. That is because we take on the debt. We take on the conditional debt also, day one, but we have not got the profit yet. Typically, part of this conditional debt, now it gets a bit theoretical, part of this conditional debt would not be paid out if profits stay where they are today because they require and assume a higher profit in the future.
If everything just stays as it is, we can release some debt and the leverage goes down, then of course. One then important component of the leverage is the cash flow. Cash flow is important for us. It gives us flexibility to invest in different things. Here you see the chart on the left here showing the free cash flow per share. That's the yellow line. And compared with the earnings per share, the black line. Two different KPIs based on two very different things. Historically, they have been impacted both on higher interest rates, meaning higher interest costs, put more earnings into high tax countries, U.K. and Italy, for example, and also some periods of a bit slower organic growth. The EPS curve, it doesn't really follow the free cash curve.
One reason for that is that, again, with these earnouts, which we book as debt, we need to put the theoretical interest rate as well. That hits the P&L. It's not tax deductible, of course. It goes all the way down and hurts the EPS. Currently, it's quite substantial then with the SEK 60 öre per share. This is the historical development. In the future, we will continue to improve the free cash flow per share. That's very important for us. That gives us the strength to do acquisitions. We, of course, have to be careful there. We will work to improve the working capital efficiency. We mentioned here projects that we do from a central perspective, and supporting our companies to help them to be more efficient with their working capital is, of course, one.
Make more inventory management, for example, and other types of initiatives. We will also be selective in our CapEx spending when companies want us to bring in some money for them to invest in something. That leads me over very soon to the next slide. Just to summarize the cash point then, we want to stay at the high cash conversion. As we measure it, between 70% and 90% of all the profits we make will be generating cash in the pockets. Currently, we are at 81%. Talking then about the investments and spending the money the free cash flow gives us. The free cash flow, I should have mentioned, the KPI includes CapEx and paying leases, but the cash flow before the CapEx gives us some different opportunities. We have already seen this chart now in some of the presentations, the DuPont.
Here is our core business units, at least the ones acquired before 2024, and excluding those that have a negative capital employed. That is, of course, very good. If you have a negative capital employed return, or yeah, you cannot measure it. We have a couple of them thanks to a lot of prepayments, for example, from customers. Most of our businesses have, of course, a capital employed. Here you see the return on that. That is the lines. It is a combination, as not the least Michael Lund described, of EBITDA margin and capital turnover. Actually, our average, I think Anders you twisted the numbers around, it is 64%, not 46%. All in all, a weighted average of all our operating core business units have a 64% return on capital employed. You say, well, in your reports, you say 12%, 13%.
How come? On the group level, we add all this goodwill and immaterial assets that we need to book when we acquire something. That return on capital employed becomes a much lower number, of course. That is a more slow-moving object. That is our target, to bring that slow-moving object up to over 15%. That may take a little time. Sorry, since it takes longer time, of course, to improve the KPI that has in it about SEK 8 billion of capital employed compared to supporting the companies that have a much lighter balance sheet. Doing that, we will, of course, improve the full group's return on capital employed. Coming from a situation with a strong return, we then see how should we then spend the money our free cash flow has given us.
Depending on then where the companies are in this picture, where should we put the money? To start, the business unit needs to have a solid position to start with, so it's not in any turnaround situation. If it's a solid return already, but could be better, cash flow steady to generate cash for the investment, and of course, a clear business case to generate the profit, then we could discuss. We could select for a company over here with a very high margin. Of course, it's a better outcome to work with the capital turnover because that gives an increase in the return. On the other hand, if it's a company with a very high capital turnover already, it's better to work to improve profits and profit margins to increase the returns. It's a simple tool.
Of course, we have been using this in our minds for a long time, just a way to show it more explicitly. That was the targets. Going to the financing, which is a foundation to be able to deliver on the targets, this is a very illustrative model of our funding. We have a cash position today over here, about SEK 600 million in our pockets as of September. Also, utilizing credit from our financing partners. Over this period that we will deliver on our targets, we will have cash flow coming in from operations. We have also unutilized funding headroom from our credit providers, all in all giving us what we call a financial headroom. That is quite extensive for this term. We spend the money on M&A, the main thing, but also selective CapEx and leases.
We think when we say that these are our targets, it's to double our earnings in five years, keeping the leverage down and the return up. We have simulated and we have proven that it works also from our financing position. Again, which means that we don't need to ask you for more money in an issue. We can manage this on our own. Summarizing the financial perspective, organic growth is key for all of our targets. We will continue with that. Cash flow, of course, to get cash to utilize for acquisitions or the other selective investments. Work with our M&A model, continue to enhance that one, but also be very selective and look on the IRRs as an important KPI for selecting which company to acquire. In the foundation, to have a solid financial capability going forward.
Thank you very much.
Thank you, Bengt. We do have questions coming in, but we'll take them later. Thank you. Now it is actually time for CEO Anders to come up and wrap, summarize briefly what we have seen here today, all the presentations. After that, I suggest we do have the Q&A.
Great. Thank you, Linda. Yeah. As Linda said, before some Q&A, I would like to summarize what you have been listening to here today. The first one that you've heard about is Sdiptech has a strong position within our key infrastructure segments. We see a clear growth driver for each of those segments. You also heard the business area talked about underlying drivers. A strong core portfolio of high-quality companies.
You've been able to listen to some of the examples here today and also listening to Michael from e-l-m talking about the company that we believe is one of the really core companies we have in the group. The organic growth agenda will be built on our proactive ownership. We gave some examples and also the focus on return on capital employed. We have talked and given you some examples of where we have strong focus on the return on capital employed, but that's not all the companies. We have more to do just to give that clear for everybody and that we want to apply the thinking that we have showed you here today as well.
Our M&A growth will be built on, continue to build on our in-house sourcing capabilities to support the business area, but also to be focused on discipline in the valuation in the coming years. Finally, our financial targets, they will be focused on, as Bengt also said then, on the total growth, improved return on capital employed, and a healthy balance sheet with a leverage below three. That is the short conclusion, the summary here. I think you can open up for questions. Thank you.
Thank you, Anders. Thank you for that summary of what we've just seen today. We have a few questions coming in online, but because I think of courtesy, yes, thank you, Peter and Bengt to get up.
Out of courtesy, if we have any questions in the room, you are here in Wallenbergsalen, so you should get the first questions while I get my questions here on the iPad if we can get some technical support there. Yes, please take the microphone next to your seat, and it would be lovely if you want to present yourself as well, where you come from and your question. Thank you.
Thank you. Yes, you can hear me. Nice. Max Bacco from SEB, thank you for the presentations today. Very interesting. Thank you for taking the questions. Perhaps starting with, I mean, to my understanding, the key message here is wanting to do better and a more prudent and disciplined approach in terms of capital allocation, in terms of CapEx spending and networking capital management.
I thought it would be interesting to hear your view on how long does it take to fully implement that thinking throughout the group. I guess, Bengt, your experience from your previous employer also could be interesting on that topic.
Should you start, Anders?
Oh, thank you.
Yeah, I think I can start a little bit and then you can take over then. I think, as Michael showed from e-l-m, coming in with a focus in 2022, it can happen quite rapidly if you put in clear targets on what you would like to achieve on the capital side. I think from that perspective, yes, it needs to take a strategic period, one year, something like that, before we can fully implement that. We are not starting from scratch.
All the business area have this in mind, and they have started to talk about it previous years and also now more in this year for the next year.
Yeah. To add, I mean, if we start with the Sdiptech journey, when both Anders and I joined then seven years ago, we did that strategic rethinking, which has led up to the position we are today. That takes time, as you realize. It's now five years or even more since then. It takes some time to turn around the ship. Also, experience from our previous employers in the business. Also, for example, going from distribution to product-based businesses takes a number of years. This is what we do now. It's more an update and gradual shift. It's not a total 180-degree turn.
Do you want to follow up?
Yeah.
Thank you.
A question, a bit more short term. Anders, you mentioned in the beginning that the plan for 2026 was partly to start this transition, but also to return back to organic growth. On the organic growth part, is it that you see that the market, more broadly speaking, is recovering, or is it more an effect of the initiatives that you have implemented throughout 2025? What are you seeing there?
Yeah, just to comment on the 2026 for us as well. The target of the 15% per year is going to be organic and M&A. Next year, we will come in with a lower M&A growth to start from. We need to start acquiring more for next year. Let's see what that can come in in the year.
From organic, I think it's both actually that we see now we have a lot of budget discussions with the companies for the next year. It looks better and looks more positive for many of the companies. I think we have been more focused on where to push for growth and not. We see clear opportunities in some of the companies that here we can focus a bit more on growing as well. Combination, I would say.
We have to.
Thank you.
Thank you. We have one more question from the room. Thank you, guys. There's actually questions coming up here to you, Sarah, as well. If you want to step up, I see questions coming in. Just so we're prepared. Yes, please go. Next speaker. There's a microphone on each seat.
Unfortunately, if you all want to, you know, just go.
Just a bit of a technical, maybe philosophical question, because you have such a big U.K. exposure, which is quite different from many of the other compounders. I do not know what the profit is, but maybe half of your profit is from U.K. I mean, it happens to be that the British pound is down 11% in the last 12 months and share price is down 19%. It could be a coincidence, but there is a big correlation to the GDP. What are you thinking in terms of geographical diversification? I mean, you obviously like U.K., but are there any ideas on exposure to certain countries?
I can start with the financial part of it. It is very true.
We had last quarter almost 5% negative currency effect, as you saw, half of it coming from the U.K. and a 10% there means 5% on the group, of course. We consider that going forward with hedging and so on, but it will affect us also the Q4 and Q1 to a large extent since that is still very tough comparisons with last year. To your question about if we like the U.K. more than others, we like the U.K. because they have great opportunities for infrastructure business. We know even the U.K.-based investors ask us, why are you so much in the U.K.? We are not in consumer business. We are not depending on that. Our company more follows the need for upgrading and renovating and expanding the infrastructure.
They have seen obviously a very good track record, and you have heard some of the colleagues mention a number of them. It is not an ambition in itself to become bigger in the U.K. No, it is to become bigger in the other geographies.
Just to add to that, I think, I mean, Roger, as you heard here, he has been our M&A person in the U.K., and we have been very successful. It has been easy for us to continue to acquire and also leads coming into us more regularly, and we are becoming more of a well-known player. Definitely, Peter will try to focus as well equally in the other countries as well to make us more or less dependent on the U.K., definitely.
We will stay in the U.K., but you were from SEB and you are from the last question we got from. Okay, thank you.
We have a question now to Sarah and, in parentheses, Anders. Can you please discuss AMP8 in the U.K.? This is a GBP 100 billion investment plan for water infrastructure. This one is much larger than the last one. Should I start?
Yes, we know there are several investment initiatives going on in the water segment, and that's also what we see, for example, with our company Auger there, who's experiencing, and that's also the collaboration I discussed previously with Topas. That is one initiative, and we also see investments all over Europe, with one just recently being launched together with the European Investment Bank on EUR 50 billion. It's an interesting opportunity for us, but we also see opportunities in all the European countries.
There was actually one more question. You guys have the same question.
To Per Jäderberg, thank you for your question, but I think it was answered otherwise, email and blame me, but it looks similar. We continue here, and this one is to Bengt. You distribute SEK 8, 8 Swedish crowns, 8 share per year after tax earnings to your preference share. Your redemption price is SEK 105 per share. Thus, this financing costs 7.62% and is not tax deductible. More cost-efficient financing should be available for Sdiptech. Have you considered redeeming the preference shares?
I think we have heard that question many times.
Yeah, that's what I figured.
To start with, it's a question for our board of directors to decide upon this. It depended on many factors. Depending on our overall leverage situation, I agree it will strengthen the earnings per share a little bit.
It will lower the P&L a little bit from increased interest costs, and it will increase the leverage since we, instead of a share capital, will need more debt or at least more net debt. It is a bit of a complicated question, but I guess our board will take a thoughtful decision whenever there is a situation that could support such a decision, but it is nothing now.
As a former communication director for a listed company, I just take for granted you guys answer what you can, and I am just going to ask questions and you answer, and if it is ticket related, you just tell me. We have a question for Peter as well. Peter, it goes back to a bit where you already mentioned Anders and Peter before about the broadening geographically. To Peter, how do you view the risk aspect of broadening geographically?
Why do you think it will work? What are the key risks you foresee? This is from Stefan Knutsson. Thank you.
I think it's a very, it's a difficult question to answer, I think, but we look at each individual market individually, and then we make an assessment there. It is a combination of looking at the market and go for markets we like where we have lower risk situations, but then also it's an opportunistic approach we take. When we find good targets, we can enter new markets that way, but it always needs to be a good fit both in terms of the target, but also the market itself.
There's another broad question here now from the same person, and this is for, I think, Sarah and the rest of the team in a way. This is to Anders or business area heads.
You can have a long answer here. How do you make sure that the products of your core business do not get commoditized? My English should be better. Commoditized, how do you say that in the future? Is that correct? Like a commodity?
I think I can start. I think the example of Michael from e-l-m was a good example of that, that he showed that these are the standard products, the commoditized, and here we have the special products for our niches. I think it's clear that the niches we have selected, and when we do our research with M&A companies, we focus very much on how protected that niche is, how difficult it is to enter it, and if it's broad enough for growth potential in it. From that perspective, we are quite comfortable. We will be able to grow within our niches.
It is always, of course, some risk that the specific USPs will disappear, fading away, but continue to develop the products, make sure you're investing in R&D, and you can keep that strong position.
Any more questions from the room? Otherwise, I continue. There are a lot of questions, but I think we will have time. Go straight to this question from Mushin Drabu. This is his name. Anders or Bengt, does your group ROCE metric exclude goodwill from the capital employed? If so, how do you plan on hardwiring discipline into your valuations, including earnouts?
No, in our group KPI, the 12%-13% return on capital employed, all the goodwill and everything else is on the balance sheet. When we look at our operational units, we do not include the goodwill from acquiring them. That would have been a bit strange. The answer is yes, it is included.
Okay, thank you. There's another one here for Anders that came up. I have tried to take them in the order they come up. Can you please talk about organic growth at the continuing operations and how it compares to your reported figures? It looks like continuing operations showed positive organic growth over the last two years, despite reported organic growth being negative.
Yeah, I was talking more about quarters, the specific quarters that we have shown negative organic growth. I don't know exactly the number of quarters we showed it. This last quarter, Q3, was the first one we could show an organic growth of adjusted EBITDA again. I think it's from that perspective that we're going to continue to build and grow organically, quarter by quarter, and of course, year by year as well. That's what I can answer to that, I think.
Thank you.
Please text if you're not happy with the answers, and we try to do them again. I think this, I don't get any back here. I think they're happy. Thumbs up here. We have this one is to Peter. Out of the pipeline of 800 companies, how many are well advanced as prospects?
Yeah, good question. I think it's a very wide portfolio of opportunities there. Of course, it's very backloaded. Many of those deals will take years to convert, and many of them will never happen, of course. I think we always try to have at least, say, 5-10 that we can convert within the next 12 months. That will change from day to day, I would say, but that's the ambition.
Thank you. This was to Anders. When are you expecting to have sold the 11 companies?
Yeah, Peter is working hard on that, to work on the not Peter here, the other Peter I talked about, about the divestments. It's a lot of ongoing processes, and we were actually quite happy to say that we signed the first one. The plan is to do it before the summer. Before summer 2026, the majority of the companies we would like to have sold them.
Thank you. Anders, you get another one here. That is when, oh, Bengt or Anders, when do you expect to be below three times in leverage? Well written 3x here.
Yeah, of course. No misunderstanding. Depending on Peter's work here, the more we acquire, the bit slower that will take. If we don't acquire so much, it will go much faster. We're almost there. It's not very far away in the future.
We have another one here. When are you planning to replace your SEK 800 billion bond? How? What is your view on the sustainability-linked targets for the bond?
Yeah, to start with, the bond matures in August 2027. We have a possibility for some fair amount of extra penalties to make an early redemption in August next year. We haven't decided if we'll go for that or stay all the way to the final redemption. When we redeem that one, we will most probably replace it with one or more bonds to the same amount or some other amount. That is a reasonable amount at that time. Depends on our financial situation. When it comes to our sustainability linkage to the bond, it's a goal that goes all the way through 2026. We don't have a new goal before that.
Before early 2027, we can set a new goal. It depends if we would, depending on when we replace this bond, if we will add another sustainability goal. So far, we only have this one. For you who may not remember, that one is to reduce our CO2 intensity by emissions per turnover by 50% from 2021 to 2026.
This one, I think this one is for you, but it's open. How will you ensure financial capacity over the coming years? What will be the split between bonds, credit facilities, cash flows?
As I showed on the graph, we have still plenty of headroom in our financial credit facilities. We do not need to put more either bonds or other credit arrangements in place for a number of years.
The balance will be more or less the same as today going forward for quite some time.
Actually, I think these were somewhat similar. I took them away. I hope you guys online are okay with that. It was some similar questions. Do we have any more questions from the floor? I guess you know we have a mingle. Oh, there's one. There you go. Thank you. Can you just, sorry, the microphone, can you just push it? Yeah, there you go. So they can hear your question online.
Yeah, I did.
Thank you.
Okay, perfect. Yeah, hi, Linus here from Nordea. Thanks for the presentation. First of all, just a question here on the proceeds from the divestures. Can you give us an evaluation range that you're expecting?
In terms of priorities, will you deliver or will you have it as headroom for M&A?
I can start with, let's say, the valuation. The valuation of the portfolio has been, we try to focus and try to find new homes for these companies where it fits good. We try to focus and try to find new homes for these companies where it fits good. The initial discussion we have had, it's been quite good on the valuation side, actually. It is between five and six, roughly, if we're talking about the multiples. I think from that perspective, it's important for us not to be too aggressive to sell it. We will have a high speed and try to divest them, but some actually see a great value of the companies there. From that perspective, it's quite good.
Yeah. The money, the proceeds itself will, of course, go into our cash accounts.
Peter will soon have used them for new acquisitions. I mean, when it calculates KPIs, it is a net debt. It will lower the net debt, of course, as we sell those companies.
Did that answer your question? Yeah?
Yes, it did. Just another question, if I may. You talked about Germany in the pipeline for the M&A. I was just wondering, why do you think you will be successful there when others have struggled? Also, what is the size roughly on the companies in the pipeline overall?
The size, I mean, it is in between the 20 and the 50 million in EBIT. I would say that is also the average for the companies we have. Eight hundred times that then. For Germany, we agree that it can be a challenging market.
The way we operate with the way we handle the companies also stand alone, and we value the culture is very important in Germany because of the market and how it looks with a lot of family-owned businesses. We are not saying it is not a challenge. It is different in Germany. The way we operate, we think we can be successful there.
I can add to that as well that the previous countries we have entered into, the U.K. and Italy, its data availability has been very high. Germany has always been a problem for us from a data perspective, but it has been opening up. We can, from a sourcing perspective, look much more at the size and the margin, etc. That is also important. We get more information now. We have also seen, thanks to other companies in the portfolio, that has pinpointed attractive companies in Germany.
We have started discussion. It's been quite fruitful, the discussions. From that perspective, we also believe it's the right thing to do to try to enter it.
Thank you. More questions coming up here. Nobody is addressed, but I think it will probably be Anders or Bengt or Peter. How much EBITDA contribution through M&A can we expect in 2026? Yes, it's Peter, given that you also aim to de-level a bit. Will 2027 be the first year of proper M&A growth, you think? Maybe Peter. Do you want to do that one?
I think the way we model it, at least, I think we need to say like 5% in growth to get to the 15% over time. Of course, the growth is somewhat slower, probably in next year, as Anders alluded to. I think that's the way we think about it.
It very much relates to how we can deliver organically.
Yeah, I like the way we mentioned it before. The engine is really the organic growth. Then we pick up M&A as fast as as much as possible to be able to deliver on the 15.
Thank you. There are a lot of questions from the same person. With all the respect, I will take a question from somebody who has not asked in the chat. No, it is the same person again. Okay. Noah, you are a lucky man. You are a lucky man. How do you ensure that M&A is done at lower valuations and at higher ROICs? Are there incentives now tied to this metric?
We do not have incentives linked to that directly. Of course, earnouts is an incentive itself, of course, that has been very, very important for us.
I think it creates a good alignment there to create value, absolutely.
I think it's a very important thing for us that when you acquire a company and you put the earnout in and you tie the earnout only to the EBIT growth, it's what we have seen in many cases. They drive it and they focus on it. What we need to do as well then is to tie more of the working capital or the capital efficiency to the earnouts as well. We don't want to complicate it too much for the entrepreneurs. They would like to have a simple target that they can reach. We have all kinds of tools to make that as simple as possible. How much dividend can you make to the owners depending on the year result and so on? It's very clear for them.
Again, we need to have some kind of metrics in longer earnouts to improve capital efficiency as well. That's for sure.
I think this will be the final question, actually, that came in now. It's for Anders. How many clusters have you identified within the portfolio?
We don't actually look at the specific numbers. It's more about what you heard from the business area. It's a few here and there. We're still exploring new ones. I think right now we have three, four that are more structured and we really see clear benefit from working together in.
Thank you. Thank you so much. Thank you for asking questions online. If we don't have any more questions on the floor, we will mingle. You might get some more questions when we have the drinks.
For you online, I would also like, if you want to see this again, you will find this on the website, the presentations on Sdiptech's website within short. Now it's Friday. Should we give them a warm hand? Thank you. Thank you also to you and Mikael, the head of business areas. Yeah, I will invite everybody to drink. Sanders, right? Perfect.