Welcome to Sdiptech Q1 report for 2026. For the first part of the conference call, the participants will be in listen-only mode. During the questions- and- answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Anders Mattson and CFO Bengt Lejdström. Please go ahead.
Hello, everybody, and welcome to Sdiptech's presentation for the first quarter. I am Anders Mattson, CEO of Sdiptech, and I will be presenting here together with our CFO, Bengt Lejdström today. A short intro to the group as usual. Sdiptech acquire, develop, and create a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 32 companies in the group, and we operate in a decentralized structure, and each company is responsible for the day-to-day operation. From last year, we have also added more guidance and support in what we would like to prioritize strategically from the group level. We divide the group into four business areas. Each segment has a clear and structured underlying growth trends for the future.
On a rolling twelve, Sdiptech as a group has SEK 4.5 billion in revenues, SEK 964 million in adjusted EBITDA, and an adjusted EBITDA margin of 21.3%. These are the numbers for the core operation, excluding the companies that are being divested. To start with, I would like to give you some highlights to the quarter, as well. On a strategic level, we have had a good progress. We've been able to divest nine companies in the quarter, and now we have only one more to go. This one is targeted to be done during quarter two. Thanks to a good cash flow position, we decided to repurchase our preference share in the quarter for a total value of SEK 184 million.
Financially, we are satisfied with a stable organic sales growth of 7% and an organic profit growth of 4% in the quarter, showing a good demand for our products and services. We still experience a strong currency headwinds of -7%. Both in Energy & Electrification and in Safety & Security, the demands have been strong with +15% sales growth, excluding currency. The cash conversion in the quarter was poor, primarily due to timing effects, as we had high sales in March, which has increased the accounts payable quite a lot. Rolling 12, we are still at a good level, above 80%. Our priorities going forward.
To support our companies in growing smart and sustainable, we learned from the past that we need to be careful with our working capital and CapEx requirements when we are growing with the companies. We have a good pipeline in place, and the focus is to convert the opportunities into signed deals. We have a good cash position, but we will continue to be selective and disciplined with the coming M&As. I would like to follow up as well a little bit more on our strategic work we initiated last year. The first one is around portfolio management. I already mentioned the progress with our divestment. Nine companies sold in the quarter. We achieved an enterprise value of full-year EBIT 6x for these companies, which is in line with our expectations.
These companies were sold to different takers. We sold four companies to an industrial group similar to us. We sold three companies, in a cluster, to a private equity owner, and we supported two MBOs. The none companies resulted in a one-off cash contribution of SEK 258 million. We also had a capital loss of SEK 84 million due to higher book values compared to what was realized. It's important to remember that we had opposite situation in Q4, where we actually had a capital gain of roughly SEK 60 million. The last company that we are divesting is planned to be divested in quarter two.
We also continue to be more prudent on which companies to allocate CapEx to based on our updated framework, which we divide the companies into different group based on the CapEx need. We have a segment that we call the strengthen bucket, and CapEx should be allocated to fix a specific problem before we do anything else. We have the harvest companies. We should be restrictive with CapEx here, and it should mainly be for maintenance purposes. We have the accelerate one where we invest to reach growth opportunities. This is working good in practice for us now as a group. We are at the run rate of 3% of revenue in CapEx, which is in line where we should be. We have another important strategic pillar as well, and that is what we call proactive ownership.
We decided last year to increase focus on return on capital employed, and all our companies in the group have a target that they should reach. This is a long-term shift for us in focus, and it's something we are implementing carefully. Our financial target is to reach about 15% in return on capital employed. In this quarter, we reach 12.8%, which is an increase from last year in the same quarter of 12.5%. In this quarter, we know it was negatively affected by the capital loss of SEK 84 million from the divestment. If we look at return on capital employed for our operational unit itself, it's stable level around 63%, and the majority of the companies are performing well. We're coming into the financial development.
When I'm presenting the numbers, we focus on the core portfolio, which is our remaining portfolio. The companies we have sold in the quarter contributed roughly with SEK 100 million in revenues and SEK 5 million in adjusted EBITA, and they will not be part of the group from quarter two, as we know. The core portfolio, good net sales development in the quarter as a result of strong demand overall for the group. 7% organic net sales growth. Only 1% growth from acquisition, as we didn't acquire that much last year. The currency effect, -7%, is still substantial in the quarter. From next quarter, we foresee the currency headwinds to ease in the comparable numbers.
In the quarter, we had a strong development in Energy & Electrification and Safety & Security specifically, with above 15% net sales growth excluding currency. It was a strong demand from several companies in these business areas. It's also positive to see four percent net sales growth in Supply Chain & Transportation, excluding currency, which is indicating that our largest business area is also back to growth. We don't have any significant changes in our geographical distribution of sales. U.K. still our largest market. Proprietary products is at the same amount as previously with 67% of the total sales. Coming into adjusted EBITA numbers. In the quarter, adjusted EBITA came in at SEK 241 million. Organic growth was solid at +4% excluding currency.
Here again, of course, we had a large negative effect of the currency, -7% on the profit as well. Strong adjusted EBITA development from Energy & Electrification and Safety & Security, driven by volume growth, but also a favorable mix between the companies. The margin of 20.8% in the quarter is a slight decrease from last year, but that's the primary reason is the weaker margin in Water & Bioeconomy in the quarter. If we look to the right, adjusted EBITA margin development per business area, Supply Chain & Transportation had a flat margin development around 17%. We still have some delays in the factory expansion in the U.S. from our Finnish company Hilltip. We have also initiated pricing projects in two larger units as we see big potential for the future.
In Energy & Electrification, the EBITDA was up to 29% in margin. Our company phase III have a very strong momentum, and the high margins are affecting the business area positively. Water & Bioeconomy, EBITDA was down to 21%. We have a number of companies that have been too lean operationally and organizationally, and we've been needed to take some actions to that. Safety & Security, EBITDA up to 34%. Strong momentum from several companies and high proportion of software sales is affecting those margin as well. With that said, I'm handing over to Bengt.
Thank you, Anders. Let's look a little bit closer on our cash flow and cash conversion. Looking at the upper graph there, you see the free cash flow. That is all the cash flow from operations and the CapEx spending and amortization on leasing that has developed on a 12-month basis per share, the orange line. The black one is the earnings per share, also on a 12-month basis. As you can see, both of these KPIs, they decreased a bit from year-end in Q4, but still higher than last year. The decline was confined to the free cash flow because of the buildup of working capital. The earnings per share was affected then by the capital losses for these divestments.
That was, of course, a temporary one-off effect on the earnings. Looking at the cash flow in more detail, you see the chart on the bottom there, where it's quarter- by- quarter, how the cash conversion has developed. In the middle, the dotted line is done on a last 12-month basis, which has been pretty stable within the range that we aim to be between 70% and 90% on a 12-month basis. Going up and down because of the season, or and other things. In this quarter, we saw a buildup in working capital on a few different items. We saw an inventory buildup both for the season itself.
Some companies that have their main sales during summer and autumn, they build capacity in their inventories now with finished goods, but also we invested in some raw materials in some companies to avoid future price increases, or the risk of increased prices, at least because of the situation around the world. That was a decision. We also saw an increase in accounts receivable and short-term other type of short-term claims. That's mainly because a lot of the sales were taking place in the later part of the quarter. Orders coming in at the beginning of the quarter, orders that were a bit delayed from last year, but coming in this quarter being delivered later part of this quarter. That meant a buildup of accounts receivable.
We also had some revenue recognition in larger projects that took place during the quarter, which also then is build up of, well, in the working capital. For example, deliveries of trains in our Italian company who deals with grinding of rails and trains for grinding. That was more temporary, you could say, effect during this quarter. All in all, looking at the 12-month basis for the cash flow, it's very stable, as you can see from the chart. If we then look at another KPI, the leverage has continued to decrease.
As you can see in the chart on the left-hand side, we were up above 3.3, almost 3.4 last year, but took a decision really to get it down under 3 here during the autumn, and we have succeeded in that. We stayed well below, although we did the redemption of preference shares here in March. 2.8 then, as a leverage all in all debt, earn-out provisions and the leasing and everything. If we exclude the provisions for our future earn-out payments, the leverage, the what we call the financial net debt leverage is 2.09. Also a good stable development downwards. The capital and return on capital employed Anders touched upon already.
It was a decline from last year, Q4, due to the capital losses, also it's a one-off effect, so that one will bounce back. Looking at the operations themselves, as you can see in the curve in the middle there, going from 61%, 2023 up to almost 64% now. It's very stable across the operations. Very good return on the capital employed out in the units. The difference between these two KPIs is, of course, all the goodwill and other acquired material assets. The top line there, at 82% on the 12-month basis in the quarter is the return on our working capital, which is also a measurement of the efficiency in the companies, which we think develops very good. That was just a brief dive into some of the KPIs, and then back to Anders again with the business areas.
Yes. Thank you, Bengt. Starting with Supply Chain & Transportation, our largest business area had a stable performance in the quarter. Net sales growth of 4% and adjusted EBITDA growth of 1%, excluding the currency effects. It was a strong performance from our Danish company within truck attachments after a much slower last year from this company. The result is negatively affected by two businesses, primarily. Our company within winter road maintenance, Hilltip, as we have said in last quarter as well, we have invested in an improved factory and organization in the U.S. to be able to serve the North American market locally.
The cost for this acquisition is still high relative to the sales we achieved, but the situation will be improved during the year as the order book looks stronger, and we now have a stronger momentum in getting the products out from the factory. Our company with port automation, Certus, still has challenges when turning orders into sales, which has affected the business area in quarter one as well. Overall, we are optimistic for the full year as orders are good and several companies in the business area are performing strong. In the business area, we are also glad to add a new acquisition, Rail Safety Systems. It was actually last week they came into the group. It's a company based in the Netherlands. Revenue around EUR 6.6 million with a good profitability.
The company develops and supplies patented magnetic safety barrier systems used when around railroad maintenance work. You can see on the pictures there. Instead of digging and interfering with a foundation under the railway, this is a smart and efficient system that is based on the magnetic placing them on the sites, as you can see. The company have a strong position in the European market serving a railway infrastructure like Deutsche Bahn is a typical customer, and can also be contractors around the maintenance work. It has a strong link with our Italian company, Mecno, who is doing rail grinding equipment, and they serve the same customers. We look forward to continue developing the company as part of the Sdiptech. We are coming into Energy & Electrification.
Energy & Electrification had a very strong quarter, high growth numbers both for sales and adjusted EBITA. There's strong demand and the development for several business areas or business units, in general, and we prosper from strong competitive products and solutions. We had a specific strong development within following applications. It was a cold winter with strong sales for our company, HeatWork, offering heating solution for frozen ground, for all kind of work that is needed during those time periods. Energy efficiency and upgrades in supermarket segment for cooling applications, our company RDM had strong and are in a strong momentum. Many upgrades, improvement still driving from the energy efficiency perspective. We also have electrification in the U.K., with Rolec performing at a good level.
From a margin perspective, our latest acquisition in the business area, phase III, is supporting the margin uplift, and it's supposed to continue that way as well. Coming into Water & Bioeconomy. The business area had financially a weak development. Net sales growth is minus 1% currency adjusted, which is of course not good, but still indicating that the challenges are more on the cost side. On a positive side, returns are at the high level, above 100% return on capital employed within the business area. We have negative effects from a few business units that is undergoing a strategic updates. In general, as I already mentioned, we have been quite lean operationally in some of the companies. In the chemical cluster, for example, we have invested to adhere to updated, environmental requirements in three of the business units.
We have also three new MDs currently onboarding. That means double cost and also some efficiencies at the moment. We have also our Italian company invested in additional production capacity in our sludge treatment company, and that will take off later in the year with improved volumes. All in all, it's not a short-term fix, but with higher volumes, the margins will start to recover during the year. We're coming into Safety & Security. Safety & Security had a very strong quarter with high growth numbers both for sales and adjusted EBITA. We see strong demand and development in several application areas. The security for data center, we have mentioned it now, the company Eagle have had strong development and continue so. Clean air in hospital for gas evacuation have had a very strong last six months and are in a very good momentum.
Secure communication, as we know, is on top of many agendas, and this company as well within our group is performing good. The improved profitability is largely thanks to a better product mix, and it also been a higher proportion of software sales compared to previous year. We are coming in to M&A. From an M&A perspective, we are on track to increase our M&A activity for the year. We have a good pipeline, and we have good discussions ongoing. We didn't close any deal in Q1, but Dutch rail safety company, RSS, it was closed in April. Our current cash position is strong, but we are aware of it, and it's important to continue to be selective and disciplined, but we look forward to ramping up number of deals in the year.
Then on a final note to summarize the quarter today, we had a stable development in quarter one, although we have some companies that we are working on improving. Strong development from Energy & Electrification and Safety & Security that we foresee to continue. Overall, we have a continued positive outlook. We have a good order book for the coming months for several companies in the group. Of course, the strategic initiatives, it has been a very good momentum, and they are almost completed, and we look forward to close the latest acquisition in Q2 if everything goes according to plan. We are having good discussions ongoing, and we are looking forward to more activity within our M&A work. That was all from us, me and Bengt, in the presentation, and we open up for questions.
If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you to withdraw your question please dial pound key six on your telepone keypad. The next question comes from Anton Ingves from Nordea. Please go ahead.
Yes. Hi, and good morning. Starting off here within the Energy & Electrification, you stated that some of the units here perform very well. How large is the effect here on the margin improvement from this single unit, so to speak? Can you give any hint on the organic growth here in this segment for the quarter?
I can start with the organic growth. We know we have—we haven't done much M&A except for this one company in the business area. Usually we don't guide on specific organic growth in the business areas. We look at the total when we talk about organic total growth. It's a larger entity. It's having a good development and margin, but more specifically on the organic, we don't go into actually. Bengt, I don't know if you have anything on the contribution on the margin side.
No, it's only one. Well, talking about the organic growth, it's only one month that was not organic for this acquired company, the phase III that we acquired last year. That's. That was very little. Almost everything of the development is of course organic. When it comes to the margin development, again, it's this new company that has a high margin that of course then improves the whole business area. Also some of the other units had a good development. Overall a good quarter, very good quarter for the business area.
Okay, perfect. On the ramp up here of deliveries in supply chain towards the end of the quarter, is this effect expected to continue here into Q2 with a better momentum for the entire quarter? Also on the same topic, you said that you saw a stable order intake in the area. Can you give any more specific numbers to put that into perspective?
From the order intake side, it's been a strong order intake from last year quarter four in the business area. It was primarily GAH that came in and had much higher order book coming into the year. Yeah, the effect was that it was delivered quite a lot in March, not stable January, February, March, but it is still a very strong order book. Yes, that momentum, let's say of delivering on a strong order book, it's for many companies in the business area. Yeah, that's positive from that perspective, and we feel comfortable that the growth will continue then for the business area.
Perfect. One final here from me, if I may. You mentioned there some price increases within Supply Chain. Are they sort of implemented now? Can you be a bit more specific on the effect from this?
It's actually not anything that is implemented. We have seen a big opportunity to work with prices more efficiently. We're actually driving a pricing project not only within this business area. We're targeting four companies to start with, and two companies are within Supply Chain & Transportation. We're using external support as well for a framework for price increases and how to work with that long term. This has now been starting up during Q1, so no effect from that right now. That's more of a long-term effect that we will see working, let's say more proficient with pricing going forward.
Perfect. Very clear to me also. Thanks.
The next question comes from Max Bauckham from SEB. Please go ahead.
Yes. Good morning, Anders and Bengt. Thank you for taking the questions. Perhaps starting with Water & Bioeconomy, that specific segment which you mentioned here during the presentation, had a bit more challenging, water. But you mentioned also that with volumes you expect profitability to improve during the coming quarters. Do you expect to be able to match the profitability that we saw during 2025, for Q2 to Q4? Is that possible in your view?
I think from a volume perspective, yes. It's our Italian company. They invested in a new production facility. They have two. They're adding a third one, so they're building up small production facilities, let's say, closer to the customers. We are taking the cost for the investment, but volumes need to come in to be able then to get the benefit from that investment. That we foresee coming during the year definitely. On the margin side in general, as I said, we have felt that we have been a little bit too lean in some of the companies. Higher requirements coming into the chemical cluster as well.
These actions that we need to take is not that we are fixing something and then the margin is gonna come back. This is gonna be a little bit more that we are adding costs to be more proficient and long-term focused for these companies. It will be challenging to come back to those quite high numbers, part of last year in the business area.
Okay, understood. Then the final one, basically. You also mentioned on the topic of cash flow and net working capital that you took some inventory build up here during the quarter to mitigate potential supply chain disruptions. I think, Bengt, you also mentioned that it was to hedge for potential increases in raw materials and so on and so forth. Have you seen any disruptions yet? Or is it more of a precautionary measure?
Well, it's more of to be precautious and take some opportunities to do efficient procurement here. Yeah.
Okay. Yes. Understood. That was all from me at the moment, so jump back in the queue.
The next question comes from Stefan Knutsson from Redeye. Please go ahead.
Morning, Anders and Bengt. Thank you for taking my questions. First up, very impressive development within both Energy & Electrification and Safety & Security. Do you see this momentum as a structural long-term driver, or was there any one-time effects that we should be careful to extrapolate?
I think from Energy & Electrification, we had a strong winter seasonal effect then from HeatWork, the company producing equipment and solutions for frozen grounds. Yes, they had a very strong winter, let's say, January, February sales. Other than that, no, it's a general trend with the electrification, with the energy savings that is taking place. It's actually a broad momentum in these companies. We of course would like to add more companies to the business area as well because we see the trends there for these companies at the moment. Safety & Security, very much similar, I must say. It's a broad general good momentum. We have niche products, niche services, strong products and solutions that we foresee definitely to continue.
Perfect. Secondly, given the current geopolitical situation, do you expect any meaningful impact in Q2 onwards, and, if so, in what business area do you foresee elevated risk for any disruption?
We have had some companies with delayed orders from the Middle East. We are not exposed too much, but definitely we have seen some hesitation from that region, of course. In general, I think what Bengt also mentioned that we have taken in some orders, sorry, we started to purchase a little bit more to hedge potential increases in oil prices and transportation costs, etc. Other than that, we are not that exposed at the moment to see any big obstacles due to that.
Very clear. Finally, on the accounts receivable build up, do you expect this to recover in the near term, or will this persist for some time, as you see it currently?
No. I mean, it was more a, call it a timing effect on where the quarter ends in relationship to invoicing and so on. Cash flow should be more normalized here going further. But I think it could be good to look at the more 12-month basis numbers because it can have quite some swing from one quarter to the other, depending on when invoicing happens or revenue recognition happens.
Very clear. That was all for me. Thank you.
The next question comes from Carl Korsheden from DNB Carnegie. Please go ahead.
Yeah, good day, Anders and Bengt. Just a question from my side on demand overall. We have seen now upwards trending organic trajectory here now for three consecutive quarters. I'm just curious to hear a little bit more when you talk to your current businesses and the orders they are seeing. Would you expect this upwards trending, I guess, organic trajectory here to continue with the next couple of quarters, or is there anything here in terms of comps or similar we should keep in mind?
No, I think it's a positive momentum in several of the business areas and the companies. I think it's important for us to see this now, the good momentum and to work disciplined with it, of course, the working capital and the CapEx, and to make sure that we are doing the right thing, to take, of course, the opportunity to grow with the market development. In short, it's good momentum that we foresee to continue. Of course, looking then at Water & Bioeconomy, we are having some challenges with some of the companies there as well. That's as we saw in quarter one, it was affecting the total. Definitely there that our mindset is that we will manage. We will work with these companies, and overall it's a good momentum in the entire business.
Yeah. Actually, that's clear. Is it fair to say that you have now, I guess, really cooked all of these orders we have talked about over the last couple of quarters where you have been talking about postponements? I guess you mentioned that not all of them have been converted to sales maybe in this quarter in particular, but do you feel like you have received all the orders at least by now?
Yeah, I think definitely the situation primarily in Supply Chain & Transportation last year where they were wanting to place the order, but they were hesitant because of uncertainties. Yes, these orders are now placed with us. We have the orders, let's say. It's a little bit maybe as I said, in Certus, the port automation company, that the larger ports could be a little bit hesitant to, let's say, what's coming late in the year. But no, it's nothing that we really count on at the moment. The delays in placing order is over, let's say then from that perspective.
Yeah. I think so. That's clear. Yeah, it wouldn't be possible to, I guess, break out the sort of remaining order backlog from those larger projects and orders that we have been talking about that wasn't delivered now in Q1 going into Q2?
No, it's not really possible actually. It's still, let's say, the bigger retail companies in the U.K., that's where we talk about the big orders coming from. They are saying that now this year we need, we place the order for these demand exactly when it's gonna come, when we're gonna deliver the vans, et cetera. It's not clear. The order is placed, so to say, with us at least.
Yeah, that's clear. On the cash flows, you already answered a little bit about, I guess, the accounts receivables situation. If we talk a little bit about the inventory build up you mentioned here, could we expect also that to, I guess, convert into cash flows now already in Q2 or do you see that as more, I guess, structural for a couple of quarters now given the situation with supply chains and so on?
We think that's more, was more now. It's still also in Q2, some of the seasonal companies continue to build the finished goods or semi-finished goods for deliveries during second half, especially company like Hilltip with their snow and salt spreaders and snow removal equipment. They sell most of their equipment during late summer and autumn. Still some of that, but that's kind of a normal seasonality on our cash flow, shouldn't be any unusual things.
Yeah. Okay. That's clear. Yeah, thanks. That was all from my side. I'll get back in line.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.
Hello, guys. I'm sorry if this has been already covered here. I was a bit late into the call. First, I see a lot of focus on data center status here that seemed to drive growth in several of your segments. As a general theme, can you maybe share a bit more on that momentum here and if this is something that you expect will continue to build and should have a sustained positive momentum you think, or was it more isolated to good volumes for data centers here in this quarter? Because I don't remember you mentioned it last quarter, for example.
Yeah, okay. No, it's primarily within Safety & Security, a company producing security gates for the data center industry. They are based in the U.K., and they have good customer relationship with contractors in Ireland. Ireland is the hub for it. They, when they expand with the data center facilities, are pre-written, so to speak, in many of these projects building up globally actually with their strong product. No, it's not in general for many companies, it's more specific to this company within Safety & Security that is driving or having a good momentum thanks to that. We see that continue. For us, it's not really a problem. We are having almost a full order book what we can produce actually from this company.
We are looking into different options to expand or how to deal with it. We are very cautious whether this trend will continue. We're very careful in balancing that of course, as well. The demand from this company is good for many different applications, but definitely the data center is driving at the moment the growth.
All right. Thanks for that. On M&A, I think it's good to see that you are becoming a bit more forward-leaning here, and you also mentioned the strong M&A pipeline, and that you expect a ramp up. If you could talk a little bit more about the timing, and the magnitude of the ramp up in acquisition pace. There's just one acquisition so far this year. When you say ramp up, do you expect to be at a relatively good pace already sometime this year? Is it more a gradual ramp up throughout this year and then into 2027, that may be the year where you are at a good momentum pace? How should we think about that?
I know, yeah, we have definitely plans for closing in Q2 then. That's what we prefer to do. One more, it's already end of April. Then adding, let's say definitely then Q3, Q4, more companies. We have the capacity, as we have said, for high-volume M&A growth, of course, this year. Yes, as you said, the complete ramp up will be 2027, but if we are coming in between 4-6 acquisitions this year, that would be something that I foresee good for us.
All right. That would mean also that you balance the gearing below three times or maybe up slightly from here, or do you think that we should expect you to be at these levels, or how does that pace translate into the gearing?
Yeah. I think it's definitely that we would like to be below three. That's our long-term target in the leverage. Yes, we need to be careful about that, how we ramp up the M&A over the year. Definitely we have that in mind, for sure.
All right. Thanks for that. That's all for me.
There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.
We have one question in the chat, in the feed, but I think we have answered that one already. It was regarding orders in the supply chain area coming in in Q1 and being delivered now or in Q2. I think we have answered that already. No other questions in the feed.
Okay. If it's no more question then, thank you all for listening in and good questions. It was, yeah, good discussions here today, and hope to see you next quarter as well, if not before. Bye-bye.