Hello everybody and welcome to our quarter three report 2026. I am Anders Mattson, CEO of Sdiptech, and I will present today together with our CFO, Bengt Lejdström. I start with a short introduction to Sdiptech for any new listeners. Sdiptech acquire, develop, and create the long-term home for niche companies within attractive infrastructure segments. Today, we consist of 35 companies. That is two more than last quarter. We operate in a decentralized structure, and each company is responsible for the day-to-day operation. We divide the group in our four business areas, and each business area has clear underlying growth trends for the future. On a rolling 12, Sdiptech as a group has SEK 4.9 billion in revenues, roughly SEK 1 billion in adjusted EBITA, and an adjusted EBITA margin of close to 21%. These are numbers excluding all companies being divested during the last 12 months.
Coming into the third quarter, I start with some highlights. On a strategic level, we experience a continued solid demand from our diversified portfolio. Our focus on the infrastructure segment is truly a strong driver for us as a group. We work actively with our businesses to balance the growth opportunities with the working capital requirements and also the CapEx requirements when we are growing at this pace. We have a continued good M&A pace, two acquisitions in quarter three, and last 12 months, we have acquired five companies. Looking at the financial, we had a strong demand resulted in an organic net sales growth of 13% and a total net sales growth of 19%. We also see a positive momentum for the profit development with an adjusted EBITA growth of 11% and organic adjusted EBITA growth of 6%.
Cash conversion of 62% in a quarter and last 12 months at 81%. We have fluctuating cash conversions over the quarters, but it is important for us to stay between 70%-90% for the rolling trend. We had a little bit lower cash conversion in the quarter. It is primarily due to inventory build-up for a good order position. We will come back to that later as well. On a final note, it is positive that all our four business areas are growing organically in Q3. Looking specifically at our net sales development in the quarter, net sales came in just about SEK 1.3 billion, which is 19% growth in the quarter. We had a strong organic sales growth of 13%. In the quarter, we had a positive currency effect for the first time in a while with 1%.
Approximately 5% of the growth is coming from our M&As. In the quarter, all our four business areas showed a good sales growth and a strong demand, especially from Supply Chain & Transportation and Energy & Electrification. Supply Chain & Transportation had some specific large orders in a quarter that boosted the sales figures. I will talk more about that under the Supply Chain business area. Looking at a company level, the majority of our companies showed organic net sales growth, which is a positive indication of the good demand overall in the portfolio. If we are looking at our geographic distribution of the sales, there is no significant change there. It is the U.K., our largest market, with around 49% of the sales.
Proprietary products is 68% of the total sales. The service and installation are then, as we always say, primarily on our own proprietary products. Continue to our profit development in the quarter. Adjusted EBITA amounted to SEK 261 million, which is 11% growth in the quarter. It was a solid organic growth, 6%, and the currency effect was flat, so approximately 5% is coming from the M&A growth. In the quarter, all business areas showed adjusted EBITA growth and especially strong development in Supply Chain & Transportation and Safety & Security. The growth in Supply Chain is mainly driven by the acquisitions. Water & Bioeconomy reported a minor growth, and it is positive with an improved performance from this business area as well. Coming down to the margin, adjusted EBITA margin amounted to 20.0%. That is down from 21.3% last year.
There are primarily two reasons for the decline in the margin. The first one is our sales mix. With a high net sales growth, the mix has changed quite a lot in this specific quarter. The second reason is specifically in Supply Chain & Transportation, where we had the largest decline of roughly 2.5 percentage points. The main reason is a large drop in margin from a specific company in the business area, and I will talk more about that as well later when I come into the Supply Chain part of it. By that, I hand over to you, Bengt.
Thank you, Anders. I will continue with details on the cash flow to start with. Sorry. The slides are jumping. Cash flow generation. As Anders said, we are in the middle of our preferred span of 70% - 90% on the last 12-month basis. However, it was weaker in the quarter, at 62%. The main effects are two, you could say. We paid, in comparable terms, more taxes in Q3 than we typically do. We paid less earlier in the year. But looking at year to date or the last 12 months, we are actually lower than last year. But in the quarter, we are much higher. So that affects the cash flow on that line item. Then the major contributor to the weaker cash flow is the buildup of working capital. We have some strong seasonal companies in the group.
Our Finnish Hilltip with our snowplows and salt spreaders, and they are, of course, building inventory in order to sell as much as possible now when they are in season. They also had some big orders coming in, building up both working capital and accounts receivables. All in all, we have a good momentum in the sales, especially in the later part of the quarter in September, and that built the accounts receivables as well. So that is really the main contributor to this weaker cash flow. But the good thing about that is that it is because of increased sales in the group. Looking then at the free cash flow and the difference is that then we also consider the CapEx spending and the leasing amortizations.
That free cash flow a bit lower than last year, and that is because of what we saw on the previous slide, lower cash flow from operations, but also slightly higher CapEx. We have said previously this year, and we repeat that we are investing in a number of companies, not the least in the Water & Bioeconomy, but also in other companies in other business areas for operational efficiency and to meet a higher demand. Also, like many others, I guess, we invest in IT systems to keep up with that as well. That has been driving CapEx. We are slightly above our level of roughly 3% of sales in CapEx. So far this year, we are up 3.8%. A little bit high, but still it has its reasons.
Looking at the earnings per share, that improved compared to last year, but it could also, one, which is obvious in the chart as you see, is that quarter four last year was pretty high, and we still benefit from that. You could expect that last 12 month earnings per share perhaps will not increase as much in the next quarter looking on the last 12 months basis. Still, we think that is a good development, and it is the profit generating, of course, which is the backbone of that. I could perhaps also say lower interest rates. That all in all affects then, of course, the leverage ratio which increased a little bit to 2.95 in this quarter.
That is because, again, of the weaker cash flow and the buildup of our working capital, but also that we made two acquisitions in the quarter, which we will come back to and present. They represent roughly SEK 40 million in a run rate profit, which is roughly some 40% of what we have expected for this year. It is all in one quarter. Of course, that makes a little bit of a hike in these numbers since we only count the profit since they joined us in August and September respectively. We put the full debt in this equation. We have said that as well, that it may jump a little bit up and down through the quarters, but we have our ceiling of 3 and a long-term slowly but steady decrease. Looking on the right-hand side of the chart, you see some return KPIs.
You can start from the top. We have the classic profit over working capital, and that has been going down slightly since last year. Again, because of the buildup of capital employed through working capital, but still at a high decent level. Our operational ROCE, which is the return on capital employed in the companies, so that is excluding any goodwill or other immaterial assets at the acquisitions. It is 60%.
Same reason there why that is a little bit lower. Then finally, at the bottom, you have the total capital employed and the return on that one, and that is increasing. We said already a year ago when we announced that we should divest a number of companies that the return on capital employed will increase because of that, but also to have a stronger, more stable portfolio. That is slightly improving and will continue to improve slowly but steadily.
As an extra note, you could say on the balance sheet debt item, since we have done some activities on the debt portfolio during this year, how that has changed in this chart since 2021. First of all, you could say that as you see in this chart, the earn-out debts, the provisions for future earn-out payments have lowered, both because we were a little bit low on acquisitions a few years ago, but also that we reduced the use of earn-outs in the acquisitions and have that in a shorter term than five years, which we typically have had, but now perhaps more three or four, but also to a lower amount. That's good, but it has been a very good tool for us to fund our acquisitions through the years.
Now we have the capabilities of our financing, so that becomes a bigger part of it and pay them upfront instead. We have reduced that. Then as you remember, in March this year, we redeemed the preference shares, SEK 175 million in nominal value, which of course means that the earnings dilution becomes less, so more earnings per share. We also repurchased some of the outstanding bonds at that time, SEK 250 million of that SEK 800 million in total. In September this year, we redeemed or bought back the remaining part of the bond, SEK 550 million, and that has affected our profit after interest rates paid in this quarter since we had to pay a penalty fee of doing this early redemption.
Pure mathematics said that that was rational to do since the interest rates are much lower on the new bond that we issued, and we also issued a lower volume, only SEK 400 million. We could reduce the margin on that bond from 490 basis points on the old bond to 200 basis points on the new bond, so less than half. That was easy math to make it of value for everyone to make an early redemption and then come up with a new one instead. All in all, that means lower interest rates for the group going forward. Right. Then I hand back to Anders.
Yeah. Thank you, Bengt. I will go through our business areas. Start with Supply Chain. It's been a lot happening in the business area. Was a good momentum with 27% growth and 12% growth in adjusted EBITA. Several of our largest companies in the BA, including GAH, who's making the refrigeration, the transport refrigeration units, e-l-m, making the specific attachments for forklift, Certus, our port automation company, and Hilltip, winter snow maintenance products. All of these four had a very good development in the quarter. From a sales perspective, the growth of 27% is of course high, and we have two main reasons for this. The first one is four new acquisitions coming into the business area and adding top-line growth. Then we have another reason is in Hilltip. Hilltip has, during the year, entered into a new product segment for highway salt spreading equipment.
Primarily, they have been working a little bit more on the smaller roads, parking lots, et cetera, and now entering the higher or the bigger product for the highway segment. That segment is growing quite a lot. Hilltip partly delivered a large order, including salt spreading equipment and the truck itself, and that of course boosted the sales number in the quarter. This big order will continue to be delivered in quarter four, but long term, we do not foresee to always include the truck as part of the equipment sale for these kind of the highway salt spreading equipment. The margin, if we look at that, it declined from relatively high, 21% to 18.5%. One reason is the larger order in Hilltip's way affecting margin down slightly.
The main reason is Mecno, it is our Italian company, and one part of the business model is to sell fully equipped train, including a specific unique rail and tramways. These trains, they are big and complex, so it takes usually one year to build, and the cost for these key components has increased significantly during the year. Unfortunately, we have not been able to charge that to the customers, so it has been affecting the margin a lot. The company is, of course, learning from this, taking action to improve the situation for the future. That is affecting the margin in the quarter. As Bengt also mentioned, we have had an inventory build-up, and this is specifically in this business area.
Hilltip has been building inventory, and that is not only for the new segment, but it is also for a strong order book in general for Q4. Certus, our company within the port automation, they have also increased inventory for future deliveries, and that is a specific reason for that because it is a risk of a component shortage of a specific camera. So they needed to buy that for stock in quarter three. I am also glad to present that we have welcomed two new companies in the business area, A.U.T. and VALE Engineering, during quarter three. A.U.T. is a company based in the U.K., annual revenue of approximately GBP 7 million and a stable profitability. The company design and offer customized wheel and castor solutions for many different specific logistic applications.
An example in a cold storage, you need a specific solution due to the specific material for frictions on the floor, for example. They do all these kinds of customized specification and solutions. They have a strong position in the U.K., and they are primarily selling domestic. Another good thing about the company is that they have a pretty stable revenue and profitability pattern over the year, and that is good for us as a group. Another company then was VALE Engineering that we welcomed into the group, also based in the U.K., annual revenue of approximately GBP 5 million and a good profitability. They develop and manufacture equipment for road and infrastructure maintenance. The good thing here is both for the winter maintenance but also for summer needs. They also have a strong position in the U.K., and primarily they are servicing municipalities all around the U.K.
We got to know VALE, thanks to our ownership of Hilltip. They offer more summer products, and they also have primarily a trailer-mounted solution, as you can see on the picture. That is a different application from what Hilltip sells today. That is a good thing as well. We are leaving Supply Chain & Transportation, coming into Energy & Electrification. They have had a very strong development over the year, and they continue to perform good in the quarter. 17% growth in sales and 9% growth in adjusted EBITA. We experience continued strong market drivers, which creates this good momentum for growth. For example, Phase 3 continues to perform very strongly, and they are benefiting from increasing demand for reliable power distribution.
They also, of course, have a little bit of a positive effect from the data center growth, but overall, steady growing in other applications areas as well. Rolec is also performing good. They are supported by the ongoing electrification of the infrastructure and the vehicles, and primarily selling their business-to-business solutions, the product, the service, the software attached as more of to the business customers. The decreased margin in the business area in quarter three compared to last year is mainly due to one company. Our Swedish company, Unipower, had a one-off product last year with a very high margin in that specific quarter. We are moving into Water & Bioeconomy. That was a positive quarter with a net sales growth of 6% and adjusted EBITA growth of 2%.
We have had a number of quarters with declining profits, so it is positive to see that we now return to a profit growth in the quarter. A company that is performing well is our largest company in the business area, Auger. Auger is a specialist provider of drainage water mains services, primarily towards insurance customers in the U.K. Thus we are reading and we see a lot the challenges with the water and drainage systems in the infrastructure today continue to raise. We also see that. So we have a 12% growth in profits for this company in the quarter, which is very strong. As we have said previously as well, we have invested in several companies in the business area to strengthen the foundation for the long-term growth.
It is too early to say that we now from this quarter three and onwards only will see growth, but we are in a much better situation now compared to one year ago. The companies are much more healthy to explore and take advantage of growth potentials in the market. We are moving into the last business area, Safety & Security. They continue to deliver very strong results, even in quarter three. They have done that for the full year.
In quarter three, we have a 9% sales growth and a 31% growth in adjusted EBITA. We experience a strong demand in pretty much all safety verticals. Our products within clean air applications in hospital is doing good. That is Medicvent. Our perimeter security for data center, but also for airports and other government building, it is doing very good. That is Eagle performing strong. Secure communication is also developing strong for Cryptify.
The strong margin at high 36% and improved profitability versus last year is due to a number of reasons. One is that we actually see scaling effect here in the business area. So when volume grows, we actually see that the margin is growing as well. A favorable sales mix between the companies. We have companies with more recurring revenue as part of the sale, and that has been increasing in the sales mix. Another reason is actually that all companies in the business area are performing at a good level. So we have no poor performer at the moment. That, of course, is also important.
Having that said, it's important to mention that these high margins will not be sustainable in the long term, but for the full year now, it's looking strong. If we're looking at the return on capital employed in the business area, it's continued to be high as both margin and capital efficiency are managed in a very good way in the business area. Then we're coming into M&A. From an M&A perspective, we are on track, and we are clearly increasing our M&A activity in the year. We have now made 5 acquisitions.
One thing that is very important is, of course, the strengthening and working with the pipeline, and that has definitely been strengthening over the last 12 months and are now in a position that we want to be, to be able to reach the growth numbers we would like, both for this year and then, of course, going forward for next year. But we respect our leverage target. We want that to be below 3 in total net debt divided by EBITDA. Therefore, we need to be disciplined in how hard we push for new acquisitions. We have to make sure that profit continue to develop and, of course, that we just need it to fund the coming acquisitions, not only for this year, but also for next year, of course. Then moving into the final slide in the presentation, I would like to summarize the quarter.
We achieved a solid growth of 19% and also in net sales, and 11% adjusted EBITA growth, including organic growth in the business areas. We are slowly increasing our return on capital employed, which is a very important long-term target for us. Our ambition to increase M&A activity for the full year 2026, we are on track on. I also added this last quarter, and I do it this time as well, to repeat our current strategic roadmap that we are working on and we are very much committed to deliver on. We said 2025 was a year when we put new priorities in for us as a group, and we decided to streamline our portfolio.
This year, 2026, we wanted to come back on the growth track, and we wanted to improve the balance sheet and put in new priorities around our growth targets and also our leverage target. From next year in 2027, we should be performing according to our full potential to reach the 15% growth and also, at the same time, increasing the return on capital employed. Looking now at our first nine months in 2026, we definitely look forward to continue on this roadmap that we have a good performance at the moment in. By that, the presentation from me and Bengt is done, and we would like to open up for questions from the audience.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.
Good morning, and thank you for my questions. First of all, on Supply Chain & Transportation on the margins, when do you expect to be able to offset the higher material costs, you think? In general, get back the margin, align the EBITA growth with the sales growth?
Yep. The two specific reasons for the margin, as I described a little bit, the Mecno it will be continued for the year. They are actually performing at the decent level year to date, but still the margin will be continued to be affected in Q4 for Mecno specifically. Hilltip, they will continue to deliver on those larger orders, which is including the truck itself, which is driving down the margin. So we foresee that for Q4 in supply chain to be affected. Then coming into next year, our aim is definitely to increase the margin again. But again, we need to mention that where companies that we are adding to the business area, we acquire companies between 15% upwards in margin. So we need to think of that as well, that potentially new acquisition might not be about 20% in margin coming into the business area.
All right. Are those acquired companies contributing negative right now as well to margins, or do we more talk about future acquisitions having lower margins?
No, I think if we look at the companies we acquired during the year, they are a little bit lower compared to the average margin in the business area, so they are affecting in that perspective right now.
Right. Thanks for that. Then just on the cash flow here, can you maybe elaborate a bit more on the specifics holding back the free cash flow in this quarter? Last year, maybe you had some low-hanging fruit, and now it sounds like you are investing a bit more, building a bit more inventory and so on to drive growth. Is that fair? What does that mean for Q4? Do you think that you will still offset the declines here with stronger Q4?
Yes. We definitely foresee that the cash flow will be better. Q4 is typically very strong because of these seasonal companies. Then selling and getting paid, not the least for their product. That is the main reason. Exactly how much of that will be released in cash during the quarter is hard to specify right now, but definitely it will be stronger. As Anders mentioned, we have also done some preemptive type of procurement to avoid shortages in some components. But the major effect is the inventory build-up for sure, and the accounts receivables build-up. So that should go back the numbers of the working capital. Let us see. Again, on a rolling 12-month basis, we aim to be somewhere around the 80%-ish , a little bit up or down, and we are 81% right now. So that is really our goal, our aim to stay in that level.
I could perhaps also mention that when you read our cash flow statements, it's always difficult on which line item different activities and costs or incomes are eventually showing up. So the best is to look at the cash flow from operating activities after working capital, really. That has decreased, of course, since last year, because of the things I just mentioned.
All right. If we just look into maybe next year then and think about overall cash generation and how you prioritize investments and so on, do you think it will look fairly similar or are there plans to maybe hold back investment in growth a bit and prioritize higher conversion? Or how do you think right now about prioritizing volume growth and cash flow for next year?
Yeah, I think it's a relevant question. As Bengt said, that we are a little bit high on the CapEx, and I think it's working quite good with our model when we are looking at how we look at the portfolio, where we have companies that accelerate, where we need to invest for future growth, but we have companies in strengthen, for example. We need to fix something before we really see that we need to invest in them, and then we have our harvest company, so to say. That model, that framework, we are applying to the companies. So definitely we are more careful about how to invest and where to put the CapEx, in which companies for the next year. We are in that budget strategic planning process right now.
But yeah, again, it's a balance, of course, with potential very strong growth opportunities, but we would like to come down closer to 3%. That's the aim in CapEx. Working capital is a continuously discussion with the companies. How can we improve? Can we use consignment stock? Can we buy in smaller batches? Everything. Yes, we can be better at that, and we are working with the companies in regards to that. That's something we definitely see we can improve for the next year. But we would not like to holding back too much on growth potential at the same time.
I see. Thank you for that. That's all for me. I get back into the queue.
Okay. Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Stefan Knutsson from Redeye. Please go ahead.
Morning. Morning, Anders and Bengt. Just a follow-up on the cost inflation that we know as we have seen quite a hot print on inflation of late. Do you foresee risks in other companies that yeah, it happened now in Mecno, but do you foresee risks in other companies as well, where you're not able to offset price increases or cost increases with price adjustments?
It's a good question. We talk a lot about that we foresee a second wave of inflation coming in now into the raw material situation. The majority of our companies foresee that, and they are on their toes, so to say, to price that into the project. We have a few companies where we have those bigger projects, and Mecno for this, setting the price last year, working one year without a good indexation of cost in a specific project.
That's not best in class. We make sure that our companies, when we have the longer project, the bigger project, we need to have indexations in the raw material, let's say bill of materials for the bigger project. Yes, we definitely learn from this as well and make sure that it's not going to happen in other companies. I would say the risk is quite small that we will experience these kind of situations going forward.
Okay, very good. Secondly, on the working capital, it's very positive to see that you post solid organic growth, and it's natural that you have some working capital build-up because of that. In order for you to reach the ROCE of 15%, how much do you think you will need to decrease your working capital to close in on that target?
Yeah, that's a million-dollar question, but on one of the slides you can see the working capital in relationship to the sales, and it has been varying between 19% and 22%, and now it has been going up. Our aim is to push that down to probably around the 20%. We think absolutely we need to work on that and lower it to a lower level compared to sales, for sure. That's one component in reducing the capital employed, and then, of course, also to be disciplined with the acquisitions so we don't add too much goodwill and other items when we acquire companies. Of course then to increase profits. All of these three together then, the working capital, what we pay for companies, and the profit growth will all together work for an increased return on capital over the years.
Do you have any internal targets for the working capital in relation to sales?
As I said, around 20% is an aim. We work individually with every company because they have different situations, of course, with our working capital, depending on if it's manufacturing or not, et cetera. But on a group level, that's a decent level to be at. That's our long-term vision for that.
Okay. Very good. That was all for me.
There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Okay. Thank you for the questions here. If there are no more questions, then we thank you for listening. We look forward to seeing you after our Q4 report again. We continue to work on our side on strengthening Sdiptech further. Thank you, everybody.