CEO comments from the second quarter 2018

Dear Shareholders,

Good organic growth and continued profit rise in elevators

The second quarter represents a strong continuation of the year. The organic growth for the Group’s net sales amounted to 10 per­cent for the first half of the year, and 13 percent for the second quarter. For our elevator operations, the improvement program continues and profitability within elevators is now improving for the second consecutive quarter.

 

During the first six months, net sales on a rolling 12 month basis increased by 24 percent from SEK 1,045 million (31 december 2017) to SEK 1,291 million (30 June 2018). Operating profit on a rolling 12 month basis grew by 25 percent during the same period from SEK 153 million to SEK 123 million. Hence, operating profit during the second quarter of the year was almost as high as in the first two quarters last year. The Group has strong niche market positions and we see good conditions for continued profit growth in the coming quarters.

 

 

THE QUARTER

The second quarter of the year underscored the positive trend and growth in the Group. During the quarter, the Group’s net sales rose by 58 percent to SEK 378 million compared with the preceding year, and organic sales growth for the quarter was 13 percent. EBITA before acquisition costs (EBITA*) rose by 128 percent to SEK 44 million. In addition to good sales growth, the Group’s profitability and profit margin for EBITA* also improved to 11.7 percent in the quarter, compared with 8.0 percent in the corresponding period last year.

 

Installations

On the installation side, EBITA* increased by 96 percent in the second quarter to SEK 18.2 million. The installation side is under­going a clear improvement in profitability thanks to the ongoing programme of measures for our elevator operations. The measu­res are proving effective, the positive trend shift from the prece­ding quarter is holding up and profitability continues to improve. Internationally, the level of activity in new installations remains high, causing continued high staff turnover and increased salary costs. However, demand is strong and our measures are focused on raising prices and we are encountering favourable understan­ding for this among our customers. In Sweden, where we focus primarily on the renovation market, we are seeing positive signs that demand is strengthening due to pent up renovation needs, since new construction has long been prioritized at the expense of renovation. Naturally, although this is positive, we cannot rule out extending the programme of measures to further strengthen profitability as there is potential for further margin enhancement.

 

Products & Services

While earnings on the installation side are clearly improving, the Niched Products & Services business area continues to contri­bute stable profit growth. The subsidiaries in the business area hold strong niche market positions and EBITA* rose by 62 per­cent to SEK 28.7 million in the second quarter. Companies that are acquired develop well under Sdiptech’s management, and acquired profits are rolled into the Group in accordance with our business model.

 

 

ACQUISITIONS

During and immediately following the end of the second quarter we completed two acquisitions, one in Sweden and one in Nor­way.

 

Property automation and energy efficiency

Through KSS Klimat– & Styrsystem AB, we are establishing ourselves in energy efficiency and property automation – an infrastructure segment that we believe offers good long-term potential. Advanced indoor climate control is clearly linked to both energy efficiency and cost reduction, and, in our assess­ment, demand will increase and remain favourable through peri­ods of both prosperity and recession.

 

Water and wastewater treatment

In early July, we acquired Rogaland Industri Automasjon AS, which specializes in automation systems for water and waste­water treatment. Through the acquisition, we are expanding the Sdiptech Group’s offering in the water segment to Norway. Sdiptech’s solutions play important roles in future infrastructure systems, and the market for decontamination of water, soil and air is expected to increase as stricter environmental regulations are introduced and the focus on environmental issues generally increases.

 

Ongoing acquisition processes

Acquisition efforts are continuing unabated and we currently have an intention agreement for an additional acquisition and are in bidding discussions with a couple more companies. There are a number of interesting companies in the pipeline that are focused on infrastructure and it is, as usual, difficult to predict when acquisition processes will be completed, and new companies will join us in the Group.

 

 

PROSPECTS

We continue to see favourable conditions for profit growth during the remaining quarters of the year, partly through the profitability improvement in the elevator operations and partly because other operations continue to progress well and according to plan. We also expect new companies that we have acquired to contribute to our earnings.

 

Continued profit rise in elevator operations

We are implementing a programme of measures in the elevator operations and this is clearly enhancing profitability. During the first quarter of the year, after three quarters of declining profits, we were able to state that the lowest point had been passed. The positive trend continues and second quarter earnings were higher than in the corresponding period last year.

 

Good sales growth with focus now on continued margin improvement

With us now starting to have profitability in the elevator operations under control, the whole Group is developing well and according to plan. The full-year net sales figures for the past 2.5 years are SEK 750 million (2016), SEK 1,045 million (2017) and SEK 1,291 million (RTM June 2018). If we also take the annual sales of the companies acquired over the past 12 months into account, the Group is approaching more than SEK 1,500 million in sales. The marginal development for the same period is 14.3 percent (2016), 11.7 percent (2017) and 11.9 percent (RTM). There is potential for further margin enhancement and we are actively working to improve this through various improvement measures.

 

In conclusion, I would like to thank our shareholders for your continued support and give a warm welcome all the new share­holders.