CEO comments

DEAR SHAREHOLDERS,

STRONG PROFIT GROWTH AND A GOOD MARKET SITUATION

I can sum up a good start to 2019. Net sales increased by 25 percent during the quarter and EBITA* increased by 51 percent. Cash flow generation improved to 111 percent (26) during the quarter after a decrease in both inventories and operating receivables. The market situation was generally good within the business areas, leading to attractive organic growth in most businesses.

THE FIRST QUARTER

The organic growth in the Water & Energy and Special Infrastructure Solutions business areas totaled +11 percent during the quarter, while Water & Energy strengthened its margins in a satisfactory manner. Property Technical Services decreased organically by -9% due partly to a deliberate shift towards more profitable customer segments in elevators, and partly to a market correction in the housing sector that is impacting our shell completion operations.

In the Water & Energy and Special Infrastructure Solutions business areas, the market situation is good thanks to a longterm willingness among both public and private customers to invest in the expansion of capacity and better solutions. We experienced particularly strong demand within water treatment, power distribution, electrical automation and refrigeration. A gradual introduction of more stringent environmental regulations, an increasing degree of process automation and general undercapacity in systems is driving the willingness to invest.

In the Property Technical Services business area, our elevator operations are continuing to develop positively with improved profitability and increased profits during the quarter. After a period strongly characterized by new construction of housing, during which our customers prioritized new construction over renovations, demand for renovations has returned to a good level. On the other hand, we saw a trend reversal in shell completion, which is also part of the business area. After a period of very high activity in new housing construction, demand is now showing a correction. In addition, unusually large projects during the prior year period contributed to a negative development this year. However, new incoming orders are now being directed towards commercial and public properties, where demand has been stable for many years.

ACQUISITIONS

In the first quarter, two acquisitions of well-managed product companies were completed in the UK.

RedSpeed International Ltd, which is part of the Special Infrastructure Solutions business area, manufactures digital cameras for speed monitoring and traffic safety enforcement. RedSpeed is mainly focused on the UK market where the company has a strong market share. Through the acquisition, we are taking a step into the market for traffic monitoring solutions, which are becoming increasingly common and are in line with the increasing automation of traffic flows.

Water Treatment Products, which is part of the Water & Energy business area, is a leading company within preparation and manufacture of chemical products for water treatment and is primarily focused on the domestic UK market. The water treatment market is showing steady growth and we expect that this will continue as water shortages are becoming an ever-increasing problem in society.

OUTLOOK

During the quarter, we signed an agreement with Nordea regarding bank financing of SEK 800 million, which will strengthen Sdiptech’s flexibility when it comes to continued acquisitions and growth. Our business model is working well and during the first quarter EBITA* increased by 51 percent after positive contributions from acquisitions and strengthened margins in Water & Energy. For Sdiptech, the market correction in the housing sector in Stockholm is primarily restricted to shell completion; however, the market situation for the Group is otherwise good. Our view on future periods remains unchanged with good opportunities for continued profit growth. By way of conclusion, I want to convey a big thank you to all of our dedicated employees for a good start to 2019. I also want to welcome to Sdiptech the new shareholders that have joined us and our new employees in the UK.