CEO comments from the third quarter 2017

Dear Shareholders,

 

We are continuing to work methodically and in accordance with our growth strategy. Over the year, both net sales and EBITA have increased, we have completed six acquisitions and listed our Series B share on the Nasdaq First North Premier exchange. Through a new share issue for SEK 500 million, we have created the financial conditions for continuing on our established growth path towards our target of increasing EBITA to SEK 600-800 million in 2021.

 

Good sales growth driven by strong markets and strong product niches

During the first three quarters of the year, net sales increased by SEK 241.0 million (49 percent) compared with the corresponding period last year. In general, we are experiencing stable demand for our various offerings. In particular, our niche products hold a very good market position, showing strong sales and profitable growth.

 

Position and growth model generate EBITA growth

Sdiptech is undergoing an expansive phase of growth, during which we are experiencing quarterly fluctuations in earnings and will continue to do so for the foreseeable future, an effect that will gradually decline as we grow. However, our market position is completely right. Infrastructure in metropolitan areas is characterized by long-term growth trends and fundamentally increasing needs for renovation and extension. Despite certain margin pressure in individual areas, I am convinced that our market position is extremely favourable for long-term growth.

To date this year, acquisitions, which account for a significant part of our EBITA growth, have resulted in a, for us, modest acquired EBITA of SEK 34 million, calculated on an annual basis. However, our acquisition capacity remains unchanged, and I am confident in our target of acquiring the equivalent of an average SEK 90 million annually in EBITA up to and including 2021.

 

Margin pressure in the installation segment

EBITA is also growing, increasing by SEK 18.4 million (33 percent). During the period, this has entailed a lower growth rate than for net sales, and this relates primarily to margin pressure in our installation operations. There has been a high level of market activity in the installation industry for an extended period, and we have  experienced increased intensity in recent months. An effect of this is increased labour market mobility for installers, bringing challenges in the efficiency of deliveries and, accordingly, increased completion costs. We are seeing this in our elevator operations, both internationally and in Stockholm, as well as in our shell completion operations in Stockholm.

We are also currently experiencing price pressure and decreased demand in our elevator operations in Stockholm as a result of capital being allocated with an emphasis on new installations at the expense of renovation and maintenance. Renovation needs do remain however, since this market is basically determined by deterioration and should, in the long term, be followed by normalization and restored profitability.

 

ACQUISITIONS

During the first three quarters of the year, the Group acquired four companies, as well as another two after the end of the period, with a total EBITA of SEK 34 million.

 

Expansion of our renovation business in Stockholm 

Tello Service Partner, which specializes in the repainting of roofs and installation of safety equipment on roofs, strengthens our renovation operations with a niche service company that has a strong presence in the Stockholm region. Over time, the company’s focus on the renovation market rather than new construction generates income with low cyclicality.

 

Another step in water treatment

With Polyproject Environment, an environmental technology company specializing in the treatment of contaminated liquids, gases and water, we are taking the second step in building a cluster of companies in water and wastewater treatment. The market for the treatment of water, soil and air is expected to increase as increasingly stringent environmental regulations are introduced and environmental awareness in general increases in society.

 

New niche in wastewater treatment

With Topas Water and Service, acquired in the first quarter, we are taking an important step in the installation and operation of wastewater treatment.

 

 

FUTURE PROSPECTS

Strong conversion of bid discussions

The size of our total pipeline is normal, involving some 330 companies at the time of writing. At the start of the third quarter we had a number of established bid discussions in progress and, since then, we have seen a strong conversion of bid discussions into letters of intent. Accordingly, we expect to have completed further acquisitions before the end of the year. In addition, early bid discussions are being held with just under ten companies.

 

Good prospects for continued EBITA growth

Due to the prevailing margin pressure, the elevator and shell completion operations will find it difficult to meet last year’s full year EBITA. At the same time, other core operations are performing well, including the companies acquired in 2016 and 2017.

 

The key figure run-rate on a rolling twelve-month basis is of a more forward-looking nature and, all else being equal, the current run rate will switch to reported figures in the coming year. Since the third quarter of 2016, run-rate, including recent acquisitions, has grown to SEK 1,169 million for net sales (45 percent) and SEK 153 million (40 percent) for EBITA. With recent and upcoming acquisitions, the prospects are therefore good for further growth in the figures we report in 2018.

 

In conclusion, I would like to warmly welcome all of our new shareholders to Sdiptech. My most important message to you, and to all future shareholders, is that Sdiptech’s growth model is strong, that we have ambitious but reasonable targets for expansive growth and that it is this long-term journey that will generate substantial shareholder value.