CEO comments from year-end 2018

Dear Shareholders,

Continued profit growth and elevator program successfully completed

I can happily summarize a strong 2018 for Sdiptech. We continue to grow steadily and consolidated net sales for 2018 amounted to SEK 1,496 million, an increase of 43 percent. Organic growth in consolidated net sales amounted to 5.4 percent for 2018, in line with our financial targets.

Operating profit before acquisition expenses (EBITA*) amounted to SEK 177 million for 2018, an increase of 45 percent. For our elevator operations, the successful programme of improvement is now being concluded with good results. The fourth quarter brought a continuedpositive trend in the Group’s profitability and the EBITA*profit over the year amounted to 10.1 percent in the first quarter, 11.7 percent in the second quarter, 11.7 percent in the third quarter and finally 13.5 percent in the fourth quarter.

 

 

THE QUARTER

The fourth quarter of the year underscored the positive trend and growth in the Group. Consolidated net sales rose by 27 percent over the quarter to SEK 419 million compared with the preceding year, and EBITA* increased by 19 percent to SEK 56.5 million.

 

Tailored Installations

As a result of the programme of measures we implemented in our elevator operations, EBITA* in the installation operations rose significantly in the fourth quarter, from SEK 2.7 million to SEK 22.4 million, compared with the preceding year. As previously announced, we have avoided temporary“quick fixes” to focus instead on fundamental adjustments inthe operations to achieve lasting effects. This has yielded results and the EBITA* profit margin for the quarter was 9.8 percent, compared with 1.5 percent in the preceding year.

 

Products & Services

The subsidiaries in the business area have strong niche market positions and acquired companies are developing well in Sdiptech’s direction. As previously announced, our second business area showed very strong profitability towards the end of the preceding year. In 2018, the business area showed favourable, although more normal, profitability of 21.3 percent in the fourth quarter, compared with the high figure of 27.8 percent in the preceding year. As previously announced, a gradual normalisation is taking place towards a margin level of about 20 percent and, as planned, we were able to round off 2018 with a profit margin for the full-year of 20.6 percent.

 

 

ACQUISITIONS

 

In the fourth quarter, two acquisitions were completed in the area of water and wastewater treatment. In early November, we acquired Vera Klippan AB, a leading niche producer of large-dimension pipes and cisterns. The company’s products are used for applications including chemicals, water and sewage. Just before Christmas, we acquired Pure Water Scandinavia AB, a leading product company in the ultra pure water niche. The company’s products are used by energy companies, hospitals and laboratories, for example.

In January 2019, we acquired RedSpeed International Ltd. This company is a leading supplier in the area of traffic safety and manufactures digital cameras for speed and trafficmonitoring. RedSpeed’s principal focus is on the UK marketwhere the company holds a strong market share. The company also perceives growing interest in its products among customers outside the EU. With this acquisition, we are stepping into the area of traffic monitoring solutions, which are growing in importance as traffic flows are automated to an increasing extent.

The three acquisitions we have made in the UK over the past 12 months are all active in the relatively large domestic UK infrastructure market. In addition to the Nordic region, focused mainly on Sweden, we are now conducting targeted activities in the UK, the Benelux countries and other parts of northern Europe.

 

 

NEW MARKET-FOCUSED BUSINESS AREAS

For many reasons, infrastructure is in focus around theworld. It is included in several of the UN’s Agenda 2030sustainable development goals, is a priority for the G20 constellation and an issue uniting people across political borders. In the western world, the investment needs are considerable as infrastructure built in the 50s, 60s and 70s has grown outdated and, as consumption grows, capacity shortages are increasing. At the same time, society seeks to build more sustainable, more efficient and more secure communities, which is driving development in a positive direction.

Examples of areas we have identified as particularly important for the development of society are water, energy, communications, transport and security, and we have for a long time focused our acquisition efforts on these particular areas. Among our subsidiaries, we have now achieved the critical mass needed to organise ourselves in line with this, and three new business areas will be established as of 2019: Water & Energy, Special Infrastructure Solutions and Property Technical Services.

  • Water & Energy – The areas are in focus for global welfare, constituting, among other things, two of theprincipal goals of the UN’s Agenda 2030. Several strongtrends, including increased digitalisation and automation and a gradual introduction of stricter environmental regulations, are expected to bring market growth. Over the past 15 months, we have made six acquisitions in the business area.
  • Special Infrastructure Solutions – Segments such as air and climate control, data communications, transport and security have been identified as particularly crucialto society’s long-term development. In the past 15 months, we have completed four acquisitions in the business area.
  • Property Technical Services – Technical services for properties, such as elevator and roof renovation,represent Sdiptech’s origins. In the metropolitan cities towhich populations and economies are being concentrated, there is a long-term need for service, repairs and property modernisation. Our subsidiaries focusing on this area apply a different business logic than that of product companies. As Sdiptech is focusing increasingly on proprietary products, we currently have no plans to expand this business area.

 

OUTLOOK

Our business model works well and creates a strong profit growth. In 2018, EBITA * increased by 45 percent to SEK 177 million. Our view of upcoming periods remains unchanged and we see good prospects for continued profit growth, partly because our business areas continue to grow well and as planned, and partly because newly acquired companies are expected to contribute favourable earnings.

In conclusion, I would like to thank all of our dedicated employees for their fantastic efforts in 2018. I would also like to bid a warm welcome all new shareholders having joined Sdiptech since the last report and welcome all new employees to our growing Sdiptech team.