Operator: Session participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Anders Mattson and CFO Bengt Lejdström. Please go ahead.
Anders Mattson: Yes. Hello, everybody, and welcome to our Q3 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 a long-term home for niche companies within attractive infrastructure segments. Today, we consist of 35 companies. That is two more than last quarter. And 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 EBITDA, and an adjusted EBITDA margin of close to 21%. And these are numbers excluding all companies being divested during the last 12 months.
Anders Mattson: Coming into the Q3, 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, 2 acquisitions in Q3, and last 12 months, we have acquired 5 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 EBITDA growth of 11% and organic adjusted EBITDA growth of 6%.
Anders Mattson: 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% to 90% for the rolling trend. And we had a little bit lower cash conversion in the quarter. It is primarily due to inventory build-up for a good order position. And we will come back to that later as well. On a final note, it is positive that all our 4 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%.
Anders Mattson: Approximately 5% of the growth is coming from our M&As. In the quarter, all our four business areas showed good sales growth and strong demand, especially from Supply Chain & Transportation and Energy & Electrification. Supply Chain & Transportation had some specific large orders in the quarter that boosted the sales figures. I will talk more about that under the Supply Chain & Transportation 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 UK, our largest market, with around 49% of the sales. Proprietary product is 68% of the total sales, and the service and installation are then, as we always say, primarily on our own proprietary products.
Anders Mattson: Continuing to our profit development in the quarter, adjusted EBITDA amounted to SEK 261 million, which is 11% growth in the quarter. It was a solid organic growth of 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 EBITDA growth and especially strong development in Supply Chain & Transportation and Safety & Security. The growth in Supply Chain & Transportation is mainly driven by the acquisitions. Water & Bioeconomy reported minor growth, and it is positive with an improved performance from this business area as well. Coming down to the margin, adjusted EBITDA 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.
Anders Mattson: With 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. I will talk more about that as well later when I come into the Supply Chain & Transportation part of it. By that, I hand over to you, Bengt.
Bengt Lejdström: Thank you, Anders. I will continue with details on the cash flow to start with. Sorry, the slides are jumping. Cash flow generation. We have, as Anders said, we are in the middle of our preferred span of 70% to 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. That affects the cash flow on that line item. The major contributor to the weaker cash flow is the buildup of working capital.
Bengt Lejdström: We have some strong seasonal companies in the group, our Finnish Hilltip with our snowplows and salt spreaders. They are, of course, building inventory in order to sell as much as possible now when they are in season. They also have 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. 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, the difference is that then we also consider the CapEx spending and the leasing amortizations.
Bengt Lejdström: That free cash flow is 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. But 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. So we are slightly above our level of roughly 3% of sales in CapEx. So far this year, we are up 3.8%. So a little bit high, but still it has its reasons.
Bengt Lejdström: 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 Q4 last year was pretty high, and we still benefit from that. So 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. But 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.
Bengt Lejdström: 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, but it is only one quarter. So 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. But we put the full debt in this equation. But 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.
Bengt Lejdström: To 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 ROC, which is the return on capital employed in the companies, so that's excluding any goodwill or other material assets at the acquisitions, 60%. Same reason there why that's a little bit lower. Then finally at the bottom, you have the total capital employed and the return on that one. That's 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.
Bengt Lejdström: That's 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, then first of all, you could say that as it fields in this chart, that the earn-out debts, the provisions for future earn-out payments have lowered, both because we're 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 the shorter term than 5 years, which we typically have had, but now perhaps more 3 or 4, 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.
Bengt Lejdström: 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 from the bond, SEK 550 million. 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.
Bengt Lejdström: 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. All right. Then I hand back to Anders.
Anders Mattson: Yeah. Thank you, Bengt. I will go through our business areas. Start with Supply Chain & Transportation. It has been a lot happening in the business area. It was a good momentum with 27% growth in net, 12% growth in adjusted EBITA. Several of our largest companies in the BA, including GAH, who is making the refrigeration, the transport refrigeration units, ELM, 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 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 in Hilltip. Hilltip has during the year entered into a new product segment for highway salt spreading equipment.
Anders Mattson: 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. That boosted the sales number in the quarter. This big order will continue to be delivered in Q4, but long term, we do not foresee to always include the truck as part of the equipment sale for these kind of 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. But the main reason is Mecno, it is our Italian company.
Anders Mattson: One part of the business model is to sell fully equipped train, including specific unique rail and tramways. These trains, they are big and complex, so it takes usually one year to build. The cost for these key components has increased significantly during the year. Unfortunately, we have not been able to charge that to the customer. So it has been affecting the margin a lot. But the company is, of course, learning from this, taking action to improve the situation for the future. But that is affecting the margin in the quarter. As Bengt also mentioned, we have had an inventory buildup, 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.
Anders Mattson: Certus, our company within the port automation, they have also increased inventory for future deliveries. 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 Q3. I am also glad to present that we have welcomed two new companies in the business area, A.U.T. and VALE Engineering during Q3. A.U.T. is a company based in the UK, annual revenue of approximately £7 million and a stable profitability. The company design and offer customized wheel and castor solutions for many different specifically 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 kind of customized specification and solutions.
Anders Mattson: They have a strong position in the UK, and they are primarily selling domestic. Another good thing about the company is 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 welcome into the group, also based in the UK, annual revenue of approximately £5 million and a good profitability. VALE, 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 UK and primarily they are servicing municipalities all around the UK. 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.
Anders Mattson: That is a different application what Hilltip sells today. That is a good thing as well. We are leaving Supply Chain & Transportation, coming into Energy & Electrification. They had a very strong development, or 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.
Anders Mattson: 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 a to the business customers. The decreased margin in the business area in Q3 compared to last year is mainly due to one company. Our Swedish company, Unipower, had a one-off project 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.
Anders Mattson: Auger is a specialist provider of drainage water main services, primarily towards insurance customers in the UK. As 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 profit 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 Q3 and onwards only will see growth, but we are in a much better situation now compared to one year ago, and 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.
Anders Mattson: They continue to deliver very strong results, even in Q3. They have done that for the full year. In Q3, 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 are doing good, so that is Medicvent. Our perimeter security for data center, but also for airports and other government building, 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.
Anders Mattson: We have companies with more soft 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 is important to mention that these high margins will not be sustainable in the long term, but for the full year now, it is looking strong. If you are looking at the return on capital employed in the business area, it is continued to be high as both margin and capital efficiency are managed in a very good way in the business area. Then we are 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 five acquisitions.
Anders Mattson: 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. We respect our leverage target. We want that to be below 3x 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 it is needed 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.
Anders Mattson: 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.
Anders Mattson: This year, 2026, we wanted to come back on the growth track. 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 9 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. We would like to open up for questions from the audience.
Operator: If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Simon Johnson from ABG Sundal Collier. Please go ahead.
Simon Johnson: Good morning, and thank you. 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?
Anders Mattson: Yep. The two specific reasons for the margin, as I described a little bit, Mecno, it will be continued for the year. They are actually performing at a decent level year to date, but still the margin will continue 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 & Transportation to be affected. Coming into next year, our aim is definitely to increase the margin 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 a new acquisition might not be about 20% in margin coming into the business area.
Simon Johnson: All right. And those acquired companies, are they contributing negative right now as well to margins, or do we more talk about future acquisitions having lower margins?
Anders Mattson: 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.
Simon Johnson: All 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? And what does that mean for Q4? Do you think that you will still offset the declines here with stronger Q4?
Bengt Lejdström: Yes, we definitely foresee that the cash flow will be better. Q4 is typically very strong because of these seasonal companies, them selling and getting paid, not least for their product. So that's 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, and let's see. Again, on a rolling 12-month basis, we aim to be somewhere around the 80-ish percent, a little bit up or down, and we are 81% right now. So that's really our goal, our aim, to stay in that level.
Bengt Lejdström: I could perhaps also mention that when you read our cash flow statement, it is 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, but because of the things I just mentioned.
Simon Johnson: 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?
Anders Mattson: Yeah, I think it is a relevant question. As Bengt said, that we are a little bit high on the CapEx. I think it is working quite good with our model when we are looking at all the 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 companies, 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 is a balance, of course, with potentially very strong growth opportunities.
Anders Mattson: But we would like to come down closer to 3%. That is 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 there, and we are working with the companies in regards to that. That is 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.
Simon Johnson: I see. Thank you for that. That is all for me. I get back into the queue.
Anders Mattson: Okay, thank you.
Operator: As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Steffen Knutsson from Redeye. Please go ahead.
Stefan Knutsson: 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 are not able to offset price increases or cost increases with price adjustments?
Anders Mattson: 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. But 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 1 year without a good indexation of cost in a specific project, that's not best in class. So of course, 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 material 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.
Anders Mattson: I would say the risk is quite small that we will experience these kind of situations going forward.
Stefan Knutsson: 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. But in order for you to reach the return on capital employed of 15%, how much do you think you will need to decrease your working capital to close in on that target?
Bengt Lejdström: Yeah. That's, of course, 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 20%. So we think absolutely we need to work on that and lower it to a lower level compared to sales, for sure. So 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. So 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.
Stefan Knutsson: Do you have any internal targets for the working capital in relation to sales?
Bengt Lejdström: As I said, around 20% is our aim. But we work individually with every company because they have different situations, of course, with our working capital, depending on if it is manufacturing or not, et cetera. But on a group level, that is a decent level to be at. So that is our long-term vision for that.
Stefan Knutsson: Okay. Very good. That was all for me.
Operator: There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Bengt Lejdström: Okay. Thank you for the questions here. If it is no more questions, then we thank you for listening. We look forward to see you after our Q4 report again then. We continue to work on our side on strengthening Sdiptech further. Thank you, everybody.
